Question
MotoMover makes three models of motorized skateboards. At present, all indirect costs are applied to production using a single predetermined overhead (OH) rate based on
MotoMover makes three models of motorized skateboards. At present, all indirect costs are applied to production using a single predetermined overhead (OH) rate based on direct labour-hours. Management would like you to provide an analysis of the costs of manufacture of the three models that compares the present approach to costing with the ABC approach to costing. Management is not confident that its products are priced appropriately relative to its competitors. The following information has been assembled regarding the activity cost pools and cost drivers. |
Activity | Recommended Activity Measure | Estimated Overhead Cost | Annual Expected Volume of Activity Measure | |||
Order processing | Number of orders | $ | 210,000 | 190 | orders | |
Materials handling | Materials used (kilograms) | 517,720 | 122,800 | kilograms | ||
Machine depreciation and maintenance | Machine-hours | 324,500 | 17,100 | hours | ||
Quality control | Number of inspections | 76,000 | 50 | inspections | ||
$ | 1,128,220 | |||||
In addition, management estimates that 40,000 DLHs will be used in the upcoming year, at a rate of $12 per hour. Assume that the following activity took place in the first month of the upcoming year: |
Economy | Deluxe | Supreme | |||||||
Number of units produced | 27,000 | 10,000 | 4,000 | ||||||
Direct materials costs | $ | 27,880 | $ | 19,600 | $ | 13,000 | |||
Direct labour-hours | 650 | 1,225 | 2,100 | ||||||
Number of orders | 6 | 4 | 3 | ||||||
Number of production runs | 2 | 2 | 3 | ||||||
Kilograms of materials used | 10,000 | 4,600 | 2,500 | ||||||
Machine-hours | 1,520 | 540 | 400 | ||||||
Number of inspections | 3 | 3 | 3 | ||||||
Number of units shipped | 20,000 | 8,750 | 2,750 | ||||||
Required: |
1. | Compute the production cost for each product in the first month of the upcoming year, using DLHs as the allocation base. (Round your intermediate calculations to nearest cent.) Economy Deluxe Supreme |
Direct material Direct Labour Overhead Total production cost |
2. | Compute the production cost for each product in the first month of the upcoming year, using ABC. (Round your intermediate calculations to nearest cent.) | |||
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