Part Il: Costing \& Cost Flows/Inventory ( 25 points) Lopez Company produces two subassemblies, JR-14 and RM-13, used in manufacturing trucks. The company is currently using the traditional costing system that applies overhead based on DL hours. The budget for the current year ended December 31, 2021 is as follows: *Total manufacturing overhead (applied on the basis of direct-labor hours): Ben Affleck, Lopez Co's president has been reading about activity-based costing. Affleck is convinced that ABC will cast a new light on future profits. As a result, Alex Rodriguez, Lopez Co's director of cost management has accumulated cost pool information for this year shown on the following chart. The information is based on a product mix of 5,000 units of JR-14 and 5000 units of RM-13. In addition, the following information is projected for the next calendar year, 202. On January 1, 2022 Lopez Co, is planning to increase the prices of JR-14 to $355 and RM-13 to $455. Material cost are not expected to increase in 2022 , but DL will increase by 8% and all MOH will increase by 6%. Due to the nature of the manufacturing process, the company does not have any beginning or ending work in process inventories. Required: 1. Explain how activity-based costing differs from traditional product costing methods. 2. Using activity-based costing, calculate the total cost in 202 for the following activity cost pools: machining, assembly, material handling, and inspection. 3. Calculate the pool rate / POH per unit of the appropriate cost driver for each of the four activities 4. Prepare a table showing for each product line the estimated 202 cost for each of the following cost elements: direct material, direct labor, machining, assembly, material handling and inspection. 5. Complete the budgeted statement showing the gross margin for Lopez Company for 20x2, using activity-based costing. The statement should show each product and a total for the company. Be sure to include detailed calculations for the cost of goods manufactured and sold. (HINT: I have started the format for you) LOPEZ COMPANY BUDGETED STATEMENT OF GROSS MARGIN FOR 202 Part Il: Costing \& Cost Flows/Inventory ( 25 points) Lopez Company produces two subassemblies, JR-14 and RM-13, used in manufacturing trucks. The company is currently using the traditional costing system that applies overhead based on DL hours. The budget for the current year ended December 31, 2021 is as follows: *Total manufacturing overhead (applied on the basis of direct-labor hours): Ben Affleck, Lopez Co's president has been reading about activity-based costing. Affleck is convinced that ABC will cast a new light on future profits. As a result, Alex Rodriguez, Lopez Co's director of cost management has accumulated cost pool information for this year shown on the following chart. The information is based on a product mix of 5,000 units of JR-14 and 5000 units of RM-13. In addition, the following information is projected for the next calendar year, 202. On January 1, 2022 Lopez Co, is planning to increase the prices of JR-14 to $355 and RM-13 to $455. Material cost are not expected to increase in 2022 , but DL will increase by 8% and all MOH will increase by 6%. Due to the nature of the manufacturing process, the company does not have any beginning or ending work in process inventories. Required: 1. Explain how activity-based costing differs from traditional product costing methods. 2. Using activity-based costing, calculate the total cost in 202 for the following activity cost pools: machining, assembly, material handling, and inspection. 3. Calculate the pool rate / POH per unit of the appropriate cost driver for each of the four activities 4. Prepare a table showing for each product line the estimated 202 cost for each of the following cost elements: direct material, direct labor, machining, assembly, material handling and inspection. 5. Complete the budgeted statement showing the gross margin for Lopez Company for 20x2, using activity-based costing. The statement should show each product and a total for the company. Be sure to include detailed calculations for the cost of goods manufactured and sold. (HINT: I have started the format for you) LOPEZ COMPANY BUDGETED STATEMENT OF GROSS MARGIN FOR 202
