Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Plz show the process 5-34 First-stage allocation, time-driven activity-based costing, manufacturing sector. Marshall's Devices uses activity-based costing to allocate overhead costs to customer orders for
Plz show the process
5-34 First-stage allocation, time-driven activity-based costing, manufacturing sector. Marshall's Devices uses activity-based costing to allocate overhead costs to customer orders for pricing purposes. Many customer orders are won through competitive bidding. Direct material and direct manufacturing labor costs are traced directly to each order. Marshall's Devices direct manufacturing labor rate is $25 per hour. The company reports the following yearly overhead costs: Wages and salaries $ 600,000 Depreciation 72,000 Rent 128,000 Other overhead 280,000 Total overhead costs $1,080,000 Marshall's Devices has established four activity cost pools: Budgeted Total Activity Activity Cost Pool Activity Measure for the Year Direct manufacturing labor Number of direct manufacturing 32,000 direct manufacturing support labor-hours labor-hours Order processing Number of customer orders 440 orders Design support Number of custom design-hours 2,500 custom design-hours Other Facility-sustaining costs allocated 32,000 direct manufacturing to orders based on direct labor-hours manufacturing labor-hours Some customer orders require more complex designs, while others need simple designs. Marshall estimates that it will do 100 complex designs during a year, which will each take 13 hours for a total of 1,300 design-hours. It estimates it will do 150 simple designs, which will each take 8 hours for a total of 1,200 design-hours. Paul Napoli, Marshall's Devices' controller, has prepared the following estimates for distribution of the over-head costs across the four activity cost pools: Wages Depreciation Rent Other Direct Manufacturing Labor Support 35% 20% 25% 25% Order Processing 30% 15% 30% 25% Design Support 25% 15% 15% 40% Other 10% 50% 30% 10% Total 100% 100% 100% 100% Order 277100 consists of six different metal products. Four products require a complex design and two require a simple design. Order 277100 requires $5,500 of direct materials and 100 direct manufacturing labor-hours. Required: 1. Allocate the overhead costs to each activity cost pool. Calculate the activity rate for each pool 2. Determine the cost of Order 277100. 3. How does activity-based costing enhance Marshall's Devices' ability to price its orders? Suppose Marshall's Devices used a traditional costing system to allocate all overhead costs to orders on the basis of direct manufacturing labor-hours. How might this have affected Marshall's Devices' pricing decisions? 4. When designing its activity-based costing system, Marshall uses time-driven activity- based costing (TDABC) system for its design department. What does this approach allow Marshall to do? How would the cost of Order 277100 have been different if Marshall has used the number of customer designs rather than the number of custom design-hours to allocate costs to different customer orders? Which cost driver do you prefer for design support? WhyStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started