Problem 1 36 Points Comfort Cubs produces small stuffed bears. Comfort produces two types of bears: a brown model and a golden model. The golden model has a better material, and is twice as labor intensive. It takes 1 direct labor hour to make a golden but only .5 direct labor hours for the brown model. At the beginning of the year, the following data were prepared by the managerial accountants for this operation: Expected Quantity to Produce Brown 100,000 bears Golden 20,000 bears Direct Material Cost Per Bear Direct Labor Cost Per Bear $9 $ $ 2 5 $ 10 Total Activity Center (Cost Driver) Engineering Support (Engineer Hours) Purchasing (Number of Orders) Maintenance (Machine Hours Used) Bear Processing (Computer Hours) 3,000 1,500 2,000 2,000 9,000 200 6,000 3,525 12.000 1.700 J003 5525 Overhead costs associated with activity centers are reported as: Activity Center Engineering Support Bear Processing Purchasing Materials Maintaining Equipment Overhead Costs $ 120,000 $ 110,500 $ 25,500 $ 24,000 Requirements: $ 280,000 1. 2. Calculate the cost to produce each type of bear using direct labor hours as basis to allocate overhead costs under a traditional system. Calculate the cost to produce each type of bear using activity-based- costing. Explain the difference in the bear costs under the two different accounting systems. Use maintenance center to demonstrate the economies of scale principle recognized by the ABC system. Use the engineering support center to demonstrate the consistent allocation of resource costs by the ABC system. Problem 1 36 Points Comfort Cubs produces small stuffed bears. Comfort produces two types of bears: a brown model and a golden model. The golden model has a better material, and is twice as labor intensive. It takes 1 direct labor hour to make a golden but only .5 direct labor hours for the brown model. At the beginning of the year, the following data were prepared by the managerial accountants for this operation: Expected Quantity to Produce Brown 100,000 bears Golden 20,000 bears Direct Material Cost Per Bear Direct Labor Cost Per Bear $9 $ $ 2 5 $ 10 Total Activity Center (Cost Driver) Engineering Support (Engineer Hours) Purchasing (Number of Orders) Maintenance (Machine Hours Used) Bear Processing (Computer Hours) 3,000 1,500 2,000 2,000 9,000 200 6,000 3,525 12.000 1.700 J003 5525 Overhead costs associated with activity centers are reported as: Activity Center Engineering Support Bear Processing Purchasing Materials Maintaining Equipment Overhead Costs $ 120,000 $ 110,500 $ 25,500 $ 24,000 Requirements: $ 280,000 1. 2. Calculate the cost to produce each type of bear using direct labor hours as basis to allocate overhead costs under a traditional system. Calculate the cost to produce each type of bear using activity-based- costing. Explain the difference in the bear costs under the two different accounting systems. Use maintenance center to demonstrate the economies of scale principle recognized by the ABC system. Use the engineering support center to demonstrate the consistent allocation of resource costs by the ABC system
