Problem Statement CHAPTER 4 Topic(s): Activity-Based Costing Excel Functions and Tools: Copying Formulas; Cell-Referencing to other Worksheets' Using Sparklines As you learned in the previous chapters, Current Designs has two main product lines- composite kayaks, which are handmade and very labor-intensive, and rotomolded kayaks, which require less labor but employ more expensive equipment. Current Designs' controller, Diane Buswell, is now evaluating several different methods of assigning overhead to these products. It is important to ensure that costs are appropriately assigned to the company's products. At the same time, the system that is used must not be so complex that its costs are greater than its benefits. Diane has decided to use the following activities and costs to evaluate the methods of assigning overhead. Designing new models Creating and testing prototypes Creating molds for kayaks Operating oven for the rotomolded kayaks Operating the vacuum line for the composite kayaks Supervising production employees Curing time (the time that is needed for the chemical processes to finish before the next step in the production process; many of these costs are related to the space required in the building) Total www. As Diane examines the data, she decides that the cost of operating the oven for the rotomolded kayaks and the cost of operating the vacuum line for the composite kayaks can be directly assigned to each of these product lines and do not need to be allocated with the other costs. Required Use sheet tab Part 1. 1. For purposes of this analysis, assume that Current Designs uses $234,000 in direct labor costs to produce 1,000 composite kayaks and $286,000 in direct labor costs to produce 4,000 rotomolded kayaks each year. nociones se hond wakiomba NIM PAKKE each unit of each product line using this method (a) One method of allocating overhead would allocate the common costs to each product line by using an allocation basis such as the number of employees in working on each type of kayak or the amount of factory space used for the production of each type of kayak. Diane knows that about 50% of the area of the plant and 50% of the employees work on the composite kayaks, and the remaining space and other employees work on the rotomolded kayaks. Using this information, and remembering that the cost of operating the oven and vacuum line have been directly assigned, determine the total amount to be assigned to the composite kayak line and the rotomolded kayak line, and the amount to be assigned to each of the units in each line. (c) Activity-based costing requires a cost driver for each cost pool. Use the following information to assign the costs to the product lines using the activity-based costing approach Part 1 (b) Another method of allocating overhead is to use direct labor dollars as an allocation basis. Remembering that the costs of the oven and the vacuum line have been assigned directly to the product lines, allocate the remaining costs using direct labor dollars as the allocation basis. Then, determine the amount of overhead that should be assigned to each unit of each product line using this method. Activity Designing new models Creating and testing prototypes Creating molds for kayaks Supervising production employees Curing time (c) Activity-based costing requires a cost driver for each cost pool. Use the following information to assign the costs to the product lines using the activity-based costing CHOPE M Cost Driver Number of models Number of prototypes Driver Amount for Composite Rotomolded Kayaks Kayaks 6 Number of molds 12 12 Number of employees Number of days of curing time 15.000 What amount of overhead should be assigned to each composite kayak using this method? What amount of overhead should be assigned to each rotomolded kayak using this method? (d) Which of the three methods do you think Cument Designs should use? Why? WHAT-IF? 2. Perform what-if analysis to answer the following independent questions a. Suppose the number of prototypes of composite kayaks increases to 45 as a result of additional testing required by the American Boating Council. Create a column sparkine using the overhead costs assigned to each kayak model under activity-based costing with and without this change. Visually identify what effect this will have on the cost of each model of kayak. What occurs to the total costs of employee supervision? 2 1 12 2.000 e EWZ b. Suppose instead, that the estimated cost of creating and testing prototypes increased by $100,000. Determine the percentage change in the prototype cost allocations for each kayak model. Explain how the effect of this change in the unit cost of each model of kayak differs from the change in number of prototypes TAWOBENNDI 211 PM 1/2004 AF 13 14 15 Part 2 29-16: G7 17 18 19 20 21 23 ww 38 39 40 41 42 A ***** P A $121,100 152,000 188,500 40,000 28,000 180,000 190,400 $900.000 Designing new models Creating and testing prototypes Creating molds for kayaks *** Part 1 Sheet) The Sand Operating oven for the rotomolded kayaks Operating the vacuum line for the composite kayaks Supervising production employees Curing time (the time that is needed for the chemical processes to finish before the next step in the production process many of these costs are related to the space required in the building) Total L M 9 1 J Diane Buswell, is now evaluating several different methods of assigning overhead to these products. It is important to ensure that costs are appropriately assigned to the company's products. At the same time, the system that is used must not be so complex that its costs are greater than its benefits. Diane has decided to use the following activities and costs to evaluate the methods of assigning overhead 14 undig 10 2 $121,100 152.000 188.500 40,000 28.000 180.000 190 400 $800.000 As Diane examines the data, she decides that the cost of operating the oven for the rotomolded kayaks and the cost of operating the vacuum line for the composite kayaks can be directly assigned to each of these product lines and do not need to be allocated with the other costs. Pom: 2. 0 R 0-20 WOR AND C

Topictu): Metivity-Rmed C matibe bparkilines At you learned in the previous chapters. Current Desions has two main produch limescomposite hayak., whleh are hathdmade and very laboe-intenalve. and rotemolded kayaks, wbich require less labor but empley more expensive teulgment. Current Designs' conirolier, Diane Dusmell. is now evaluating oeveral different methods of assigning dverhead to these products. It ls lenportant to ensure that eosts are appropriabely asslgned to the company't productl. At the same time, the oyslem that is used must not be so complex that lis costs are greabee than Ans benctita. Diane hass decided to use the following activicies and costs to evaluate the methods of assigning guerhest. A. Dlane examines the data, whe decides that the cost of operating the oven for the rotemelded kayaks and the cost of operating the vacust line for the composite kayakil can be directly asigned to each of these product lines and do not need bo be allocated with the other costs. Requirted Wien nhest taly Plart 1 . 1. Foe parposes of this arabyia, asbume that Cument Designt uses $234.060 in darect iabor eosts to prosuce 1, 06g comporite kayaks and f206.600 in dircet labor costs to produch 4 000 rodomeded karyaks each rome. (2) One method of allocating overthed would aliocate the common costs to ewch product line by using an allocation basis much at the number of employees in working on tach type of kaysk or the amount cil factory sbace ubed for the producton of eacth thpe of kayak. Darie knows that about sow of the area of the plant and Sots of the employees work on the composite hayaks. and the remaining space and other employees work on the fotomoldad kayaks. Usimy this informapion, and remembering that the colt of operating the oven and vacuum line have been directly assigned. destrmine the botal amount to be assigned to the composite kayak line and the rolomolded kark line. and the artount 19 be assigned to each of the units in each line. Qb) Arecther method of alocating bvechitd is to use direct Labor dollars al an alocation basis. Pemembering that the coshs od the oven and the vaguum line have been assigned directly to the product lines, allocafe the temaining coats using drect labor dollars at the dilocation batis. Thon: deferime the amocnt of overtiold that should be kssigred to nach urit ol each product line using this method (c) Acthity-based costing requires a cost driver for each cost pool. Use the following indormation to assipn the costs to the product lines using the activity based costing