Q2: Whitestone Company produces two subassemblies, JR-14 and RM-13, used in manufacturing trucks. The company is currently using an absorption costing system that applies overhead based on direct labor hours. The budget for the current year ending December 31, 20x1, is as follows: Total 10000 3900000 WHITESTONE COMPANY Budgeted Statement of Gross Margin for 20x1 JR-14 RM-13 Sales in units 5000 5000 Sales revenue 1700000 2200000 Cost of Goods manufactured and sold: Beginning finished goods inventory 240000 300000 Add: Direct material 1000000 1750000 Direct Labor 185185 92593 Applied manufacturing overhead 544025 272013 Cost of Goods availabe for sale 1969210 2414606 540000 2750000 277778 816038 4383816 less: Ending finished goods inventory 240000 300000 540000 Cost of Goods Sold 1729210 2114606 3843816 Gross Margin -29210 85394 56184 * Total manufacturing overhead (applied on the basis of direct labor hours) 1 Machining Assembly Material Handling Inspection Total 424528 216981 56604 117925 816038 Mark Ward, Whitestone's president, has been reading about a product-costing method called activity-based costing. Ward is convinced that activity-based costing will cast a new light on future profits. As a result, Brian Walters, Whitestone's director of cost management, has accumulated cost pool information for this year shown on the following chart. This information is based on a product mix of 5,000 units of JR-14 and 5,000 units of RM-13. Cost Pool Information for 2011 Cost Pool Activity JR-14 RM-13 Direct Labor Direct labor hours 10000 Machining Machine hours 15000 30000 Assembly Assembly houts 6000 $500 Material Handling Number of parts 10 Inspection Inspection houts 5000 7500 5000 5 Material Handling Number of parts 5 10 Inspection Inspection hours 5000 7500 In addition, the following information is projected for the next calendar year, 20x2. JR-14 RM-13 Beginning inventory, finished goods (in units) 800 600 Ending inventory, finished goods (in units) 700 700 Sales in units 5100 4900 On January 1, 20x2, Whitestone is planning to increase the prices of JR-14 to $355 und RM- 13 to $455. Material costs are not expected to increase in 20x2, but direct labor will increase by 8 percent, and all manufacturing overhead costs will increase by 6 percent. Due to the nature of the manufacturing process, the company does not have any beginning or ending work-in- process inventories, Whitestone uses a just-in-time inventory system and has materials delivered to the production facility directly from the vendors. The raw material inventory at both the beginning and the end of the month is immaterial and can be ignored for the purposes of a budgeted income statement. The company uses the first-in, first-out (FIFO) inventory method Required: 1. Explain how activity-based costing differs from traditional product-costing methods. 2. 3. Using activity-based costing, calculate the total cost in 20x2 Pr the following activity cost pools: machining, assembly, material handling, and inspection (Round to the nearest dollar) Then, calculate the pool rate per unit of the appropriate cost driver for each of the four activities. (Hint: Refer to Exhibit 5-6, regarding calculation of the pool rate.) Prepare a table showing for each product line the estimated 20x2 cost for each of the following cost elements: direct material, direct labor, machining, assembly, material handling, and inspection (Round to the nearest dollar) Prepare a budgeted statement showing the gross margin for Whitestone 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. (Round each amount in the statement to the nearest dollar) 4
