Q3 please

Discuss the implications of using operating capacity as the cost driver rather than the

expected units sold when allocating fixed overhead costs.

Once the product categories, the number of prints at operating capacity was used a cost driver. Note that operating capacity was used instead of expected units The overhead costs related to website optimization are relatively fred be the employees are salaried. If a fined cost is allocated using a value that from period to period (like expected sales, then the cost per unit will vary period to period. When allocating fired costs it is better to use a base that mot vary as much, such as operating capacity. The advantage of using oper capacity as the base is that it keeps the fixed costs per unit stable over time. case 2 Cases for Management Decision Making Greetings The final activity is framing and matting. The expected overhead costs related to framing and matting are $123.900 None of this overhead cost should be allo cated to unframed prints. The costs related to framing and matting are relatively fixed because the costs relate to equipment and other costs that do not vary with sales volume. As a consequence, like website optimization, you chose to hase the cost driver on levels at operating capacity, rather than at the expected sales level. The cost driver is the number of components. Steel-framed prints have two com ponents (the print and frame), and wood-framed prints have three components (the print, mat, and frame). The total components at operating capacity would be steel frame 32,000 (or 16,000 X 2) and wood frame 27,000 for 9.000 x 3,000) Illustration CA Information for Activity Framing and mattingcent equipment, insurance, rent and supervisory labor) Cost Driver Number of components at capacity Estimated Expected of Overhead Cost Driver 5123900 Print and frame 16.000X2 32.000 components al capacity Print, mat and frame 9.000 3 - 27.000 capacity Total = 59,000 cents To summarize the overhead costs and cost driversted for each product are expected to be Illustration CA Summary of and cont de Steel Wood Framed Framed No with Overhead Unframed Matting Matting Total Cost 30,000 15.000 7,000 102.000 53.00 Cost Activity Driver 1. Picking Number of prints prints 2. Inventory Number of selection and components management 3. Website Number of optimization prints capacity 4. Framing and Number of matting components al capacity 80,000 100,000 30.000 21.000 131,000 91,700 100.000 25.800 16.000 9.000 25.000 103.00 32,000 27.000 59.000 125.00 $375.300 Instructions Answer the following questions 1. Identify the reasons why an activity-based coming stem may be appropriate for Wall Decor 2. Compute the activity hased head rates for each of the fourth 3. Discuss the implications of using operating capacity as the cont driver rather than the expected units sold when allocating fixed overhead costs