Question
Question 1: (35Marks) Long Ave Inc. manufactures two products, Standard and Deluxe. Manufacturing overhead costs consist of: Activity Overhead Cost Setting Up Machines $245,000 Machine
Question 1: (35Marks)
Long Ave Inc. manufactures two products, Standard and Deluxe. Manufacturing overhead costs consist of:
Activity | Overhead Cost |
Setting Up Machines | $245,000 |
Machine Fabrication | $540,000 |
Inspecting | $480,000 |
Shipping | $775,000 |
Purchasing | $340,000 |
Information on the two products is as follows:
Cost Driver | Standard | Deluxe |
Direct Labour Hours | 350,000 | 148,000 |
Machine Setups | 285 | 420 |
Machine Hours | 33900 | 44500 |
Inspections | 350 | 290 |
Parts Shipped | 6750 | 8550 |
Purchasing Orders | 450 | 375 |
Currently, the controller uses a plant-wide overhead rate based on direct labour hours to assign overhead to the Standard and Deluxe products. The president has heard of activity-based costing and wants to see how the results would differ if this system were used.
Required:
1. Assign the total manufacturing overhead costs to the two products using the current plant-wide method.
2. Assign the total manufacturing overhead costs to the two products using activity-based costing (ABC).
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