The Doll Toy Company makes a variety of dolls at its operation in Paris.

Its manufacturing process is highly automated. A recently installed ABC system has four

activity centers:

Indirect Resource

Activity Center Cost Driver Cost per Driver Unit

Materials receiving and handling Kilograms of materials .80 per kg

Production setup Number of setups 55 per setup

Cutting, sewing, and assembly Number of units .50 per unit

Packing and shipping Number of orders 7 per order

Two dolls are called Mary and Mike. They require .10 and .20 kg of materials, respectively, at

a materials cost of .75 for Mary and 1.10 for Mike. One computer-controlled assembly line makes all

dolls. When a production run of a different doll is started, a setup procedure is required to reprogram

the computers and make other changes in the process. Normally, 550 Mary dolls are produced per

setup, but for Mike dolls, only 110 are produced per setup. Products are packed and shipped separately

so a request from a customer for, say, three different products is considered three different orders.

Suppose the Carson Toy Shop just placed an order for 165 Mary dolls and 110 Mike dolls.

1. Compute the cost of the products shipped to the Carson Toy Shop.

2. Suppose the products made for the Carson Toy Shop required Carson Toy Shop

to be printed on each doll. Because of the automated process, printing the letters takes no extra

time or materials, but it requires a special production setup for each product. Compute the cost of

the products shipped to the Carson Toy Shop with the printing.

3. Explain how the activity-based-costing system helps Doll Toy Company to measure costs of

individual products or orders better than a traditional system that allocates all non-materials costs

based on direct labor.