The Imagination Toy Company makes a variety of dolls at its operation in Munich. Its manufacturing process is highly automated. A recently installed ABC system has four activity centers: E: (Click the icon to view the activity center data.) Two dolls are called "Kit" and "Ruthie." They require 0.70 and 0.80 kg of materials, respectively, at a materials cost of 6.30 for Kit and 4.80 for Ruthie. 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, 500 Kit dolls are produced per setup, but for Ruthie dolls, only 200 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 gift shop at the Munich Toy Museum (Spielzeugmuseum)just placed an order for 210 Kit dolls and 70 Ruthie dolls. Read the requirements Requirement 1. Compute the cost of the products shipped to the Munich Toy Museum gift shop. (Round to two decimal places.) Kit Ruthie Dolls Dolls Unit costs: Direct materials 6.30 4.80 0.12 0.30 0.20 0.20 Production setup Cutting, sewing, and assembly Materials receiving and handling Total unit cost 0.42 0.48 7.04 5.78 x Number of units 210 70 Total cost of dolls 1,478.40 404.60 12.00 Packing and shipping 12.00 1,490.40 416.60 Total cost of order Requirement 2. Suppose the products made for the Munich Toy Museum gift shop required "Spielzeugmuseum" 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 Munich Toy Museum gift shop. (Round to two decimal places.) Kit Ruthie Dolls Dolls Unit costs: Direct materials Materials receiving and handling 6.30 0.42 4.80 0.48 0.20 Cutting, sewing, and assembly 0.20 Total unit cost 6.92 5.48 210 70 383.60 x Number of units Total cost of dolls Packing and shipping Production setup 1,453.20 12.00 60.00 12.00 60.00 1,525.20 455.60 Total cost of order Requirement 3. Explain how the activity-based-costing system helps Imagination 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. The activity-based costing system recognizes the behavior of the costs and allocates costs based on their causes, where a traditional cost system assumes that direct-labor costs drive indirect production costs. Because Imagination Toy Company has no category for direct labor, it is not a significant cost and is therefore unlikely to have a cause-effect relationship with the other costs. Therefore, Imagination Toy can better assess the costs of individual products and of special orders using the activity-based cost system. Activity Center Cost Driver Materials receiving and handling Kilograms of materials Production setup Number of setups Cutting, sewing, and assembly Number of units Packing and shipping Number of orders Cost per Driver Unit 0.60 per kg 60 per setup 0.20 per unit 12 per order
