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Using the information and the calculation from the previous question. discuss the differences in the product costs of the standard and deluxe models under the
Using the information and the calculation from the previous question. discuss the differences in the product costs of the standard and deluxe models under the conventional costing approach and activity based costing [ABC] approach. [word limit max 40 lines]. bIIE WaterFilter Lid produces two models of water filters, the standard model and the deluxe model. Currently, the company uses conventional costing to estimate its manufacturing overhead at $80 per unit for both models based on direct labour hour. There are 25,000 units of standard model and 5000 units of deluxe model produced in the current period. Suspecting that conventional costing may not provide a reliable costing, the CFO implemented the alternative costing system, namely, Activity Based Costing (ABC) system, with following information provided. Cost driver consumption OVERHEAD Activity COST DRIVER Standard Deluxe COST machine setup 50,000 Number of setups 20 30 machining Machine hours 300,000 50,000 100,000 packing 200,000 Packing orders 20,000 30,000 Note that you should NOT use thousand or million dividers (i.e., commas or space), neither should you use dollar sign when providing your answers. Part 1 Using the information above, you are required to estimate the overhead costs for both standard and deluxe models using ABC. Standard Deluxe machine setup 20000 30000 machining 100000 200000 packing 80000 120000 TOTAL O/H 200000 350000 No. units 25000 5000 O/H per unit 8 70 Part 2 Assuming the prices of the standard and deluxe models and prime costs (i.e., direct materials and labor costs) are given below, you are required to (1) provide the conventional manufacturing overhead per unit, (2) the profit per unit achieved using conventional costing system, and (3) the profit per unit achieved using ABC system. Standard Deluxe Selling Price 320 610 Prime cost per unit 185 230 Conventional O/H Cost per unit 7.33 73.33 Profit per unit using Conventional Costing 127.67 306.67 Profit per unit using ABC 127 310
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