Which of the three methods do you think Current Designs should use? Why? X V fx ABCD CD4 - Excel Tutorial H As you learned in the previous chapters, Current Designs has two main product lines - composite kayaks, which are handmade and very laborIntensive and rotomolded kayaks, which require less labor but employ more expensive equipment. Current Design's controller, Dlano Buswell, is now evaluating several different methods of assigning overhead to these products. It is important to ensure that costs are appropriately assigned to the company's products. At the same time, the system that is used must not be so complex that its costs are greater than its benefits. Dlane has decided to use the following activities and costs to evaluate the methods of assigning overhead Activities Designing new models Creating and testing prototypes Creating molds for kayaks Operating oven for the rotomolded kayaks Operating the vacuum line for the composite kayaks Supervising production employees Curing time (the time that is needed for the chemical processes to finish before the next step in the production process: many of these costs are related to the space required in the building) Total Cost $121,000 152.000 188,500 40,000 28,000 180,000 190.500 $900,000 25 As Dlane examines the data, she decides that the cost of operating the oven for the rotomoded kayaks and the cost of operating 26 the vacuum line for the composite kayaks can be directly assigned to each of these products lines and do not need to be allocated 27 With the other costs. 26 29 Instructions 30 For purpose of this analysis, assume that Current Designs uses $234,000 in direct labor costs to produce 1,000 composite kayaks 31 and $286,000 in direct labor costs to produce 4.000 rotomolded Kayaks each year. 32 (0) Ono method of allocating overhead would allocate the common costs to each product line by using a allocation basis such as the number of employees working on each type of kayak or the amount of factory space used for the production of each type of kayak. Dlone knows that about 60% of the area of the plant and 50% of the employees work on the corposite kayaks, and the remaining space 35 and other employees work on the rotomolded kayaks. Using this information and remembering that the cost of operating the oven 4 145 14: 4 49 PASTA PARA CD4 Mady Home Pagy LALOdstracoWU M Which of the three methods do you think Current Designs should use? Why? A B C D E F G H I (c) What amount of overhead should be assigned to each composite kayak and rotomolded kayak using the activity-based cos- P 1 Activity Cost Pools Design Prototypes Molds Supervision Curing time Estimated Overhead Value Value Value Value Value Estimated Use of Cost Drivers Value Value Value Value Value Activity- Based OH Rates 2 .7 model / prototype / mold employee day ? 2 12 Composite Rotomolded Activity Cost Pools Design Expected Uso of Drivers Value Overhead Rates Value Cost Assigned Expected Use of Drivers Value Overhead Rates Value Cost Assigned Prototypes RS 9 Value Value Value Value Value Molds Supervision Curing time Value Value Value Value Value Value Value Value Value Value Value Total amount allocated Directly Total Costa) Number of units(b) Cost assigned/unit (a) + (6) Value 116 117 118 119 120 121 122) 123 Value Which of the three mothods do you think Current Designs should uso? Why? F1 FALA TI FALLIT O na O File Home Insert Page Layout Formulas Data Review View Help DYMO Label QuickBooks 0122 Which of the three methods do you think Current Designs should use? Why? AA B C D 64 (a) Determine the total amount to be assigned to the composite kayak line and the rotomolded kayak line, and the amount to be assigned to each of the units in each of the units in each line. 65 66 Rotomolded Composite Value Value Value Value Directly assigned Remaining amount allocated 50% to each product line Total Number of units Cost assigned per unit Value Value 77(b) Determine the amount of overhead that should be assigned to each unit of each product using direct labor dollars as an allocation basis. in Value Overhead Rate Total OH costs() Direct labor cost ( D Composite Rotomolded OH rato (a) (b) M Value Value ? 87 Composite Value Rotomolded Value Directly assigned Remaining amount alocaled based on direct labor costs Total Number of units Cost assigned per unit Value Value 22 cod anytec AT91 P Type here to search PAP M W Q " 16]