Wet Ride Inc. manufactures and distributes three types of water skis: beginner, intermediate, and advanced. Production is highly automated for the beginner model, whereas the intermediate and advanced models require increasing degrees of labour, depending on the shaping and finishing processes. Wet Ride applies all indirect costs to production using a single predetermined overhead (OH) rate based on direct labour hours (DLH).

Management estimates that 30,000 direct labour hours will be used in the upcoming year, at a rate of $14 per hour.

Assume that the following activity took place in the first month of the new year:

A consultant recently suggested that Wet Ride switch to an activity-based costing system, and assembled the following information:

Instructions
(a) Calculate the production costs for each product in the first month of the upcoming year, using direct labour hours as the allocation base. (Round calculations to the nearest cent.)
(b) Calculate the production costs for each product in the first month of the upcoming year, using activity-based costing. (Round calculations to the nearest cent.)
(c) Compare your answers in parts (a) and (b). Is the overhead charged to each product the same under each method? Explain.

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Beginner Intermediate Advanced Number of units produced20,000 $20,800 500 8,000 $13,000 1,000 4 3,000 $8,000 2,000 Direct material costs Direct labour hours Number of orders Number of production runs Kilograms of material used Machine hours Number of inspections Number of units shipped 8,000 1,200 3,200 300 1,500 200 18,000 7,500 2,500 Recommended Cost Drivers Number of orders Kilograms of materials used Estimated OH Cost Activities Order processing Materials handlin Machine depreciation Cost Drivers 100 orders 120,000 kilograms $ 60,000 600,000 and maintenance Quality control Machine hours Number of inspections 420,000 120,000 $1,200,000 20,000 hours 40 inspections