LAB #4 CHAPTER 4 Activity Based Costing OBJECTIVE: Assign indirect costs to prod
ID: 2342409 • Letter: L
Question
LAB #4
CHAPTER 4
Activity Based Costing
OBJECTIVE: Assign indirect costs to products using activity based costing and compare results to indirect costs assigned to products using traditional volume-based costing
Valley View Trailmasters makes two types of tents for mountain camping, the Explorer and the Climber. Data concerning the two product lines is presented in the table below:
EXPLORER
CLIMBER
Sales price per unit
$390
$615
Direct materials per unit
$92
$115
Direct labor per unit
$51
$75
Estimated annual production
4,000 units
9,000 units
The company has always employed a tradition costing system in which manufacturing overhead is applied to units based on direct labor hours. Estimated data concerning manufacturing overhead and direct labor hours for the upcoming year appear below:
Estimated total manufacturing overhead $484,746
Estimated total machine hours 1,000
The company is considering replacing its traditional costing system with an activity based costing system that would assign its indirect product costs to four activity cost pools. Information about the amount assigned to these cost pools, the identified cost driver for each and usage of the cost drivers by the two product lines is presented in the following table:
ACTIVITY
TOTAL COST
COST DRIVER
TOTAL
EXPLORER
CLIMBER
Machine maintenance
$78,840
Machine hours
1,000
350
650
Batch setups
$136,364
Setups
146
60
86
Quality control
$163,020
Inspections
1,650
975
675
Technical support
$106,522
Technical support calls
964
352
612
Total manufacturing overhead cost
$484,746
INSTRUCTIONS: Use Excel formulas to calculate the following amounts in the spaces provided on your template.
1. Calculate the predetermined overhead rate using the traditional volume-based costing system.
2. Calculate the total amount of overhead cost that would be assigned to each product line under the company’s traditional costing system.
3. Calculate the gross margin per unit for each product line using traditional volume-based costing.
4. Calculate the activity rate for each cost pool using activity-based costing.
5. Calculate the total amount of overhead cost that would be assigned to each product line using activity-based costing.
6. Calculate the gross margin per unit for each product line under the proposed activity based costing system.
EXPLORER
CLIMBER
Sales price per unit
$390
$615
Direct materials per unit
$92
$115
Direct labor per unit
$51
$75
Estimated annual production
4,000 units
9,000 units
Sales prie per it Quality control $106.522 Extimatod alproductios Evtimatod dotal mafactering overad Extireated total machine bours: Is 484.746 ing traditocal Cakelate te total aret ofoverbead tat woeld be awigedt ning traditiotal volume-based co. cach prodect line EXPLORER CLIMBER 3 Cakelatk tbe zro argis perit r each prodect li ig traditional voleme-baed tirg 4 Calculatc the activity rat·for each cost pool "ing activity-based coniu 5 Cakelatk te total at ofoverbead tat wold be aied to cach prodect lie evirg activity baed otirg EXPLOR CLIMBER 6. Calculat·ths gross margin per unithr each product lies using acti, ity-based coding CLIMBERExplanation / Answer
Req 1. Pre-determined OH rate per MH: Estimated Manufacturing OH 484746 Divide: Estimated MH 1000 OH rate per MH 484.746 Req 2. Explorer Climber Machine hours 350 650 OH rate per MH 484.746 484.746 Oh assigned 169661 315085 Req3. Gross Margin: Explorer Climber Sales revenue 1560000 5535000 Less: Cost Direct material 368000 1035000 Direct labur 204000 675000 OH 169661 315085 Gross margin 818339 3509915 Req 4. STATEMENT SHOWING ACTIVITY RATE OF ACTIVITY POOL Activity Total Expected Activity ACTIVITY COST POOL Measures Overheads Activity Rate Machine Maintenance MH 78,840 1,000 78.84 Batch setups Setups 136,364 146 934.00 Quality control Inspections 163,020 1,650 98.80 Technical support Support calls 106,522 964 110.50 Req 5. Overheads assigned: Explorer Climber Activity Rate Activity OH Activity OH Machine Maintenance 78.84 350 27594 650 51246 Batch setups 934 60 56040 86 80324 Quality control 98.8 975 96330 675 66690 Technical support 110.5 352 38896 612 67626 Total Overheads 218860 265886 Req 6. Gross Margin: Explorer Climber Sales revenue 1560000 5535000 Less: Cost Direct material 368000 1035000 Direct labur 204000 675000 OH 218860 265886 Gross margin 769140 3559114
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