Babytime, Inc., manufactures two products, Piglets and Rattles. Piglets are the

Question

Babytime, Inc., manufactures two products, Piglets and Rattles. Piglets are the more complex of the two products, requiring more direct labor time and more machine time per unit than Rattles. Manufacturing overhead is currently assigned to the products on the basis of direct labor hours. The company has gathered some activity information and is interested in the differences between its present costing method and activity-based costing. All overhead costs should be allocated to the products. The overhead cost pools and activity drivers are as follows: Activity Pool Total Driver Usage Costs Setup Materials purchasing Machining/fabricating $258,000 107,000 139,000 $504,000 3,400 setups 2,930 purchase orders 27,800 machine hours Total overhead costs Other product information is as follows Rattles Piglets Number of units produced Direct materials cost Direct labor cost Direct labor hours Setups Purchase orders Machine hours 45,000 10,300 $30.00 per unit $14.00 per unit 21,000 $15.00 per unit $5.25 per unit 34,000 600 2,290 8,100 2,900 690 19,900 The managers at Babytime, Inc., were surprised that the activities associated with the production of Piglets were more extensive than they had imagined. They wondered if anything could be done to reduce the cost of producing Piglets.

Explanation / Answer

Rattles:
Setups=600/45000=0.013
materials purchasing=2290/45000=0.051
Machining/fabricating=8100/45000=0180

Piglets:
Setups=2900/10300=0.282
materials purchasing=690/10300=0.067
Machining/fabricating=19900/10300=1.932

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