DurableDurable Doors, Inc., produces two types of doors, interior and exterior.
ID: 2546398 • Letter: D
Question
DurableDurable
Doors, Inc., produces two types of doors, interior and exterior. The company's simple costing system has two direct cost categories (materials and labor) and one indirect cost pool. The simple costing system allocates indirect costs on the basis of machine-hours. Recently, the owners of
DurableDurable
Doors have been concerned about a decline in the market share for their interior doors, usually their biggest seller. Information related to
DurableDurable
Doors production for the most recent year follows:
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Interior
Exterior
Units sold
3,200
1,800
Selling price
$145
$245
Direct material cost per unit
$60
$70
Direct manufacturing labor cost per hour
$11
$11
Direct manufacturing labor-hours per unit
1.40
2.35
Production runs
35
75
Material moves
72
162
Machine setups
50
145
Machine-hours
5,500
4,500
Number of inspections
220
140
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The owners have heard of other companies in the industry that are now using anactivity-based costing system and are curious how an ABC system would affect their product costing decisions. After analyzing the indirect cost pool for
DurableDurable
Doors, the owners identify six activities as generating indirect costs: production scheduling, material handling, machinesetup, assembly, inspection, and marketing.
DurableDurable
Doors collected the following data related to the indirect cost activities:
Activity
Activity Cost
Activity Cost Driver
Production scheduling
$86,900
Production runs
Material handling
$41,184
Material moves
Machine setup
$25,350
Machine setups
Assembly
$70,000
Machine-hours
Inspection
$18,000
Number of inspections
Marketing costs were determined to be
2 %2%
of the sales revenue for each type of door.
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Requirement 1. Calculate the cost of an interior door and an exterior door under the existing simple costing system.
Before calculating the cost of an interior and exterior door, begin by calculating the overhead rate under the simple costing system. First select the formula, then enter the applicable amounts and calculate the rate. (Round your answer to the nearest cent. Abbreviations used: bgt. = budgeted, qty = quantity.)
Budgeted overhead rate
Bgt. total costs in indirect cost pool
/
Bgt. total qty of cost allocation base
=
Simple costing system
$259,534
/
10,000
=
$25.95
per machine-hour
Now calculate the cost of an interior door and an exterior door under the existing simple costing system. Start by calculating total costs and then calculate the cost per unit for each product. (Round interim calculations to the nearest cent and your final answers to the nearest whole dollar.)
Simple costing system
Interior
Direct materials cost
$192,000
Direct manufacturing labor cost
49,280
Indirect cost allocated
142,725
Total costs
$384,005
Exterior
$126,000
46,530
116,775
$289,305
Now calculate the cost per unit for each product under the simple costing system. (Round your answers to the nearest cent.)
Simple costing system
Interior
Exterior
Total cost per unit
$120.00
$160.73
Requirement 2. Calculate the cost of an interior door and an exterior door under an activity-based costing system.
Begin by calculating the ABC allocation rate for each activity. First select the formula, then enter the applicable amounts and calculate the rates. (Round your answers to the nearest cent. Abbreviations used: Bgt. = Budgeted, mach. = machine, mat. = material, prod. = production, sch. = scheduling, qty. = quantity.)
Bgt. cost of activity
/
Bgt. total qty. of cost allocation base
=
ABC allocation rate
Prod. sch.
$86,900
/
110
=
$790.00
per prod. run
Mat. handling
$41,184
/
234
=
$176.00
per mat. move
Mach. setup
$25,350
/
195
=
$130.00
per mach. setup
Assembly
$70,000
/
10,000
=
$7.00
per mach. hour
Inspection
$18,000
/
$360
=
$50.00
per inspection
Now calculate the cost of an interior door and an exterior door under an activity-based costing system. (Round interim calculations to the nearest cent and your final answers to the nearest whole dollar.)
ABC costing system
Interior Exterior
Direct materials cost
Direct manufacturing labor cost
Indirect costs allocated:
Production scheduling
Materials handling
Machine setup
Assembly
Inspection
Marketing
Total costs
Activity
Activity Cost
Activity Cost Driver
Production scheduling
$86,900
Production runs
Material handling
$41,184
Material moves
Machine setup
$25,350
Machine setups
Assembly
$70,000
Machine-hours
Inspection
$18,000
Number of inspections
Explanation / Answer
Now calculate the cost of an interior door and an exterior door under an activity-based costing system
Interior Exterior Direct materials cost 192000 126000 Direct manufacturing labor cost 49280 46530 Indirect costs allocated: Production scheduling 27650 59250 Materials handling 12672 28512 Machine setup 6500 18850 Assembly 38500 31500 Inspection 11000 7000 Marketing 9280 8820 Total costs 346822 326462Related Questions
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