Homework: chapter 5 HW Soore: 0 of 30 pts E5-26 (similar to) 44o6 (0 complete) H
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Homework: chapter 5 HW Soore: 0 of 30 pts E5-26 (similar to) 44o6 (0 complete) Hw Score: 0%, 0 of 125 pts Delightlul Doors, Inc, produces two types of doon, interior and or The company's simple costing system has two dinect cont categories (matorials and labor) and one indrect cost pool. The simple oostng syom alocates ndinet cos on he basis of machine-hours. Recently, the owners ofDelightu Doons have been concemed about a dedine in the maket share for their interior dooms, nuailyr: eormation relasted to Deiged b recent year follows: mo II (Cidk the loon to view the production dala) (Cick tre loon to viow additional information.) Read the reauire Belore caleulating the cost of an intericer and exterior door, begin by calouleting the overhead rate under the simple costing system Fest selet the formula, ren enter the applicable amounts and caloulate the rata (Round your answer to he nearest cent Abbreviations used bgtbudgeted, gyquantty) Budgeted overead ae Data Table nterlor Exterior Units sold Selling price Direct malerial cost par unt Drect mandaang labor cost per hor Dredt mrdactuing labor hours per unt Production runs Material moves 155 255 1. Caoulate the cost of an interior door and an exderiar door under the exising 2. Caloulate the cost of an interior door and an exterior door under an . Compare the costs of the doors in requirements 1 and 2 Why do the siple 4. How mighd Delightul Doors, Inc, use the new co $ t2 12 simple costing system activity based costing syslem and acivity-bened costing sytems differ in the cost of an interior and exterior door? information from is Machine hours Number of inspections montr actvertased oostng system to a ouss . decing market share Choose from Print Done Clear All Print Done 14 ptsExplanation / Answer
Answer 1. Calculation of Manufacturing Overhead Production scheduling 98,800.00 Material Handling 41,650.00 Machine Setup 22,050.00 Assembly 60,000.00 Inspection 18,000.00 Marketing - 3% X (3300 Units X $155 + 1900 Units X $255) 29,880.00 Total MOH 270,380.00 Predetermined Overhead Rate = $270,380 (MOH) / 10,000 Mach Hrs Predetermined Overhead Rate = $27.038 per Mach Hrs. Calculation of Cost per Unit Under Simple Costing System Interior Exterior Units Sold 3,300 1,900 Direct Materials 165,000.00 152,000.00 (3300 Nos X $50) (1900 Nos X $80) Direct Labor 63,360.00 51,840.00 (3300 Nos X $12 X 1.60 DLH) (1900 Nos X $12 X 2.40 DLH) Indirect MOH 162,228.00 108,152.00 (6,000 Hrs X $27.038) (4000 Hrs X $27.038) Total Cost 390,588.00 311,992.00 Cost per Unit 118.36 164.21 Answer 2. Activity Based Costing System Activity Overhead Cost Driver Quantity Allocation Rate Production scheduling 98,800 130 Production Run 760 Per Production Run Material Handling 41,650 238 Material Moves 175 Per Material Moves Machine Setup 22,050 175 Machine Setups 126 Per Machine Setups Assembly 60,000 10,000 Machine Hours 6 Per Machine Hours Inspection 18,000 400 Inspections 45 Per Inspections Marketing 29,880 Selling Price 3% per $ of sales Total 270,380 Calculation of Overhead Under ABC Costing Interior Exterior Total Production scheduling 30,400 68,400 98,800 Material Handling 12,950 28,700 41,650 Machine Setup 3,780 18,270 22,050 Assembly 36,000 24,000 60,000 Inspection 10,800 7,200 18,000 Marketing 15,345 14,535 29,880 Total 109,275 161,105 270,380 Calculation of Cost Per Unit Under ABC Costing Interior Exterior Units Sold 3,300 1,900 Direct Materials 165,000.00 152,000.00 (3300 Nos X $50) (1900 Nos X $80) Direct Labor 63,360.00 51,840.00 (3300 Nos X $12 X 1.60 DLH) (1900 Nos X $12 X 2.40 DLH) Indirect MOH 109,275.00 161,105.00 Total Cost 337,635.00 364,945.00 Cost per Unit 102.31 192.08 Answer 3. Interior Exterior Cost per Unit Simple Costing 118.36 164.21 Activity Based Costing 102.31 192.08 Difference 16.05 (27.87) Relative to the ABC system, the simple costing system overcosts interior doors and undercosts exterior doors. Under the simple costing system, the doors require a similar number of total machine hours (6,000 for interior and 4,000 for exterior), even though interior doors take fewer machine hours per unit. Under the simple costing system, the volume of the production of interior doors is driving the amount of overhead allocated to that product. The ABC study reveals that each exterior door requires more production runs, material moves, and setups. This is reflected in the higher indirect costs allocated to exterior doors in the ABC system. Answer 4. Delightful Doors, Inc. can use the information revealed by the ABC system to change its pricing based on the ABC costs. Under the simple system, Open Doors was making an operating margin of 23.64% on each interior door (($155 – $118.36) / $155) and 35.61% on each exterior door (($255 – $164.21) / $255). But, the ABC system reveals that it is actually making an operating margin of about 33.99% (($155 – $102.31) / $155) on each interior door and about 24.68% (($255 – $192.08) / $255) on each exterior door. Open Doors, Inc. should consider decreasing the price of its interior doors to be more competitive. Open Doors should also consider increasing the price of its exterior doors, depending on the competition it faces in this market. Open Doors can also use the ABC information to improve its own operations. It could examine each of the indirect cost categories and analyze whether it would be possible to deliver the same level of service, but consume fewer indirect resources, or find a way to reduce the per-unit-cost-driver cost of some of those indirect resources. Making these operational improvements can help Open Doors to reduce costs, become more competitive, and reduce prices to gain further market share while increasing its profits.
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