ACCT 202 CASE #2 ACTIVITY BASED COSTING 25 Points Due: March 18TH at 11:59 pm Dooley Corporation makes two types of ladders; short and tall. Currently, Dooley allocates overhead to the products using a plantwide overhead rate using direct labor-hours as the activity base. A pricing consultant recently had recommended that Dooley use an Activity Based Cost system for allocating overhead and identified the below activities, cost drivers, estimated costs, and estimated cost driver units for the upcoming year: Activity Recommended Cost Driver Number of production runs $ 36,000 Estimated Cost Estimated Cost Driver Units Setting up production 100 runs Processing orders. Number of orders 60,000 200 orders Handling materials Pounds of materials 24,000 8,000 pounds Using machines Machine-hours 72,000 10,000 hours Providing quality management.. Number of inspections 60,000 40 inspections Packing and shipping... Units shipped 48,000 20,000 units $300,000 Number of units produced. Direct materials costs.. In addition, management estimated 2,000 direct labor-hours for year 5. Assume that the following cost driver volumes occurred in February, year 5: Tall 400 $3,000 Short 1,000 $6,000 Direct labor-hours. 100 110 Number of orders 8 4 Number of production runs. 2 8 Pounds of material. 400 200 Machine-hours 500 300 Number of inspections 2 2 Units shipped.. 1,000 300 Required: Direct labor costs were $30 per hour. a. Compute the predetermined overhead rate using direct labor-hours as the activity base. b. Compute the activity rates for each of the activities suggested by the consultant c. Compute the cost per unit (for both short and tall ladders) using the plantwide overhead rate. d. Compute the cost per unit (for both short and tall ladders) using Activity Based Costing e. Management has seen the above results and wants an explanation for the discrepancy between product costs using the plantwide rate and Activity Based Costing. Write a 2 paragraph response to management, which includes your recommendation as to whether we should take the consultant's advice or not. Include the advantages and disadvantages of implementing Activity Based Costing.
ACCT 202 CASE #2 ACTIVITY BASED COSTING 25 Points Due: March 18TH at 11:59 pm Dooley Corporation makes two types of ladders; short and tall. Currently, Dooley allocates overhead to the products using a plantwide overhead rate using direct labor-hours as the activity base. A pricing consultant recently had recommended that Dooley use an Activity Based Cost system for allocating overhead and identified the below activities, cost drivers, estimated costs, and estimated cost driver units for the upcoming year: Activity Recommended Cost Driver Number of production runs $ 36,000 Estimated Cost Estimated Cost Driver Units Setting up production 100 runs Processing orders. Number of orders 60,000 200 orders Handling materials Pounds of materials 24,000 8,000 pounds Using machines Machine-hours 72,000 10,000 hours Providing quality management.. Number of inspections 60,000 40 inspections Packing and shipping... Units shipped 48,000 20,000 units $300,000 Number of units produced. Direct materials costs.. In addition, management estimated 2,000 direct labor-hours for year 5. Assume that the following cost driver volumes occurred in February, year 5: Tall 400 $3,000 Short 1,000 $6,000 Direct labor-hours. 100 110 Number of orders 8 4 Number of production runs. 2 8 Pounds of material. 400 200 Machine-hours 500 300 Number of inspections 2 2 Units shipped.. 1,000 300 Required: Direct labor costs were $30 per hour. a. Compute the predetermined overhead rate using direct labor-hours as the activity base. b. Compute the activity rates for each of the activities suggested by the consultant c. Compute the cost per unit (for both short and tall ladders) using the plantwide overhead rate. d. Compute the cost per unit (for both short and tall ladders) using Activity Based Costing e. Management has seen the above results and wants an explanation for the discrepancy between product costs using the plantwide rate and Activity Based Costing. Write a 2 paragraph response to management, which includes your recommendation as to whether we should take the consultant's advice or not. Include the advantages and disadvantages of implementing Activity Based Costing.
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Transcribed Image Text:ACCT 202
CASE #2 ACTIVITY BASED COSTING
25 Points
Due: March 18TH at 11:59 pm
Dooley Corporation makes two types of ladders; short and tall. Currently, Dooley allocates
overhead to the products using a plantwide overhead rate using direct labor-hours as the activity
base. A pricing consultant recently had recommended that Dooley use an Activity Based Cost
system for allocating overhead and identified the below activities, cost drivers, estimated costs,
and estimated cost driver units for the upcoming year:
Activity
Recommended
Cost Driver
Number of production runs $ 36,000
Estimated
Cost
Estimated Cost
Driver Units
Setting up production
100 runs
Processing orders.
Number of orders
60,000
200 orders
Handling materials
Pounds of materials
24,000
8,000 pounds
Using machines
Machine-hours
72,000
10,000 hours
Providing quality management..
Number of inspections
60,000
40 inspections
Packing and shipping...
Units shipped
48,000
20,000 units
$300,000
Number of units produced.
Direct materials costs..
In addition, management estimated 2,000 direct labor-hours for year 5.
Assume that the following cost driver volumes occurred in February, year 5:
Tall
400
$3,000
Short
1,000
$6,000
Direct labor-hours.
100
110
Number of orders
8
4
Number of production runs.
2
8
Pounds of material.
400
200
Machine-hours
500
300
Number of inspections
2
2
Units shipped..
1,000
300
Required:
Direct labor costs were $30 per hour.
a. Compute the predetermined overhead rate using direct labor-hours as the activity base.
b. Compute the activity rates for each of the activities suggested by the consultant
c. Compute the cost per unit (for both short and tall ladders) using the plantwide overhead
rate.
d. Compute the cost per unit (for both short and tall ladders) using Activity Based Costing
e. Management has seen the above results and wants an explanation for the discrepancy
between product costs using the plantwide rate and Activity Based Costing. Write a 2
paragraph response to management, which includes your recommendation as to whether
we should take the consultant's advice or not. Include the advantages and disadvantages
of implementing Activity Based Costing.
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