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Cariman Company manufactures and sells three styles of door Handles: Gold, Bronze and Silver. Production takes 50, 50, and 20 machine hours to manufacture 1,000-unit batches of Gold, Bronze, and Silver Handles, respectively. The following additional data apply: Projected sales in units Per Unit data: Gold Bronze Silver 60,000 100,000 80,000 2. Determine the activity cost driver rate for setup costs and inspection costs? 3. Using the ABC system, for the Gold style of Handle: a. Calculate the estimated overhead costs per unit? b. Calculate the estimated operating profit per unit? 4. Explain the difference between the profits obtained from the traditional system and the ABC system. Which system provides a better estimate of profitability? Selling price $80 $40 $60 Direct materials $16 $8 $16 Direct labour $30 $6 $18 Overhead cost based on direct labour hours (traditional system) $24 $6 $18 Hours per 1,000-unit batch: Direct labour hours Machine hours Setup hours Inspection hours 80 20 60 50 50 20 2.0 1.0 2.0 60 40 40 Total overhead costs and activity levels for the year are estimated as follows: Activity Overhead costs Direct labour hours Machine hours Setups Inspections Activity levels 5,800 hours 4,800 hours $931,000 190 setup hours $810,000 5,400 inspection hours $1,741,000 Required: 1. Using the traditional costing system, determine the operating profit per unit for the Gold style of Handle?

Cariman Company manufactures and sells three styles of door Handles: Gold, Bronze and Silver. Production takes 50, 50, and 20 machine hours to manufacture 1,000-unit batches of Gold, Bronze, and Silver Handles, respectively. The following additional data apply: Projected sales in units Per Unit data: Gold Bronze Silver 60,000 100,000 80,000 2. Determine the activity cost driver rate for setup costs and inspection costs? 3. Using the ABC system, for the Gold style of Handle: a. Calculate the estimated overhead costs per unit? b. Calculate the estimated operating profit per unit? 4. Explain the difference between the profits obtained from the traditional system and the ABC system. Which system provides a better estimate of profitability? Selling price $80 $40 $60 Direct materials $16 $8 $16 Direct labour $30 $6 $18 Overhead cost based on direct labour hours (traditional system) $24 $6 $18 Hours per 1,000-unit batch: Direct labour hours Machine hours Setup hours Inspection hours 80 20 60 50 50 20 2.0 1.0 2.0 60 40 40 Total overhead costs and activity levels for the year are estimated as follows: Activity Overhead costs Direct labour hours Machine hours Setups Inspections Activity levels 5,800 hours 4,800 hours $931,000 190 setup hours $810,000 5,400 inspection hours $1,741,000 Required: 1. Using the traditional costing system, determine the operating profit per unit for the Gold style of Handle?

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter4: Activity-based Costing
Section: Chapter Questions
Problem 4CE: Larsen, Inc., produces two types of electronic parts and has provided the following data: There are...
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Cariman Company manufactures and sells three styles of door Handles: Gold, Bronze and Silver. Production takes 50, 50, and 20 machine hours to manufacture 1,000-unit batches of Gold, Bronze, and Silver Handles, respectively. The following additional data apply: Projected sales in units Per Unit data: Gold Bronze Silver 60,000 100,000 80,000 2. Determine the activity cost driver rate for setup costs and inspection costs? 3. Using the ABC system, for the Gold style of Handle: a. Calculate the estimated overhead costs per unit? b. Calculate the estimated operating profit per unit? 4. Explain the difference between the profits obtained from the traditional system and the ABC system. Which system provides a better estimate of profitability? Selling price $80 $40 $60 Direct materials $16 $8 $16 Direct labour $30 $6 $18 Overhead cost based on direct labour hours (traditional system) $24 $6 $18 Hours per 1,000-unit batch: Direct labour hours Machine hours Setup hours Inspection hours 80 20 60 50 50 20 2.0 1.0 2.0 60 40 40 Total overhead costs and activity levels for the year are estimated as follows: Activity Overhead costs Direct labour hours Machine hours Setups Inspections Activity levels 5,800 hours 4,800 hours $931,000 190 setup hours $810,000 5,400 inspection hours $1,741,000 Required: 1. Using the traditional costing system, determine the operating profit per unit for the Gold style of Handle?
Transcribed Image Text:Cariman Company manufactures and sells three styles of door Handles: Gold, Bronze and Silver. Production takes 50, 50, and 20 machine hours to manufacture 1,000-unit batches of Gold, Bronze, and Silver Handles, respectively. The following additional data apply: Projected sales in units Per Unit data: Gold Bronze Silver 60,000 100,000 80,000 2. Determine the activity cost driver rate for setup costs and inspection costs? 3. Using the ABC system, for the Gold style of Handle: a. Calculate the estimated overhead costs per unit? b. Calculate the estimated operating profit per unit? 4. Explain the difference between the profits obtained from the traditional system and the ABC system. Which system provides a better estimate of profitability? Selling price $80 $40 $60 Direct materials $16 $8 $16 Direct labour $30 $6 $18 Overhead cost based on direct labour hours (traditional system) $24 $6 $18 Hours per 1,000-unit batch: Direct labour hours Machine hours Setup hours Inspection hours 80 20 60 50 50 20 2.0 1.0 2.0 60 40 40 Total overhead costs and activity levels for the year are estimated as follows: Activity Overhead costs Direct labour hours Machine hours Setups Inspections Activity levels 5,800 hours 4,800 hours $931,000 190 setup hours $810,000 5,400 inspection hours $1,741,000 Required: 1. Using the traditional costing system, determine the operating profit per unit for the Gold style of Handle?
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