Deoro Company has identified the following overhead activities, costs, and activity drivers for the coming year.   Activity Expected Cost Activity Driver Activity Capacity Setting up equipment $480,000 Number of setups      600 Ordering costs   360,000 Number of orders 18,000 Machine costs   840,000 Machine hours 42,000 Receiving   400,000 Receiving hours 10,000   Deoro produces two models of dishwashers with the following expected prime costs and activity demands:     Model A Model B Direct materials $600,000 $800,000 Direct labor $480,000 $480,000 Units completed 16,000 8,000 Direct labor hours 6,000 2,000 Number of setups 400 200 Number of orders 6,000 12,000 Machine hours 24,000 18,000 Receiving hours 3,000 7,000   The company's normal activity is 8,000 direct labor hours.   Required: Determine the unit cost for each model using direct labor hours to apply overhead. Determine the unit cost for each model using the four activity drivers. Which method produces the more accurate cost assignment? Why?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
icon
Concept explainers
Topic Video
Question

Deoro Company has identified the following overhead activities, costs, and activity drivers for the coming year.

 

Activity

Expected Cost

Activity Driver

Activity Capacity

Setting up equipment

$480,000

Number of setups

     600

Ordering costs

  360,000

Number of orders

18,000

Machine costs

  840,000

Machine hours

42,000

Receiving

  400,000

Receiving hours

10,000

 

Deoro produces two models of dishwashers with the following expected prime costs and activity demands:

 

 

Model A

Model B

Direct materials

$600,000

$800,000

Direct labor

$480,000

$480,000

Units completed

16,000

8,000

Direct labor hours

6,000

2,000

Number of setups

400

200

Number of orders

6,000

12,000

Machine hours

24,000

18,000

Receiving hours

3,000

7,000

 

The company's normal activity is 8,000 direct labor hours.

 

Required:

  1. Determine the unit cost for each model using direct labor hours to apply overhead.
  2. Determine the unit cost for each model using the four activity drivers.
  3. Which method produces the more accurate cost assignment? Why?
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 10 images

Blurred answer
Knowledge Booster
Costing Systems
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education