Fisher Fixtures manufactures three types of lighting fixtures, with model names of Silver, Gold, and Platinum. It applies all indirect costs according to an annual predetermined rate based on direct labor-hours. The plant controller has recommended that the company switch to an activity-based costing system. The controller's staff prepared the following cost estimates for next year (year 2) for the recommended cost drivers. Activity Purchasing material Receiving material Setting up equipment Machine depreciation and maintenance Ensuring regulatory compliance Shipping Total estimated cost. Recommended Cost Driver Number of purchase orders Direct materials cost Number of production runs Machine-hours Silver Number of inspections Number of units shipped. In addition, management estimated 45,000 direct labor-hours for year 2. Assume that the following cost-driver volumes occurred in January, year 2: Platinum 3,000 40 3 $ 37,500 5 100 3 3,000 Gold 32,000 Number of units produced or-hours 2,000 10,000 1,200 6 Number of purchase orders 7 Direct materials costs $ 97,500 $ 60,000 Number of production runs Machine-hours 2 700 0 3 175 2 Number of inspections Units shipped 32,000 10,000 Labor costs are based on the contractual rate of $25 per hour. Estimated Cost $ 135,600 244,800 238,080 82,620 469,800 1,101,600 $ 2,272,500 Estimated Cost Driver 240 purchase or $ 3,060,000 120 runs 16,524 hours 54 inspections 612,000 units
Fisher Fixtures manufactures three types of lighting fixtures, with model names of Silver, Gold, and Platinum. It applies all indirect costs according to an annual predetermined rate based on direct labor-hours. The plant controller has recommended that the company switch to an activity-based costing system. The controller's staff prepared the following cost estimates for next year (year 2) for the recommended cost drivers. Activity Purchasing material Receiving material Setting up equipment Machine depreciation and maintenance Ensuring regulatory compliance Shipping Total estimated cost. Recommended Cost Driver Number of purchase orders Direct materials cost Number of production runs Machine-hours Silver Number of inspections Number of units shipped. In addition, management estimated 45,000 direct labor-hours for year 2. Assume that the following cost-driver volumes occurred in January, year 2: Platinum 3,000 40 3 $ 37,500 5 100 3 3,000 Gold 32,000 Number of units produced or-hours 2,000 10,000 1,200 6 Number of purchase orders 7 Direct materials costs $ 97,500 $ 60,000 Number of production runs Machine-hours 2 700 0 3 175 2 Number of inspections Units shipped 32,000 10,000 Labor costs are based on the contractual rate of $25 per hour. Estimated Cost $ 135,600 244,800 238,080 82,620 469,800 1,101,600 $ 2,272,500 Estimated Cost Driver 240 purchase or $ 3,060,000 120 runs 16,524 hours 54 inspections 612,000 units
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Transcribed Image Text:Fisher Fixtures manufactures three types of lighting fixtures, with model names of Silver, Gold, and Platinum. It applies all indirect costs
according to an annual predetermined rate based on direct labor-hours. The plant controller has recommended that the company
switch to an activity-based costing system. The controller's staff prepared the following cost estimates for next year (year 2) for the
recommended cost drivers.
Activity
Purchasing material
Receiving material
Setting up equipment
Machine depreciation and maintenance
Ensuring regulatory compliance
Shipping
Total estimated cost
In addition, management estimated 45,000 direct labor-hours for year 2.
Assume that the following cost-driver volumes occurred in January, year 2:
Platinum
3,000
400
3
$ 37,500
5
100
3,000
Number of units produced
Direct labor-hours
Silver
Number of purchase orders
Direct materials costs
Number of production runs
Machine-hours
Recommended Cost Driver
Number of purchase orders
Direct materials cost
Number of production runs
Machine-hours
Gold
10,000
1,200
6
$ 60,000
3
175
2
Number of inspections
Units shipped
10,000
Labor costs are based on the contractual rate of $25 per hour.
Number of inspections
Number of units shipped
32,000
2,000
7
$ 97,500
2
700
0
32,000
Estimated Cost
$ 135,600
244,800
238,080
82,620
469,800
1,101,600
$ 2,272,500
Estimated Cost Driver A
240 purchase orde
$ 3,060,000
120 runs
16,524 hours
54 inspections
612,000 units
Transcribed Image Text:Required:
a. Compute the predetermined rate for year 2 for use in the current product-costing system using direct labor-hours as the allocation
base.
b. Compute the per-unit production costs for each model for January using direct labor-hours as the allocation base and the
predetermined rate computed in requirement (a).
c. Compute the predetermined overhead rate for year 2 for each cost driver using the estimated costs and estimated cost driver units
prepared by the controller's staff to be used in an ABC system.
d. Compute the per unit production costs for each product for January using the cost drivers recommended by the consultant and the
predetermined rates computed in requirement (c). (Note: Do not assume that total overhead applied to products in January will be
the same for activity-based costing as it was for the labor-hour-based allocation.)
Complete this question by entering your answers in the tabs below.
Required A Required B
Required C
Required D
Compute the predetermined rate for year 2 for use in the current product-costing system using direct labor-hours as the
allocation base.
Predetermined rate per direct labor-hour
Required A
Required B >
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