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

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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: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
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 >
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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