Fluff and Chop, Inc. is a manufacturer of decorative pillows. The company produces and sells two products: Square and Round. Currently, the company uses a traditional costing system to allocate manufacturing overhead to production based on machine hours. Management is considering switching to ABC to improve costing accuracy. n their analysis of manufacturing overhead, management has identified two activities and cost pools: Machining and Machine Setup. $96,000 of the budgeted manufacturing overhead relates to the machine setup activity. Machine setup overhead costs are driven by number of setups. The projected production levels for the upcoming period are 1,000 Square pillows and 5,000 Round pillows. The following information was compiled for the product lines: machine hours setups Square 0.9 hours per pillow 25 pillows per setup Round 0.3 hours per pillow 25 pillows per setup Which of the following statements is correct with regard to the above information? OA. Under the current costing system, 75% of the machine setup manufacturing overhead costs will be allocated to the Square product line. OB. Under activity based costing, 50% of the machine setup manufacturing overhead costs will be allocated to the Round product line. OC. The current costing system is undercosting both the Square and Round product lines with respect to machine setup manufacturing overhead costs. OD. The cost distortion per unit for both the Square and the Round product lines with respect to the machine setup manufacturing overhead costs is equal. OE. None of the above statements are correct.
Fluff and Chop, Inc. is a manufacturer of decorative pillows. The company produces and sells two products: Square and Round. Currently, the company uses a traditional costing system to allocate manufacturing overhead to production based on machine hours. Management is considering switching to ABC to improve costing accuracy. n their analysis of manufacturing overhead, management has identified two activities and cost pools: Machining and Machine Setup. $96,000 of the budgeted manufacturing overhead relates to the machine setup activity. Machine setup overhead costs are driven by number of setups. The projected production levels for the upcoming period are 1,000 Square pillows and 5,000 Round pillows. The following information was compiled for the product lines: machine hours setups Square 0.9 hours per pillow 25 pillows per setup Round 0.3 hours per pillow 25 pillows per setup Which of the following statements is correct with regard to the above information? OA. Under the current costing system, 75% of the machine setup manufacturing overhead costs will be allocated to the Square product line. OB. Under activity based costing, 50% of the machine setup manufacturing overhead costs will be allocated to the Round product line. OC. The current costing system is undercosting both the Square and Round product lines with respect to machine setup manufacturing overhead costs. OD. The cost distortion per unit for both the Square and the Round product lines with respect to the machine setup manufacturing overhead costs is equal. OE. None of the above statements are correct.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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:Fluff and Chop, Inc. is a manufacturer of decorative pillows. The company produces and sells two products: Square and Round. Currently, the company uses a traditional costing system to allocate manufacturing
overhead to production based on machine hours. Management is considering switching to ABC to improve costing accuracy.
In their analysis of manufacturing overhead, management has identified two activities and cost pools: Machining and Machine Setup. $96,000 of the budgeted manufacturing overhead relates to the machine setup
activity. Machine setup overhead costs are driven by number of setups.
The projected production levels for the upcoming period are 1,000 Square pillows and 5,000 Round pillows. The following information was compiled for the product lines:
machine hours
setups
Square
0.9 hours per pillow
25 pillows per setup
Round
0.3 hours per pillow
25 pillows per setup
Which of the following statements is correct with regard to the above information?
OA. Under the current costing system, 75% of the machine setup manufacturing overhead costs will be allocated to the Square product line.
OB. Under activity based costing, 50% of the machine setup manufacturing overhead costs will be allocated to the Round product line.
OC. The current costing system is undercosting both the Square and Round product lines with respect to machine setup manufacturing overhead costs.
O D. The cost distortion per unit for both the Square and the Round product lines with respect to the machine setup manufacturing overhead costs is equal.
O E. None of the above statements are correct.
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