In order to compare WoolCorp’s current method with activity-based costing, you interview the production staff and compile the following information, which relates to the costs for raw wool and wool yarn. Type of Cost Activity Base Total Cost Sorting Hours of sorting $25,600 Cleaning Units of cleaning machine power 38,400 Combing Hours of combing machine use 1,200 Raw Wool Wool Yarn Hours of sorting required 1,000 4,000 Units of cleaning machine power required 1,800 4,200 Hours of combing machine use required 70 30 In the following table, compute and enter the activity rate for each of the three activities. If required, round your answers to the nearest cent. Activity Activity Rate Sorting per sorting hour Cleaning per unit of cleaning machine power Combing per hour of combing machine use In the following table, allocate the costs of sorting, cleaning, and combing based on the rates of activity consumed by each product’s process. When required, round your answers to the nearest dollar. Raw Wool Wool Yarn Sorting cost $ $ Cleaning cost Combing cost Total cost $ $ X Final Question Answer the following question. After reviewing your work on the Single Plantwide Rate and Activity-Based Costing panels, which of the costing method would you recommend to WoolCorp, and why? Since both the methods give the same costs for each product, there is no advantage to either method. The company should use whichever method is the cheapest to implement. Activity-based costing, because it recognizes differences in how each product uses factory overhead activities, yielding more accurate product costs. Single plantwide factory overhead rate method, because it is a tried-and-true method used for the entire life of the company.
In order to compare WoolCorp’s current method with activity-based costing, you interview the production staff and compile the following information, which relates to the costs for raw wool and wool yarn. Type of Cost Activity Base Total Cost Sorting Hours of sorting $25,600 Cleaning Units of cleaning machine power 38,400 Combing Hours of combing machine use 1,200 Raw Wool Wool Yarn Hours of sorting required 1,000 4,000 Units of cleaning machine power required 1,800 4,200 Hours of combing machine use required 70 30 In the following table, compute and enter the activity rate for each of the three activities. If required, round your answers to the nearest cent. Activity Activity Rate Sorting per sorting hour Cleaning per unit of cleaning machine power Combing per hour of combing machine use In the following table, allocate the costs of sorting, cleaning, and combing based on the rates of activity consumed by each product’s process. When required, round your answers to the nearest dollar. Raw Wool Wool Yarn Sorting cost $ $ Cleaning cost Combing cost Total cost $ $ X Final Question Answer the following question. After reviewing your work on the Single Plantwide Rate and Activity-Based Costing panels, which of the costing method would you recommend to WoolCorp, and why? Since both the methods give the same costs for each product, there is no advantage to either method. The company should use whichever method is the cheapest to implement. Activity-based costing, because it recognizes differences in how each product uses factory overhead activities, yielding more accurate product costs. Single plantwide factory overhead rate method, because it is a tried-and-true method used for the entire life of the company.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
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.
Topic Video
Question
In order to compare WoolCorp’s current method with activity-based costing, you interview the production staff and compile the following information, which relates to the costs for raw wool and wool yarn.
|
Type of Cost
|
Activity Base
|
Total Cost
|
| Sorting | Hours of sorting | $25,600 |
| Cleaning | Units of cleaning machine power | 38,400 |
| Combing | Hours of combing machine use | 1,200 |
|
|
Raw Wool
|
Wool Yarn
|
| Hours of sorting required | 1,000 | 4,000 |
| Units of cleaning machine power required | 1,800 | 4,200 |
| Hours of combing machine use required | 70 | 30 |
In the following table, compute and enter the activity rate for each of the three activities. If required, round your answers to the nearest cent.
|
Activity
|
Activity Rate
|
|
| Sorting |
|
per sorting hour |
| Cleaning |
|
per unit of cleaning machine power |
| Combing |
|
per hour of combing machine use |
In the following table, allocate the costs of sorting, cleaning, and combing based on the rates of activity consumed by each product’s process. When required, round your answers to the nearest dollar.
| Raw Wool | Wool Yarn | |
| Sorting cost | $
|
$
|
| Cleaning cost |
|
|
| Combing cost |
|
|
| Total cost | $
|
$
|
X
Final Question
Answer the following question.
After reviewing your work on the Single Plantwide Rate and Activity-Based Costing panels, which of the costing method would you recommend to WoolCorp, and why?
Since both the methods give the same costs for each product, there is no advantage to either method.
The company should use whichever method is the cheapest to implement.
Activity-based costing, because it recognizes differences in how each product uses factory overhead activities, yielding more accurate product costs.
Single plantwide factory overhead rate method, because it is a tried-and-true method used for the entire life of the company.
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