Marshall Devices manufactures metal products and uses activity-based costing to allocate overhead costs to customer orders for pricing purposes. Many customer orders are won through competitive bidding based on costs. Direct ma- terial and direct manufacturing labor costs are traced directly to each order. Marshall's direct manufacturing labor rate is $20 per hour. The company reports the following budgeted yearly overhead costs Wages and salaries Depreciation Rent St80,000 60,000 120,000 240,000 $900,000 Other overhead Total overhead costs Marshall has established four activity cost pools and the following budgeted activity for each cost poot Budgeted Total Activity for the Year Activity Cost Pool Direct manufacturing labor support Order processing Design support Other Activity Measure Number of direct manufacturing labor-hours 30,000 direct manufacturing labor-hours Number of customer orders 500 orders 2,490 custom design-hours 30,000 direct manufacturing labor-hours Number of custom design-hours Facility-sustaining costs allocated to orders based on direct manufacturing labor-hours Some customer orders require more complex designs, while others need simple designs. Marshall esti- mates that it will do 120 complex designs during a year, which will each take 11.75 hours for a total of 1,410 design-hours. It estimates it will do 180 simple designs, which will each take 6 hours for a total of 1,080 design-hours. Paul Napoli, Marshall's controller, has prepared the following estimates for distribution of the over head costs across the four activity-cost pools: Design Support 30% Direct Manufacturing Labor Support Order Other Processing 25% Total 100% Wages and salaries Depreciation 40% 5% 25% 10% 15% 50% 100% Rent 30% 25% 10% 35% 100% Other overhead 20% 30% 35% 15% 100%

Name: (in continuation with the picture) Order 277100 consists of four diffe
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Description: (in continuation with the picture) Order 277100 consists of four different metal products. Three products require a complex design and one requires a simple design. Order 277100 requires $4,550 of direct materials and 80 direct manufacturing labor-ho

FINANCIAL ACCOUNTING

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ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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(in continuation with the picture) Order 277100 consists of four different metal products. Three products require a complex design and one requires a simple design. Order 277100 requires $4,550 of direct materials and 80 direct manufacturing labor-hours.

Q. When designing its activity-based costing system, Marshall uses time-driven activity-based costing system (TDABC) for its design department. What does this approach allow Marshall to do? How would the cost of Order 277100 have been different if Marshall had used the number of customer designs rather than the number of custom design-hours to allocate costs to different customer orders? Which cost driver do you prefer for design support? Why?

Marshall Devices
manufactures metal products and uses activity-based costing to allocate overhead costs to customer orders
for pricing purposes. Many customer orders are won through competitive bidding based on costs. Direct ma-
terial and direct manufacturing labor costs are traced directly to each order. Marshall's direct manufacturing
labor rate is $20 per hour. The company reports the following budgeted yearly overhead costs
Wages and salaries
Depreciation
Rent
St80,000
60,000
120,000
240,000
$900,000
Other overhead
Total overhead costs
Marshall has established four activity cost pools and the following budgeted activity for each cost poot
Budgeted Total Activity
for the Year
Activity Cost Pool
Direct manufacturing labor
support
Order processing
Design support
Other
Activity Measure
Number of direct manufacturing
labor-hours
30,000 direct manufacturing
labor-hours
Number of customer orders
500 orders
2,490 custom design-hours
30,000 direct manufacturing
labor-hours
Number of custom design-hours
Facility-sustaining costs allocated
to orders based on direct
manufacturing labor-hours
Some customer orders require more complex designs, while others need simple designs. Marshall esti-
mates that it will do 120 complex designs during a year, which will each take 11.75 hours for a total of 1,410
design-hours. It estimates it will do 180 simple designs, which will each take 6 hours for a total of 1,080
design-hours.
Paul Napoli, Marshall's controller, has prepared the following estimates for distribution of the over
head costs across the four activity-cost pools:
Design
Support
30%
Direct Manufacturing
Labor Support
Order
Other
Processing
25%
Total
100%
Wages and salaries
Depreciation
40%
5%
25%
10%
15%
50%
100%
Rent
30%
25%
10%
35%
100%
Other overhead
20%
30%
35%
15%
100%

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