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Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Marider Industries makes two types of windbreaker Jackets: one for spring and one for winter. Marider uses a traditional costing system
and is considering switching to an Activity-Based Costing system. Marider applies overhead on the basis of machine hours. Below is
Information about its production facility.
Sales
Materials Cost
Labor Cost
Units Produced and sold
Total Direct Labor Hours
Total Estimated Overhead Cost
Total Estimated Direct Labor Hours
Spring
$ 378,000
Winter
$ 288,000
$ 52,900
$ 26,100
$ 41,400
$ 24,300
4,200
10,880
2,400
3,240
$117,000
14,500
Activity-Based Costing Information
Total Estimated
Spring
Winter
Activity
Cutting
Sewing
Activity Driver
Cutting Hours
Sewing Hours
Cost
Usage
Usage
Total
$ 21,060
1,580
740
2,320
$ 32,760
9,300
2,500
11,800
Inspecting
Packing
Machine Setups
Material Moves
Number of Inpections
Units Produced
Number of Setups
$ 4,680
200
50
250
$ 11,700
2,300
900
$ 17,550
60
150
3,200
210
Number of Material Moves
$ 29,250
20
90
110
Required:
1. Calculate the Predetermined Overhead Rate.
2. Use the Predetermined Overhead Rate to calculate total overhead applied to each jacket type.
3. Calculate the Gross Profit per jacket type.
4. Calculate the Activity Rates for the Activity-Based Costing system.
5. Use the Activity Rates to calculate the total overhead applied to each jacket type.
6. Calculate the Gross Profit per jacket type.
7. Indicate whether the traditional costing system overcosted or undercosted the jackets.
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