Q3. Fancy Doors, Inc., produces two types of doors, interior and exterior. The company's simple costing system has two direct cost categories (materials and labor) and one indirect cost pool. The simple costing system allocates indirect costs based on machine-hours. Recently, the owners of Fancy Doors have been concerned about a decline in the market share for one of their products, usually their bigger seller. Information related to Fancy Doors production for the most recent year follows: Interior Activity Units sold Selling price Direct material cost per unit Direct manufacturing labor cost per hour Direct manufacturing labor-hours per unit Production runs Production scheduling Material handling Machine setup Assembly Inspection 40 Material moves 72 45 Machine setups Machine-hours 5,500 Number of inspections 250 The owners have heard of other companies in the industry that are now using an activity-based costing system and are curious how an ABC system would affect their product costing decisions. After analyzing the indirect cost pool for Fancy Doors, the owners identify five production scheduling, material handling, machine setup, assembly, and inspection. Fancy Doors collected ities as generating indirect costs: the following data related to the indirect cost activities: Activity Cost $160,000 $60,000 $40,000 3,200 $ 250 $ 60 $ 32 $110,000 $20,000 Exterior 1,800 $ 400 $ 90 $ 1.50 32 2.25 85 168 155 4,500 150 Activity Cost Driver Production runs Material moves Machine setups Machine-hours Number of inspections a. Calculate the cost of an interior door and an exterior door under the existing simple costing system. 4,800
Q3. Fancy Doors, Inc., produces two types of doors, interior and exterior. The company's simple costing system has two direct cost categories (materials and labor) and one indirect cost pool. The simple costing system allocates indirect costs based on machine-hours. Recently, the owners of Fancy Doors have been concerned about a decline in the market share for one of their products, usually their bigger seller. Information related to Fancy Doors production for the most recent year follows: Interior Activity Units sold Selling price Direct material cost per unit Direct manufacturing labor cost per hour Direct manufacturing labor-hours per unit Production runs Production scheduling Material handling Machine setup Assembly Inspection 40 Material moves 72 45 Machine setups Machine-hours 5,500 Number of inspections 250 The owners have heard of other companies in the industry that are now using an activity-based costing system and are curious how an ABC system would affect their product costing decisions. After analyzing the indirect cost pool for Fancy Doors, the owners identify five production scheduling, material handling, machine setup, assembly, and inspection. Fancy Doors collected ities as generating indirect costs: the following data related to the indirect cost activities: Activity Cost $160,000 $60,000 $40,000 3,200 $ 250 $ 60 $ 32 $110,000 $20,000 Exterior 1,800 $ 400 $ 90 $ 1.50 32 2.25 85 168 155 4,500 150 Activity Cost Driver Production runs Material moves Machine setups Machine-hours Number of inspections a. Calculate the cost of an interior door and an exterior door under the existing simple costing system. 4,800
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
D
Transcribed Image Text:b. Calculate the cost of an interior door and an exterior door under an activity-based
system.
838-8
c. Compare the costs of the doors in requirements 1 and 2. If any, why do the simple and activity-
based costing systems differ in the cost of an interior and exterior door?
10
d. Which one of the products do you think might have experienced a declining market share? How
might the company use the new cost information from its activity-based costing system to address
the declining market share for interior doors?
Transcribed Image Text:Q3. Fancy Doors, Inc., produces two types of doors, interior and exterior. The company's simple costing
system has two direct cost categories (materials and labor) and one indirect cost pool. The simple costing
system allocates indirect costs based on machine-hours. Recently, the owners of Fancy Doors have been
concerned about a decline in the market share for one of their products, usually their bigger seller.
Information related to Fancy Doors production for the most recent year follows:
Interior
3,200
$ 250
$
60
$ 32
Activity
Units sold
Selling price
Direct material cost per unit
Direct manufacturing labor cost per hour
Direct manufacturing labor-hours per unit
Production runs
Assembly
Inspection
Material moves
Machine setups
Production scheduling
Material handling
Machine setup
1.50
Activity Cost
$160,000
$60,000
$40,000
$110,000
$20,000
40
72
45
Exterior
1,800
$ 400
$ 90
$
32
Machine-hours
5,500
4,500
Number of inspections
250
150
The owners have heard of other companies in the industry that are now using an activity-based costing
system and are curious how an ABC system would affect their product costing decisions. After analyzing
the indirect cost pool for Fancy Doors, the owners identify five activities as generating indirect costs:
production scheduling, material handling, machine setup, assembly, and inspection. Fancy Doors collected
the following data related to the indirect cost activities:
2.25
85
168
155
Activity Cost Driver
Production runs
Material moves
Machine setups
Machine-hours
Number of inspections
a. Calculate the cost of an interior door and an exterior door under the existing simple costing
system.
4,800
192
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