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Required1 : 1. Calculate the cost per unit of Basca and Thermo under the simple costing system. 2. Calculate the cost per unit of Basca and Thermo under the activity-based costing system. 3. Compare the cost per unit for each product in (1) and (2). Why do the simple and activity- based costing system differ in the cost per unit for each product? Why might these differences be important for Bronco Electric?

Required1 : 1. Calculate the cost per unit of Basca and Thermo under the simple costing system. 2. Calculate the cost per unit of Basca and Thermo under the activity-based costing system. 3. Compare the cost per unit for each product in (1) and (2). Why do the simple and activity- based costing system differ in the cost per unit for each product? Why might these differences be important for Bronco Electric?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Exhibit 1: Production cost data for Bronco Electric for the year 2020 Вasca Thermo Total Cause-and-effeet relationship between allocation base and activity cost Number of motors 30,000 15,000 Selling price Direct material cost per motor $300 $400 $100 $150 Direct manufacturing labour hours (DLH) per motor (direct manufacturing labour rate = $20/DLH 2.0 2.5 Total machine-hours 45.000 | 30,000 Indirect manufacturing operations costs increase with machine hours Manufacturing operations $3,000,000 Number of motors per batch 500 100 Setup hours per batch 10 16 Indirect setup costs increase with setup hours Setup costs $600,000 Number of different components per 55 75 motor Materials-handling hours to move a load* 0.2 0.2 Indirect materials-handling costs increase with materials-handling hours Materials-handling costs $582,000 Total number of components changed for each product 10 20 Design costs Indirect design costs increase with number of components changed $900,000 Total number of shipments for each product 120 180 Indirect costs incurred to prepare batches for shipment increase with number of shipments Shipping costs $90,000 Cubic feet per motor 1.5 Distribution costs Indirect distribution costs increase $315,000 with cubic feet of motor delivered Administration costs Demand for administrative $390,000 resources increases with direct manufacturing hours Each load moves the quantity of a particular component required for the manufacture of a batch of products. For example, because Basca has 55 different types of components, it takes 55 loads for the components required to manufacture a batch of Basca to be transported from the store to the production area.
Transcribed Image Text:Exhibit 1: Production cost data for Bronco Electric for the year 2020 Вasca Thermo Total Cause-and-effeet relationship between allocation base and activity cost Number of motors 30,000 15,000 Selling price Direct material cost per motor $300 $400 $100 $150 Direct manufacturing labour hours (DLH) per motor (direct manufacturing labour rate = $20/DLH 2.0 2.5 Total machine-hours 45.000 | 30,000 Indirect manufacturing operations costs increase with machine hours Manufacturing operations $3,000,000 Number of motors per batch 500 100 Setup hours per batch 10 16 Indirect setup costs increase with setup hours Setup costs $600,000 Number of different components per 55 75 motor Materials-handling hours to move a load* 0.2 0.2 Indirect materials-handling costs increase with materials-handling hours Materials-handling costs $582,000 Total number of components changed for each product 10 20 Design costs Indirect design costs increase with number of components changed $900,000 Total number of shipments for each product 120 180 Indirect costs incurred to prepare batches for shipment increase with number of shipments Shipping costs $90,000 Cubic feet per motor 1.5 Distribution costs Indirect distribution costs increase $315,000 with cubic feet of motor delivered Administration costs Demand for administrative $390,000 resources increases with direct manufacturing hours Each load moves the quantity of a particular component required for the manufacture of a batch of products. For example, because Basca has 55 different types of components, it takes 55 loads for the components required to manufacture a batch of Basca to be transported from the store to the production area.
Bronco Electric manufactures and sells two types of motor: a special motor, Thermo, and a basic motor, Basca. Bronco's simple costing product costing system has two direct-cost categories (direct materials and direct manufacturing labour) and a single indirect-cost pool. Bronco allocates all indirect cost using direct manufacturing labour-hours as the allocation base. Recently, a team of managers from product design, manufacturing, sales and marketing decided to replace the single indirect-cost pool with seven indirect-cost pools: design, setups, materials handling, manufacturing operations, shipping, distribution and administration. The two directcost categories were retained. The team felt that the simple costing system did not accurately represent the indirect resources demanded by each product. The team collected the information for 2020, the year just ended and this displayed in Exhibit 1 on the following page. Required1 : 1. Calculate the cost per unit of Basca and Thermo under the simple costing system. 2. Calculate the cost per unit of Basca and Thermo under the activity-based costing system. 3. Compare the cost per unit for each product in (1) and (2). Why do the simple and activity- based costing system differ in the cost per unit for each product? Why might these differences be important for Bronco Electric?
Transcribed Image Text:Bronco Electric manufactures and sells two types of motor: a special motor, Thermo, and a basic motor, Basca. Bronco's simple costing product costing system has two direct-cost categories (direct materials and direct manufacturing labour) and a single indirect-cost pool. Bronco allocates all indirect cost using direct manufacturing labour-hours as the allocation base. Recently, a team of managers from product design, manufacturing, sales and marketing decided to replace the single indirect-cost pool with seven indirect-cost pools: design, setups, materials handling, manufacturing operations, shipping, distribution and administration. The two directcost categories were retained. The team felt that the simple costing system did not accurately represent the indirect resources demanded by each product. The team collected the information for 2020, the year just ended and this displayed in Exhibit 1 on the following page. Required1 : 1. Calculate the cost per unit of Basca and Thermo under the simple costing system. 2. Calculate the cost per unit of Basca and Thermo under the activity-based costing system. 3. Compare the cost per unit for each product in (1) and (2). Why do the simple and activity- based costing system differ in the cost per unit for each product? Why might these differences be important for Bronco Electric?
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