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Star Wars Corporation has identified the following overhead activities, costs, and activity drivers for the coming year. Activity Setup Inspecting Grinding Excepted Cost $180,000 $90,000 $630,000 Activity Driver Number setups Inspection hours Machine hours Direct Material Direct Labor Units Completed Number of setups Inspection hours Machine hours The company produces two different types of Starfighter aircrafts to be used by the Galactic Republic. Information regarding the production of each type is as follows: Aircraft A Activity Capacity 75 6,000 18,000 $850,000 $200,000 1,000 35 2,000 13,000 Aircraft B $950,000 $200,000 500 40 4,000 5,000 The company's normal activity is estimated at 6,000 direct labor hours. Each batch uses approximately 3,000 hours of direct labor. 1,000 units of A uses 3,000 D/L hrs and 500 units of B uses 3,000 of D/L hrs. a) Determine the unit cost for each product using direct labor hours to apply overhead. b) Determine total overhead cost (for Aircrafts A & B) using the three activity drivers. c) Determine the OH cost per unit and cost per unit using the three activity drivers. d) Which method produces the more accurate cost assignment? Why? Where did the costs shift per unit using the ABC method and what drove this? |

Star Wars Corporation has identified the following overhead activities, costs, and activity drivers for the coming year. Activity Setup Inspecting Grinding Excepted Cost $180,000 $90,000 $630,000 Activity Driver Number setups Inspection hours Machine hours Direct Material Direct Labor Units Completed Number of setups Inspection hours Machine hours The company produces two different types of Starfighter aircrafts to be used by the Galactic Republic. Information regarding the production of each type is as follows: Aircraft A Activity Capacity 75 6,000 18,000 $850,000 $200,000 1,000 35 2,000 13,000 Aircraft B $950,000 $200,000 500 40 4,000 5,000 The company's normal activity is estimated at 6,000 direct labor hours. Each batch uses approximately 3,000 hours of direct labor. 1,000 units of A uses 3,000 D/L hrs and 500 units of B uses 3,000 of D/L hrs. a) Determine the unit cost for each product using direct labor hours to apply overhead. b) Determine total overhead cost (for Aircrafts A & B) using the three activity drivers. c) Determine the OH cost per unit and cost per unit using the three activity drivers. d) Which method produces the more accurate cost assignment? Why? Where did the costs shift per unit using the ABC method and what drove this? |

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Star Wars Corporation has identified the following overhead activities, costs, and activity drivers for the coming year. Activity Setup Inspecting Grinding Excepted Cost $180,000 $90,000 $630,000 Direct Material Direct Labor Units Completed Activity Driver Number setups Inspection hours Machine hours Number of setups Inspection hours Machine hours The company produces two different types of Starfighter aircrafts to be used by the Galactic Republic. Information regarding the production of each type is as follows: Aircraft A Activity Capacity $850,000 $200,000 1,000 35 2,000 13,000 75 6,000 18,000 Aircraft B $950,000 $200,000 500 40 4,000 5,000 The company's normal activity is estimated at 6,000 direct labor hours. Each batch uses approximately 3,000 hours of direct labor. 1,000 units of A uses 3,000 D/L hrs and 500 units of B uses 3,000 of D/L hrs. a) Determine the unit cost for each product using direct labor hours to apply overhead. b) Determine total overhead cost (for Aircrafts A & B) using the three activity drivers. c) Determine the OH cost per unit and cost per unit using the three activity drivers. d) Which method produces the more accurate cost assignment? Why? Where did the costs shift per unit using the ABC method and what drove this? |
Transcribed Image Text:Star Wars Corporation has identified the following overhead activities, costs, and activity drivers for the coming year. Activity Setup Inspecting Grinding Excepted Cost $180,000 $90,000 $630,000 Direct Material Direct Labor Units Completed Activity Driver Number setups Inspection hours Machine hours Number of setups Inspection hours Machine hours The company produces two different types of Starfighter aircrafts to be used by the Galactic Republic. Information regarding the production of each type is as follows: Aircraft A Activity Capacity $850,000 $200,000 1,000 35 2,000 13,000 75 6,000 18,000 Aircraft B $950,000 $200,000 500 40 4,000 5,000 The company's normal activity is estimated at 6,000 direct labor hours. Each batch uses approximately 3,000 hours of direct labor. 1,000 units of A uses 3,000 D/L hrs and 500 units of B uses 3,000 of D/L hrs. a) Determine the unit cost for each product using direct labor hours to apply overhead. b) Determine total overhead cost (for Aircrafts A & B) using the three activity drivers. c) Determine the OH cost per unit and cost per unit using the three activity drivers. d) Which method produces the more accurate cost assignment? Why? Where did the costs shift per unit using the ABC method and what drove this? |
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