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Warren Furniture produces three models of desk chairs: Basic, Ergo, and Exec. The cost system at the Warren production facility allocates overhead cost on the basis of direct labor hours. The company is considering updating its cost system to an activity-based costing system and is interested in understanding the effects. A study team composed of the production facility's finance and operations groups has identified three overhead cost pools along with appropriate cost drivers for each pool. Cost Pools Assembly Setup Quality assurance Costs $ 2,925,000 1,023,000 642,000 Activity Drivers Direct labor-hours Number of setups Number of tests The plans for production for the next year and the budgeted direct costs and activity by product line are as follows: Direct costs (material and labor) Basic $ 1,006,800 Products Ergo Direct labor-hours Machine-hours 25,200 29,200 $ 1,143,000 12,000 Exec 868,800 7,800 17,200 14,800 Number of setups 48 72 120 Number of tests Number of units produced 140 7,200 100 60 3,000 1,200 Required: a. The current cost accounting system charges overhead to products based on machine-hours. What unit product costs will be reported for the three products if the current cost system continues to be used? b. What are the cost driver rates for the three cost pools identified by the study team? d. What unit product costs will be reported for the three products if the ABC system proposed by the study team is adopted? e. How would the activities identified by the study team be classified in terms of the levels of the cost hierarchy? 1. Assembly 2. Setup 3. Quality assurance

Warren Furniture produces three models of desk chairs: Basic, Ergo, and Exec. The cost system at the Warren production facility allocates overhead cost on the basis of direct labor hours. The company is considering updating its cost system to an activity-based costing system and is interested in understanding the effects. A study team composed of the production facility's finance and operations groups has identified three overhead cost pools along with appropriate cost drivers for each pool. Cost Pools Assembly Setup Quality assurance Costs $ 2,925,000 1,023,000 642,000 Activity Drivers Direct labor-hours Number of setups Number of tests The plans for production for the next year and the budgeted direct costs and activity by product line are as follows: Direct costs (material and labor) Basic $ 1,006,800 Products Ergo Direct labor-hours Machine-hours 25,200 29,200 $ 1,143,000 12,000 Exec 868,800 7,800 17,200 14,800 Number of setups 48 72 120 Number of tests Number of units produced 140 7,200 100 60 3,000 1,200 Required: a. The current cost accounting system charges overhead to products based on machine-hours. What unit product costs will be reported for the three products if the current cost system continues to be used? b. What are the cost driver rates for the three cost pools identified by the study team? d. What unit product costs will be reported for the three products if the ABC system proposed by the study team is adopted? e. How would the activities identified by the study team be classified in terms of the levels of the cost hierarchy? 1. Assembly 2. Setup 3. Quality assurance

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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Warren Furniture produces three models of desk chairs: Basic, Ergo, and Exec. The cost system at the Warren production facility allocates overhead cost on the basis of direct labor hours. The company is considering updating its cost system to an activity-based costing system and is interested in understanding the effects. A study team composed of the production facility's finance and operations groups has identified three overhead cost pools along with appropriate cost drivers for each pool. Cost Pools Assembly Setup Quality assurance Costs $ 2,925,000 1,023,000 642,000 Activity Drivers Direct labor-hours Number of setups Number of tests The plans for production for the next year and the budgeted direct costs and activity by product line are as follows: Direct costs (material and labor) Basic $ 1,006,800 Direct labor-hours 25,200 Products Ergo $ 1,143,000 12,000 Exec $ 868,800 Machine-hours 29,200 17,200 Number of setups Number of tests Number of units produced 48 140 7,200 72 100 3,000 7,800 14,800 120 60 1,200 Required: a. The current cost accounting system charges overhead to products based on machine-hours. What unit product costs will be reported for the three products if the current cost system continues to be used? b. What are the cost driver rates for the three cost pools identified by the study team? d. What unit product costs will be reported for the three products if the ABC system proposed by the study team is adopted? e. How would the activities identified by the study team be classified in terms of the levels of the cost hierarchy? 1. Assembly 2. Setup 3. Quality assurance Complete this question by entering your answers in the tabs below. Required A Required B Required D Required E The current cost accounting system charges overhead to products based on machine-hours. What unit product costs will be reported for the three products if the current cost system continues to be used? Total cost Per-unit cost Basic Ergo Exec
Transcribed Image Text:Warren Furniture produces three models of desk chairs: Basic, Ergo, and Exec. The cost system at the Warren production facility allocates overhead cost on the basis of direct labor hours. The company is considering updating its cost system to an activity-based costing system and is interested in understanding the effects. A study team composed of the production facility's finance and operations groups has identified three overhead cost pools along with appropriate cost drivers for each pool. Cost Pools Assembly Setup Quality assurance Costs $ 2,925,000 1,023,000 642,000 Activity Drivers Direct labor-hours Number of setups Number of tests The plans for production for the next year and the budgeted direct costs and activity by product line are as follows: Direct costs (material and labor) Basic $ 1,006,800 Direct labor-hours 25,200 Products Ergo $ 1,143,000 12,000 Exec $ 868,800 Machine-hours 29,200 17,200 Number of setups Number of tests Number of units produced 48 140 7,200 72 100 3,000 7,800 14,800 120 60 1,200 Required: a. The current cost accounting system charges overhead to products based on machine-hours. What unit product costs will be reported for the three products if the current cost system continues to be used? b. What are the cost driver rates for the three cost pools identified by the study team? d. What unit product costs will be reported for the three products if the ABC system proposed by the study team is adopted? e. How would the activities identified by the study team be classified in terms of the levels of the cost hierarchy? 1. Assembly 2. Setup 3. Quality assurance Complete this question by entering your answers in the tabs below. Required A Required B Required D Required E The current cost accounting system charges overhead to products based on machine-hours. What unit product costs will be reported for the three products if the current cost system continues to be used? Total cost Per-unit cost Basic Ergo Exec
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