You have a business manufacturing Artfarts for Dogtown, Inc. Following is the costing data you have been using: $5.00 per pound $20.00 per DLH $30.00 per DLH Direct materials Direct labor Overhead There are two versions of the Artfarts you manufacture, Simple and Fancy, and you incurred the following: Simple Fancy DM 4,000 pounds 1,800 pounds 2,400 16 DLH 6,000 Number of batches 4 Number of machine hours (MH) 4,000 3,600 You want to implement an Activity Based Costing system to better allocate overhead to the two different products and have come up with the following cost activity pools: Activity Pool Fabrication Costs Driver $101,400 75,000 MH Machine set-up General overhead Batches 75,600 $252,000 DLH Total overhead costs During 2021 you made 2,000 Simple and 600 Elaborate Artfarts, incurred $168,000 of direct labor, spent $29,000 on direct materials, and spent $252,000 on overhead. • What is the average cost of a Simple and Fancy Artfart using the old overhead allocation method of $30 per DLH to allocate the $252,000 of overhead? What is the average cost of a Simple and Fancy Artfart using the ABC costing data from above to allocate the $252,000 of overhead? ROUND TO THE NEAREST PENNY FOR ALLOCATION RATES. Why is the ABC method better at costing the Artfarts than the old method? Be specific in your answer.
You have a business manufacturing Artfarts for Dogtown, Inc. Following is the costing data you have been using: $5.00 per pound $20.00 per DLH $30.00 per DLH Direct materials Direct labor Overhead There are two versions of the Artfarts you manufacture, Simple and Fancy, and you incurred the following: Simple Fancy DM 4,000 pounds 1,800 pounds 2,400 16 DLH 6,000 Number of batches 4 Number of machine hours (MH) 4,000 3,600 You want to implement an Activity Based Costing system to better allocate overhead to the two different products and have come up with the following cost activity pools: Activity Pool Fabrication Costs Driver $101,400 75,000 MH Machine set-up General overhead Batches 75,600 $252,000 DLH Total overhead costs During 2021 you made 2,000 Simple and 600 Elaborate Artfarts, incurred $168,000 of direct labor, spent $29,000 on direct materials, and spent $252,000 on overhead. • What is the average cost of a Simple and Fancy Artfart using the old overhead allocation method of $30 per DLH to allocate the $252,000 of overhead? What is the average cost of a Simple and Fancy Artfart using the ABC costing data from above to allocate the $252,000 of overhead? ROUND TO THE NEAREST PENNY FOR ALLOCATION RATES. Why is the ABC method better at costing the Artfarts than the old method? Be specific in your answer.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Topic Video
Question
Transcribed Image Text:You have a business manufacturing Artfarts for Dogtown, Inc. Following is the costing data you have
been using:
$5.00 per pound
$20.00 per DLH
$30.00 per DLH
Direct materials
Direct labor
Overhead
There are two versions of the Artfarts you manufacture, Simple and Fancy, and you incurred the
following:
Simple
Fancy
4,000 pounds 1,800 pounds
2,400
16
DM
DLH
Number of batches
6,000
4.
Number of machine hours (MH)
4,000
3,600
You want to implement an Activity Based Costing system to better allocate overhead to the two
different products and have come up with the following cost activity pools:
Activity Pool
Fabrication
Costs
$101,400
75,000
75,600
$252,000
Driver
мн
Machine set-up
Batches
General overhead
DLH
Total overhead costs
During 2021 you made 2,000 Simple and 600 Elaborate Artfarts, incurred $168,000 of direct labor, spent
$29,000 on direct materials, and spent $252,000 on overhead.
• What is the average cost of a Simple and Fancy Artfart using the old overhead allocation
method of $30 per DLH to allocate the $252,000 of overhead?
• What is the average cost of a Simple and Fancy Artfart using the ABC costing data from above
to allocate the $252,000 of overhead? ROUND TO THE NEAREST PENNY FOR ALLOCATION
RATES.
• Why is the ABC method better at costing the Artfarts than the old method? Be specific in your
answer.
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