MANAGERIAL ACCT FOR MANAGERS LL\AC
5th Edition
ISBN: 9781265872298
Author: Noreen
Publisher: MCG
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Textbook Question
Chapter 3A, Problem 3A.4P
Activity-Based Absorption Costing as an Alternative to Traditional Product Costing LO3-5
Elix Company manufactures two models of ultra-high fidelity speakers—the X200 model and the X99 model. Data regarding the two products follow:
Additional information about the company follows:
- Model X200 requires S72 in direct materials per unit, and model X99 requires $50.
- The direct labor workers are paid S20 per hour.
- The company has always used direct labor-hours as the base for applying
manufacturing overhead cost to products. - Model X200 is more complex to manufacture than model X99 and requires the use of special equipment.
- Because of the special work required in (d) above, the company is considering the use of activity-based absorption costing to apply manufacturing overhead cost to products. Three activity cost pools have been identified as follows:
Required:
- Assume that the company continues to use direct labor-hours as the base for applying overhead cost to products.
- Compute the plantwide predetermined overhead rate.
- Compute the unit product cost of each model.
- Assume that the company decides to use activity-based absorption costing to apply overhead cost to products.
- Compute the activity rate for each activity cost pool and determine the amount of overhead cost that would be applied to each model using the activity-based approach.
- Compute the unit product cost of each model.
- Explain why overhead cost shifted from the high-volume model to the low-volume model under the activity-based approach.
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