Reference no: EM132639551

Plata Company produces two products: a mostly handcrafted soft leather briefcase under the label Maletin Elegant and a leather briefcase produced largely through automation and sold under the label Maletin Fina.

The two products use two over- head activities, with the following costs:

Setting up equipment $ 3,000 Machining 18,000

Product Costing Accuracy; Consumption Ratios

Activity-Based Product Costing 147 The controller has collected the expected annual prime costs for each briefcase, the machine hours, the setup hours, and the expected production.

Elegant

Direct labor $9,000

Direct materials $3,000

Units 3,000

Machine hours 500 4,500

Setup hours 100 100

Required

Question 1. Do you think that the direct labor costs and direct materials costs are accurately traced to each briefcase? Explain.

Question 2. Calculate the consumption ratios for each activity.

Question 3. Calculate the overhead cost per unit for each briefcase, using a plantwide rate based on direct labor costs. Comment on this approach to assigning overhead.

Question 4. Calculate the overhead cost per unit for each briefcase using overhead rates based on machine hours and setup hours. Explain why these assignments are more accurate than using direct labor costs.