Reference no: EM133106576
Problem - Gordon Creatives manufactures three models of garden gates: basic, standard and deluxe. Information for the products are as follows:
|
|
Basic
|
Standard
|
Deluxe
|
|
Direct material
|
$30.00
|
$50.00
|
$ 90.00
|
|
Direct labor
|
20.00
|
40.00
|
100.00
|
|
Machine hours
|
0.5
|
1.0
|
2.0
|
|
Sales price
|
$125
|
$300
|
$500
|
|
Production volume
|
64,000
|
12,000
|
3,000
|
After some recent instances where results were not what he expected, Controller Carrie Barr wonders whether the company's product costs are accurate. She wants to explore whether activity-based accounting will improve product costing information.
Currently the company expects to incur $3,000,000 in manufacturing overhead, which the company will apply to products using machine hours. The company expects to work 60,000 machine hours this year.
As a starting point, Carrie examined company operations and discovered four activities account for the majority of operations: assembly, fabrication, quality control, setups and organization sustaining. The table below shows how manufacturing overhead costs are distributed across those activities.
|
|
Assembly
|
Fabrication
|
Quality Control
|
Setups
|
Organization Sustaining
|
|
Total cost pool
|
$645,000
|
$570,000
|
$525,000
|
$775,000
|
$485,000
|
|
Activity Rate
|
$32.25/DLH
|
$11.40/MH
|
$210.00/inspection
|
$50.00/setup
|
|
Carrie determined the activity drivers for the four activities and how those activities were consumed by the three products, as shown below.
|
Assembly
|
Fabrication
|
Quality Control
|
Setups
|
|
Basic
|
5,000
|
32,000
|
500
|
8,500
|
|
Standard
|
1,000
|
12,000
|
800
|
3,000
|
|
Deluxe
|
14,000
|
6,000
|
1,200
|
4,000
|
|
Total
|
20,000
|
50,000
|
2,500
|
15,500
|
Required - Calculate the total unit cost for each of the three products under activity-based costing.