Reference no: EM132815329

'See. I told you we made a good decision by introducing the Business and Deluxe chairs Look at the profits generated by the two chairs that we are selling at a premium " These were the words of Linda Badger, CEO of Badger Chair Company (BCC) However. Steve Radcliffe. the VP of operations, did not echo her enthusiasm. "Linda. I must say my people on the shop floor are not too happy with the accounting report They are still unable to believe that the Business and Deluxe chairs made money According to them the production of these chairs created nothing but problems '

Question 1:

Badger Chair Company makes four different types of chairs' Regular. Standard, Business, and Deluxe The latter two types of chairs were introduced in 2022 The production and sales of each type of chair were as follows during the last two years

                                                                                               Regular Standard Business Deluxe

                                                                                              2021                   25 000             25 000

2022                                                                                       20.000               20.000                5 000        5.000

Price (2022)                                                                          S 37.8         $ 45.8          S 70 8          $ 98

BCC uses a normal costing system wherein it traces direct material and direct labour costs to the individual products and allocates overhead costs by applying predetermined departmental overhead rates to the actual volume of the allocation base pertaining to each department For 2022 the following overhead costs were estimated in each of the two departments

Consider the following information regarding the actual consumption of resources by each of the four products in 2022

Required:

1. Compute the profitability of each type of chair (please show all the computational steps)

2. In late 2022. Linsey Lindsay. the chief cost accountant. attended a week-long workshop entitled -Advanced Cost Management Methods" offered at a local university. One particular concept she caught on to was activity-based costing. which she decided to implement She found that the total overhead of $1.225.200 consisted of five cost items and six different activities. Upon further analysis. she determined the proportions in which four of the five cost items were consumed by the six activities (facility-level costs are not to be allocated to the activities)

Question 2:

Machining                                                               20%                10%                       35%                40%                 N/A

Assembly                                                                 20%                10%                       40%                40%                 N/A

Machine setup                                                                                            40%                                                                                              N/A

Engineering                                                                                                                                    45%                                                                      N/A

Production planning                                                                      25%                                                                      N/A

Maintenance                                                                                               20%                 10%                       25%                20%                 N/A

100%                100%                     100%           100%

She further determined the following consumption of resources across the four products:

Regular            Standard           Business                Deluxe                        Total

Number of batches                                                   8                    10                           20                     25                    63

Setup time per batch                                             1.5                   1 0                          2 0                    3.0

Machine-hours                                                                                 91,000                    82.000                    18.000                15,000                 206,000

Labour-hours                                                130,000           150.000                    30,000                39,000                 349,000

Maintenance calls                                                 40                    32                    20                     18                  110

Maintenance-hours                                             236                  210                         198                   176                  820

Engineering-hours                                                 166                 156                        112                    136                                                       570

2-a Prepare a table listing the different activities, costs associated with each activity, the appropriate allocation base and the allocation rate for each activity.

2-b Using the above activity rates, assign the costs to each of the four types of chairs and determine their profitability. For simplicity, assign the facility-level costs equally among the four products.

Question 3: Compute the profitablity of each type of chair (please show all the computational steps). (Negative values should be indicated by a minus sign. Round predetermined overhead rate to 2 decimal places. Round "Price", "Prime costs" "Gross margin%" answers to 1 decimal place and "Gross margin/unit" answers to 2 decimal places.)

Question 4: Prepare a table listing the different activities, costs associated with each activity, the appropriate allocation base and the allocation rate for each activity. (Round "Activity Rate" answers to 2 decimal places.)

Question 5: Using the above activity rates, assign the costs to each of the four types of chairs and determine their profitability. For simplicity, assign the facility-level costs equally among the four products. (Negative values should be indicated by a minus sign. Round your intermediate calculations to nearest whole dollar amount. Round "Price", "Prime costs" "Gross marginWo" answers to 1 decimal place and "Gross margin/unit" answers to 2 decimal places.)

Attachment:- accounts assignment.zip