Prepare a report showing profitability for each product

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Reference no: EM131051444

Brixton Industries

(Contrasting Traditional and ABC Costing) Brixton Industries makes three products: widgets, gadgets, and helios. The following budget information relates to Brixton for next year.

 

Widgets

Gadgets

Helios

Sales and production (units)

50,000

40,000

30,000

Selling price (per unit)

$45

$95

S73

Direct labour and materials (per unit)

$32

$84

565

Machine hours per unit in Machining Dept.

2

5

4

Direct labour hours per unit in Assembly Dept.

7

3

2

Overhead is allocated to production departments as follows:

  • Machining Department at $1.20 per machine hour
  • Assembly Department at $0.825 per direct labour hour

However, you have determined that the overheads could be reanalyzed into cost pools as below:

Cost pool

Cost ($)

Cost Driver

Quantity

Machining services

357,000

Machine hours

420,000

Assembly services

318,000

Direct labour hours

530,000

Set-up

26,000

Set-ups

520

Order processing

156,000

Customer orders

32,000

Purchasing

84,000

Supplier orders

11,200

You have also been provided with the following estimates for the current accounting period.

 

Widgets

Gadgets

Helios

Number of set-ups

120

200

200

Customer orders

8,000

8,000

16,000

Supplier orders

3,000

4,000

4,200

1. Prepare a report showing profitability for each product for the next year using the traditional overhead allocation method.

2. Prepare a report showing profitability for each product using activity-based costing.

3. Explain the differences between the products' profitability using traditional and activity-based costing.

Reference no: EM131051444

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