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PA4-2 Assigning Costs Using Traditional System, Assigning Costs Using Activity Proportions [LO 4-1, 4-3, 4-5, 4-6]...

PA4-2 Assigning Costs Using Traditional System, Assigning Costs Using Activity Proportions [LO 4-1, 4-3, 4-5, 4-6]

Carlise Corp., which manufactures ceiling fans, currently has two product lines, the Indoor and the Outdoor. Carlise has total overhead of $133,810.

Carlise has identified the following information about its overhead activity cost pools and the two product lines:

Activity Cost Pools Cost Driver Cost Assigned
to Pool
Quantity/Amount Consumed by Indoor Line Quantity/Amount Consumed by Outdoor Line
Materials handling Number of moves $ 17,010 630 moves 270 moves
Quality control Number of inspections $ 85,120 5,600 inspections 5,600 inspections
Machine maintenance Number of machine hours $ 31,680 20,000 machine hours 24,000 machine hours

Required:
1.
Suppose Carlise used a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount.)



2. Calculate the activity proportions for each cost pool in Carlise's ABC system. (Round your answers to 2 decimal places.)

  

3. Calculate the amount of overhead that Carlise will assign to the Indoor line if it uses an ABC system. (Round your intermediate calculations to 2 decimal places and round your final answers to the nearest whole dollar amount.)



4. Determine the amount of overhead Carlise will assign to the Outdoor line if it uses an ABC system. (Round your intermediate calculations to 2 decimal places and round your final answers to the nearest whole dollar amount.)

  

5. Compare the results for a traditional system with an ABC system. Which do you think is more accurate?

Traditional System
ABC System

Solutions

Expert Solution

1) predetermined overhead rate = 133,180/(44,000)
3.026818 per machine hour
overhead assigned = overhead rate * machine hrs used
indoor Model                   = 3.03*16000
60536
outdoor model               = 3.03*18000
72644
overhead assigned
Indoor Model 60536
outdoor model 72644
total 133180
indoor outdoor
2) line lines
Materials handling 70.00% 30.00% per move
Quality control 50.00% 50.00% per inspection
Machine maintenance 45.45% 54.55% per machine hour
3) Indoor model
Materials handling 11907
Quality control 42560
Machine maintenance 14400
total overhead assigned 68867
4) outdoor model
Materials handling 5103
Quality control 42560
Machine maintenance 17280
total overhead assigned 64943
5) ABC system

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