In: Accounting
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 |
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 | ||||||||