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Traditional Product Costing versus Activity-Based Costing Ridgeland Inc. makes backpacks for large sporting goods chains that...

Traditional Product Costing versus Activity-Based Costing
Ridgeland Inc. makes backpacks for large sporting goods chains that are sold under the customers' store brand names. The Accounting Department has identified the following overhead costs and cost drivers for next year:

Overhead Item Expected Costs Cost Driver Maximum Quantity
Setup costs $979,200 Number of setups 7,200
Ordering costs 260,000 Number of orders 65,000
Maintenance 1,840,000 Number of machine hours 80,000
Power 176,000 Number of kilowatt hours 440,000

Total predicted direct labor hours for next year is 52,000. The following data are for two recently completed jobs:

Job 201 Job 202
Cost of direct materials $13,000 $14,500
Cost of direct labor $21,100 $64,800
Number of units completed 1,000 850
Number of direct labor hours 220 270
Number of setups 15 19
Number of orders 21 42
Number of machine hours 450 360
Number of kilowatt hours 200 300

a. Determine the unit cost for each job using a traditional plantwide overhead rate based on direct labor hours.
Round cost per unit answers to two decimal places when applicable.

Job 201 Job 202
Direct materials
Direct labor
Overhead
Total cost
Units produced
Cost per unit


b. Determine the unit cost for each job using ABC. Round cost per unit answers to two decimal places when applicable.

Job 201 Job 202
Direct materials
Direct labor
Setup cost
Ordering costs
Maintenance costs
Power
Total job costs
Units produced
Cost per unit

Solutions

Expert Solution

1 Job 101 Job 202
Direct materials $13,000 $14,500
Direct labor $21,100 $64,800
Overhead $13,772 $16,902
Total cost $47,872 $96,202
Units produced                 1,000              850
Cost per unit $47.87 $113.18
working Expected Costs
Setup costs $979,200
Ordering costs $260,000
Maintenance $1,840,000
Power $176,000
Total overhead $3,255,200
Total labor hours               52,000
Predetermine overhead rate $62.60
2 Job 101 Job 202
Direct materials $13,000 $14,500
Direct labor $21,100 $64,800
Setup costs $2,040 $2,584
Ordering costs $84 $168
Maintenance $10,350 $8,280
Power $80 $120
Total job costs $46,654 $90,452
Units produced                 1,000              850
Cost per unit $46.65 $106.41
Job 101 Job 102
working Expected Costs Expected Activity Activity Rate Activity driver incurred Overhead assigned Activity driver incurred Overhead assigned
Setup costs $979,200            7,200 Number of setups $136.00                15 $2,040                19 $2,584
Ordering costs $260,000          65,000 Number of orders $4.00                21 $84                42 $168
Maintenance $1,840,000          80,000 Number of machine hours $23.00              450 $10,350              360 $8,280
Power $176,000        440,000 Number of kilowatt hours $0.40              200 $80              300 $120

ekkarill92 answered 2 years ago
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