Lee’s Furniture manufactures two types of chairs---recliner and office chair. The following activity and cost information...

Lee’s Furniture manufactures two types of chairs---recliner and office chair. The following activity and cost information has been compiled:

Number of Number of Number of

Product Setups Components Direct Labor Hours

Recliner 5 40 300

Office chair 8 45 175

Overhead costs $80,000 $180,000

Assume a traditional costing system applies the $260,000 of overhead costs based on direct labor hours.

a. What is the total amount of overhead costs assigned to the recliner?

b. What is the total amount of overhead costs assigned to the office chair?

Assume an activity-based costing system is used and that the number of setups and the number of components are identified as the activity-cost drivers for overhead.

c. What is the total amount of overhead costs assigned to the recliner?

d. What is the total amount of overhead costs assigned to the office chair?

e. Explain the difference between the costs obtained from the traditional costing system and the ABC system. Which system provides a better estimate of costs? Why?

Expert Solution



OH rate per DLH:
Total overheads (80,000+180,000)	2,60,000
Divide: Total DLH (300+175)		475
OH rate per DLH:			547.37

OH allocated as per Tradition:
			Recliner	office chair
DLH used			300	175
Multiply: OH rate per DLH	547.37	547.37
OH allocated		1,64,211	95,790

OH allocated to recliner: $164,211
OH allocated to Office chair: $95790

ABC:
Activity rateL
Activity		Total OH	Drivers	Activity rate
Setup cost	80,000	13	6153.85	per setup
Component cost	1,80,000	85	2117.65	per component

Oh allocated:
Activity		Rate	Recliner	Office Chair
			Driver	OH	Driver	OH
Setup cost	6153.85	5	30769.25	8	49230.8
Component cost	2117.65	40	84706	45	95294.25
		Total overheads	1,15,475		1,44,525

OH allocated to Recliner: $115,475
Oh allocated to Office chair: $ 144,525

Req c.
Comparison:
			Recliner	Office chair
OH as per Traditional	164211	95790
OH as per ABC		115475	1,44,525
Difference in cost		48736	-48,735

ekkarill92 answered 1 year ago

A furniture supplier, Acme Chairs, Inc., manufactures a Basic office chair and a Deluxe office chair....

A furniture supplier, Acme Chairs, Inc., manufactures a Basic office chair and a Deluxe office chair. Each Basic chair costs $25.00 to manufacture, and each Deluxe office chair costs $40.00 to manufacture. Acme Chairs wishes to determine the optimal production quantities per day for each chair model in order to minimize overall total cost. The production of each chair requires three types of materials: Wood, Primer, and Paint. The amount of material available per day to manufacture the chairs is...

Graham Inc. produces three different types of chairs: an outdoor chair, an office chair, and a...

Graham Inc. produces three different types of chairs: an outdoor chair, an office chair, and a kitchen chair. The outdoor chairs are made entirely of plastic. The office chairs have a plastic base and are covered in leather. The kitchen chairs are made out of wood with a leather seat. As the controller, you are expected to prepare Graham 's operating budget for January of 2021. Here is Graham's balance sheet as of 12/31/2020: Cash 12100 AR 9000 DM 810875...

The Chair Company manufactures two modular types of chairs: one for the residential market, and the...

The Chair Company manufactures two modular types of chairs: one for the residential market, and the other for the office market. Budgeted and actual operating data for the year 20XX are: Static Budget Residential Office Total Number of chairs sold 260,000 140,000 400,000 Contribution margin $26,000,000 $11,200,000 $37,200,000 Actual Results Residential Office Total Number of chairs sold 248,400 165,600 414,000 Contribution margin $22,356,000 $13,248,000 $35,604,000 a. Compute the total static-budget variance in terms of contribution margin. State whether the variance...

Penty's Fine Furniture manufactures two models of chairs, a standard and a deluxe model. The following...

Penty's Fine Furniture manufactures two models of chairs, a standard and a deluxe model. The following activity and cost information has been compiled: Standard Deluxe # DL Hours 924 930 # Set Ups 28 62 # Components 5 8 Total estimated manufacturing overhead for the period is $860,000. Penty's currently uses a volume-based costing system with direct labor hours as the only cost driver. a. Calculate the amount of manufacturing overhead allocated to each product under a traditional volume-based system....

An office furniture store is having a sale on a certain type of office chair. The...

An office furniture store is having a sale on a certain type of office chair. The chairs are priced at GH¢800 per chair. The probability distribution for the number of chairs sold to an individual customer is Number of chairs 1 2 3 4 Probability 0.15 0.40 0.10 0.35 a) Find the probability that the number of chairs sold to an individual customer is odd. b) Find the expected number and standard deviation of chairs sold to an individual customer....

Roper Furniture manufactures office furniture and tracks cost data across their process. The following are some...

Roper Furniture manufactures office furniture and tracks cost data across their process. The following are some of the costs that they incur. Classify these costs as fixed or variable costs, and as product costs or period costs: Wood used to produce desks ($125.00 per desk) Production labor used to produce desks ($15 per hour) Production supervisor salary ($45,000 per year) Depreciation on factory equipment ($60,000 per year) Selling and administrative expenses ($45,000 per year) Rent on corporate office ($44,000 per...

Answer the following questions using the information below: The Recliner Company manufacturers a standard massage chair....

Answer the following questions using the information below: The Recliner Company manufacturers a standard massage chair. During February, the firm's Assembly Department started production of 150,000 chairs. During the month, the firm completed 170,000 chairs and transferred them to the Finishing Department. The firm ended the month with 20,000 chairs in ending inventory. All direct materials costs are added at the beginning of the production cycle. Weighted-average costing is used byRecliner. Conversion costs are incurred uniformly over the production cycle....

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS BELOW: The Tokiwa chair company manufacturers a standard recliner. During...

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS BELOW: The Tokiwa chair company manufacturers a standard recliner. During February, the firm's Assembly Department started production of 75,000 chairs. During the month, the firm completed 82,000 chairs, and transferred them to the Finishing Department. The firm ended the month with 3,000 chairs in ending inventory at the Assembly Department. All direct materials costs are added at the beginning of the production cycle and conversion costs are added uniformly throughout the production process. The...

Lee Furniture Company manufactures office chairs. The 2020 operating budget is based on sales of 50,000...

Lee Furniture Company manufactures office chairs. The 2020 operating budget is based on sales of 50,000 units at $65 per chair. Budgeted variable costs are $40 per unit, fixed costs are $800,000, and operating income is projected to be $450,000. Regarding actual results, 54,000 units were sold at $70 each, actual variable costs were $38 per unit and fixed costs were $750,000. Resulting in 2020 actual income of $978,000. Required: Prepare a variance analysis report with both flexible-budget and sales-volume...

Comfort chair company manufactures a standard recliner and uses the FIFO method. In the Assembly Department...

Comfort chair company manufactures a standard recliner and uses the FIFO method. In the Assembly Department (the first department in the production process), the company has two cost categories: direct materials and conversion costs. Direct materials are added at the beginning of the assembly process. Conversion costs are allocated evenly throughout the assembly process. Swivel Chair’s Assembly Department started the month of February with 25,000 units in process that were 50% converted. During the month, 80,000 units were started in...

Question