Question

	Stick	Collapsible
Units Sold	60,000	3,000
Selling Price	$12.50	$14.00
Direct Material Cost Per Unit	$3.00	$3.10
Direct Labor Cost Per Hour	$7.50	$8.00
Variable MO	$0.40	$0.40
Variable Selling Costs	$1.10	$1.10
Labor Hours Per Unit	0.2	0.2
Sales Orders	120	1
Purchase Orders	50	3
Production Runs	45	6
Material Moves	86	10
Machine Setups	130	6
Machine Hours	525	32
Inspections	200	10
Shipments	60	3
Activity Information from Instructions
Activity	Activity Cost	Activity Cost Driver
Order Processing	$35,000	Number of Sales Orders
Purchasing	$36,000	Number of Purchase Orders
Material Handing	$28,000	Material Moves
Machine Setup	$14,000	Machine Setups
Production	$99,000	Production Runs
Assembly	$80,000	Machine Hours
Inspecting	$11,000	Number of Inspections
Shipping	$7,500	Number of Shipments
Requirement 1
Activity	Total Costs	Quantity of Cost Allocation Base	Overhead Allocation Rate
Order Processing	$35,000	121	$289.26
Purchasing	$36,000	53	$679.25
Material Handing	$28,000	96	$291.67
Machine Setup	$14,000	136	$102.94
Production	$99,000	51	$1,941.18
Assembly	$80,002	557	$143.63
Inspecting	$11,000	210	$52.38
Shipping	$7,500	63	$119.05
Requirement 2
Traditional Costing
	Stick Umbrella	Collapsible Umbrella	Total
Revenues	$750,000	$42,000	$792,000
Direct Materials	$180,000	$9,300	$189,300
Direct Labor	$90,000	$4,800	$94,800
Variable Overhead	$24,000	$1,200	$25,200
Variable Selling Costs	$66,000	$3,300	$69,300
Allocated Fixed Overhead	$295,200	$14,760	$309,960
Total Costs	$655,200	$33,360	$688,560
Operating Income	$94,800	$8,640	$103,440
Operating Income %	12.64%	20.57%
Per Unit Operating Income	$1.58	$2.88
Requirement 3
Activity-Based Costing
	Stick Umbrella	Collapsible Umbrella	Total
Revenues	$750,000	$42,000	$792,000
Direct Materials	$180,000	$9,300	$189,300
Direct Labor	$90,000	$4,800	$94,800
Variable Overhead	$24,000	$1,200	$25,200
Variable Selling Costs	$66,000	$3,300	$69,300
Order Processing Costs	$34,711	$289	$35,000
Purchasing Costs	$33,963	$2,038	$36,000
Material Handing Costs	$25,084	$2,917	$28,000
Machine Setup Costs	$13,382	$618	$14,000
Production Costs	$87,353	$11,647	$99,000
Assembly Costs	$75,406	$4,596	$80,002
Inspecting Costs	$10,476	$524	$11,000
Shipping Costs	$7,143	$357	$7,500
Total Costs	$647,517	$41,586	$689,103
Operating Income	$102,483	$414	$102,897
Operating Income %	14%	1%
Per Unit Operating Income	$1.71	$0.14
Requirement 4
Costs per Unit	Stick Umbrella	Collapsible Umbrella
Traditional	$1.58	$2.88
ABC	$1.71	$0.14
Difference	-$0.13	$2.74

Identify an alternative costing method that could benefit this company, and describe the main characteristics of that method. What should a company look for when trying to determine whether they should adopt such a system?Should the company adopt this alternative costing method?

Answer 1