Question

1) Decorative Doors, Inc. produces two types of doors, brass and copper. The company’s simple costing system has two direct-cost categories (materials and labor) and one indirect-cost pool. The simple costing system allocates indirect costs on the basis of machine-hours.

The owners are curious about how an ABC system would affect their product costing decisions. After analyzing the indirect-cost pool for Decorative Doors, the owners identify five activities as generating indirect costs: production scheduling, material handling, machine setup, assembly, and inspection.

Decorative Doors collected the following data related to the indirect-cost activities:

Activity	Activity cost	Activity allocation base
Production scheduling	$135,000	Production runs
Material handling	$ 67,500	Material moves
Machine setup	$ 37,500	Machine setups
Assembly	$ 90,000	Machine-hours
Inspection	$120,000	Number of inspections
Total indirect costs

Decorative Doors collected the following data for each door model related to the indirect-cost activities:

	Brass doors	Copper doors
Production runs	40	60
Material moves	275	400
Machine setups	50	75
Machine-hours	3,000	12,000
Number of inspections	275	125

How much more overhead is allocated to brass doors if Decorative Doors changes its costing system from the existing simple system to activity-based costing?

2) Esther Baskets Company expects revenue of $100,000 in its sales of baskets in 2020. The company plans to produce 9,000. There are 7,000 baskets in beginning finished goods inventory and Esther has a target ending inventory of 8,000 baskets. The company keeps no work-in-process inventory.

How many baskets do Esther Baskets Company plan to sell?

Answer 1