You are a manager at PopUp Company, who manufactures toaster ovens. Your company produces two types...

You are a manager at PopUp Company, who manufactures toaster ovens. Your company produces two types of toaster ovens: basic and deluxe. PopUp Company currently uses a traditional unit-based costing system, however, you feel strongly the company should switch to an activity-based costing system. You believe this change would provide you more accurate costing information, which would allow for better strategic decision making.

Required:

1.Compare the traditional and activity-based cost management systems. Give advantages and disadvantages of each and discuss how these concepts will relate to PopUp Company.

2.


PopUp Company produces two types of toasters, basic and deluxe. For the current period, the company reports the following data:

	Basic Toaster	Deluxe Toaster
Volume	20,000 units	5,000 units
Machine Hours	1,000	2,400
Batches	315	125
Engineering Modifications	20	50
Prime Costs	$20,000	$30,000
Market Price	$25 per unit	$60 per unit

Additional Information Follows

	Costs	Driver
Engineering Support	$15,900	Modifications
Electricity	25,000	Machine Hours
Setup costs	33,900	Batches


1) Compute the manufacturing cost per unit of each toaster using the current unit-based approach.
Under this system costs are assigned to the toasters on the basis of machine hours.

2) Compute the manufacturing cost per unit of each toaster using an activy-based costing approach

Expert Solution

1	Total manufacturing overheads	74800
	Total machine hours	3400
	Predetermined overhead rate	22
		Basic toaster	Deluxe toaster
	Predetermined overhead rate	22	22
	Mahine hours	1000	2400
	Manufacturing overheads	22000	52800
	Number of units	20000	5000
	Manufacturing overhead per unit	1.1	10.56

2		Budgted amount	Activity base	Amount per activity
	Engineering support	15900	70	227.14
	Electricity	25000	3400	7.35
	Setups costs	33900	440	77.05
	Total	74800
		Basic toaster	Per unit	Total cost
	Engineering support	20	227.14	4543
	Electricity	1000	7.35	7353
	Setups costs	315	77.05	24269
	Total cost			36165
	Number of units			20000
	Manufacturing overhead per unit			1.81

		Deluxe	Per unit	Total cost
	Engineering support	50	227.14	11357
	Electricity	2400	7.35	17647
	Setups costs	125	77.05	9631
	Total cost			38635
	Number of units			5000
	Manufacturing overhead per unit			7.73

ekkarill92 answered 1 year ago

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