Question

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Problem: Activity-Based Costing (40 points)' Brown Land Coffee Ltd. makes two types of coffee, Gourmet and Espresso, and applies overhead on the basis of direct-labor hours when the traditional costing system is used. Anticipated manufacturing overhead for the upcoming accounting period is $350,000. Information about the products follows. DL DM (Coffee beans) Price # of Packs estimated and made 20,000 10,000 Gourmet Espresso S38 S60 $5 $10 Thr/pack @S12/hr 1.5hrs/pack @$12/hr Further investigations show that Brown's manufacturing overhead of $350,000 consist of: Setups Machine depreciation Electricity (machinery) Product inspection Maintenance Total cost $68,000 100.000 60,000 40,000 80,000 and Brown's pays factory insurance $2,000 (only for Espresso) annually. The costs in the table are driven by number of Setups, machine hours worked, and the number of inspections, respectively. Data relevant to these activities follow. Product Number of Setups Number of inspections 200 800 200 Gourmet Espresso 300

Answer 1

Answer with working is give below

Direct Labor hour rate 1. $350,000 Total Overheads $10.00 Direct Labor hours 35,000 Gourmet Espresso Output 10,000 20,000 Direct Labor hour per unit 1.0 20,000 1.5 Total Direct Labor hours 15,000 150,000 $15.00 Overheads allocated 200,000 Overhead cost per unit $10.00 Cost per Unit- Traditional Costing Gourmet Espresso $10.00 $18.00 $15.00 $43.00 Direct Material Direct Labor $5.00 $12.00 $10.00 $27.00 Overheads allocated Cost per Unit Allocation of Overhead using ABC Costing 2. Activities consumed Overhead allocated Activity Activity Activity Gourmet Espresso Driver Gourmet Espresso Drivers Cost Pool rate $68,000 $100,000 $60,000 $46,000 300 $27,200.00 $40,800.00 18,000 $55,000.00 $45,000.00 18,000 $33,000.00 $27,000.00 $9,200.00 $36,800.00 $43,537.41 $36,462.59 $2,000.00 $167,937.41 $188,062.59 Set ups 200 $136.00 500 Machine Depreciation Electricity (Machinery) Product inspection Maintenance 40,000 40,000 1,000 147$544.22 $2.50 22,000 $1.50 22,000 $46.00 800 200 $80,000 80 67 Factory Insurance includes allocated cost of office personnel to record product inspections Output Per Unit 20,000 10,000 $8.40 $18.81 Gourmet Espresso 10,000 Output 20,000 production run size Number of runs before maintenance 250 150 80 67 Cost per Unit- ABC Costing Gourmet Espresso $10.00 $18.00 $18.81 Direct Material Direct Labor $5.00 $12.00 Overheads allocated $8.40 $25.40 $46.81 Cost per Unit Comparison of Cost Gourmet Espresso $43.00 Traditional Costing ABC Costing Over/(Under) Cost per unit $27.00 $25.40 $46.81 $1.60 -$3.81 Total Cost distortion 3. Gourmet Espresso $540,000.00 $430,000.00 $507,937.41 $468,062.59 $32,062.59-$38,062.59 Traditional Costing ABC Costing Over/(Under) Cost per unit Gourmet is over -costed and Espresso is Under -costed Maintenance cost 4. Total production Production run size Total runs 1,100 150 7.33 Rounded off to Total cost of maintenance 8 $4,353.74 |(Runs X Activity rate) (8 *$542.22)