Question

C18-20). E18-22. Activity-Based Costing and Conventional Costs Compared Hickory Grill Company manufactures two types of cooking grills: the Gas Cooker an Smoker. The Cooker is a premium product sold in upscale outdoor shops: the Sma major discount stores. Following is information pertaining to the manufacturing ce rent month. Cooker and the Charcoal the Smoker is sold in nufacturing costs for the cur- Gas Cooker Units........ Number of batches........ Number of batch moves... Direct materials ... Direct labor.. 2,000 50 90 $70,000 $44,000 Charcoal Smoker 8,000 20 50 $130,000 $56,000 Manufacturing overhead follows: Cost Activity Materials acquisition and inspection ............ Materials movement. ..... Scheduling $ 68,000 19,600 43,400 $131,000 Cost Driver Amount of direct materials cost Number of batch moves Number of batches REQUIRED a. Determine the total and per-unit costs of manufacturing the Gas Cooker and Charcoal for the month, assuming all manufacturing overhead is assigned on the basis of de dollars. Determine the total and per-unit costs of manufacturing the Gas Cooker and Charcoal for the month, assuming manufacturing overhead is assigned using activity-based

Answer 1

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Hickory Grill
Answer a
Calculation of Total Direct Labor costs
Gas Cooker	44,000.00	A
Charcoal	56,000.00	B
Total Direct Labor costs	100,000.00	C=A+B
Total Manufacturing overhead	131,000.00	D
Predetermined OH Rate	1.31	E=D/C
Allocation of Manufacturing overhead	Gas Cooker	Charcoal
Direct Labor costs	44,000.00	56,000.00	F
Predetermined OH Rate	1.31	1.31	See E
Manufacturing overhead	57,640.00	73,360.00	G=F*E
Calculation of Total costs	Gas Cooker	Charcoal
Direct Material	70,000.00	130,000.00
Direct Labor	44,000.00	56,000.00
Manufacturing overhead	57,640.00	73,360.00	See G
Total costs	171,640.00	259,360.00	H
Units produced	2,000.00	8,000.00	I
Costs per unit	85.82	32.42	J=H/I
Answer b		K	L	M	N=L+M	O=K/N
Calculation of ABC rates for Manufacturing overhead			Activity usage			ABC rates
Activity cost pool	Activity Measure	Cost	Gas Cooker	Charcoal	Total
Material Inspection	Direct material cost	68,000.00	70,000.00	130,000.00	200,000.00	0.34
Material movement	Number of Batch moves	19,600.00	90.00	50.00	140.00	140.00
Scheduling	Number of Batches	43,400.00	50.00	20.00	70.00	620.00
Total Cost assigned		131,000.00
		See O	See L	P=O*L	See M	Q=P*M
Allocation table			Gas Cooker		Charcoal
Activity cost pool	Activity Measure	ABC Rates	Activity used	Cost assigned	Activity used	Cost assigned
Material Inspection	Direct material cost	0.34	70,000.00	23,800.00	130,000.00	44,200.00
Material movement	Number of Batch moves	140.00	90.00	12,600.00	50.00	7,000.00
Scheduling	Number of Batches	620.00	50.00	31,000.00	20.00	12,400.00
Total Cost assigned				67,400.00		63,600.00
Direct Material				70,000.00		130,000.00
Direct Labor				44,000.00		56,000.00
Total costs				181,400.00		249,600.00	R
Units produced				2,000.00		8,000.00	See I
Costs per unit				90.70		31.20	S= R/I
Answer E 18-23
Answer a
Activity based costing is more accurate. Because it allocates Manufacturing overhead on the basis of activity consumed by each product. Gas cooker is costing more under ABC and it is correct too.
If manager allocates Manufacturing overhead on the basis of direct labor cost than it will show less cost of Gas cooker which is not good for decision making.
Answer b
If the processes are automated then its more simple to allocate costs. Cost will be assigned on the basis of resources used.
Answer c
The data is accurate now as ABC has been used and it can be shown to management for decision making purpose.