Question

Before the Amplifier is a manufacturer of guitars. The company sells acoustic and electric guitars. The electric guitar line is not as profitable as expected despite high production levels. Management is concerned that the price of the electric guitar line is too high in comparison to its competitors and is considering switching to ABC to improve costing accuracy.​ Currently, manufacturing overhead is applied to production based on DL hours and Before the Amplifier sets its sales prices by marking up unit product costs.

Activity	Cost Driver	Cost
Assembly	DL hours logged	​$500
Machining	Machine hours logged	​$1,500
Setting Up Equipment	Number of setups	​$1,200
Product Movement	Number of Moves	​$800

Each Acoustic guitar requires 1 direct labor hour and 0.5 machine hours to produce. Each Electric guitar requires 0.8 direct labor hours and 0.4 machine hours to produce. The production equipment is setup for every 5 Acoustic guitars produced and for every 25 Electric guitars produced. Acoustic guitars are moved during production in groups of 20​ guitars; Electric guitars are moved during production is groups of 25 guitars.

The direct material cost per Acoustic guitar is​ $60 and the direct material cost per Electric guitar is​ $70. Direct Laborers are paid at a rate of​ $25 per hour. The projected production levels for the period are 20 Acoustic guitars and 100 Electric guitars.

The total per unit cost of the acoustic line under the traditional​ (current) system is $___.

The total per unit cost for the electric line under the activity based costing​ (proposed) system is $___. (round to nearest dollar)

The total amount by which each product line is​ over/undercosted is $___.

Before the Amplifier is a manufacturer of guitars. The company sells acoustic and electric guitars. The electric guitar line is not as profitable as expected despite high production levels. Management is concerned that the price of the electric guitar line is too high in comparison to its competitors and is considering switching to ABC to improve costing accuracy. Currently, manufacturing overhead is applied to production based on DL hours and Before the Amplifier sets its sales prices by marking up unit product costs. Cost Activity Cost Driver Assembly DL hours logged Machining Machine hours logged Setting Up Equipment | Number of setups Product Movement Number of Moves $500 $1,500 $1,200 $800 Each Acoustic guitar requires 1 direct labor hour and 0.5 machine hours to produce. Each Electric guitar requires 0.8 direct labor hours and 0.4 machine hours to produce. The production equipment is setup for every 5 Acoustic guitars produced and for every 25 Electric guitars produced. Acoustic guitars are moved during production in groups of 20 guitars; Electric guitars are moved during production is groups of 25 guitars. The total per unit cost of the acoustic line under the traditional (current) system is $ 1. The total per unit cost for the electric line under the activity based costing (proposed) system is $ . (round to the nearest dollar) The total amount by which each product line is over/undercosted is $ .

Answer 1

Answers Page: No 0 Total para contar con el cas de ce acoustic line wunder the traditional Ccument) System - - Total overheads Overhead allocation mate = Total direct labor howis = (500 + 1500 + 1200 +800) (1 DLH * 20 acoustic guitan) + COo8 DLH X 100 electric guitars) 4000 20 + 80 34.$40 per direct labor hows Direct matenia conf per vnit = $60 Dired labor cork per unit = 1 DLH'S X$25 per hour Overhead cook per onit = 1x 440 = $40 Total per unit cosf = 60 +25.440.= $125 Total per unit cost of acoustic line under the traditional 1 * [cuvien) System - $125

Page. No @ Total personit couch for the electric line under activity based conting Corporated) syntes: Assembly overhead allocation = 500 [(1420) + (0-8X160)) 500 20+80 = $5 per direct labor hower viale = 1500 Machining overhead allocation rate = [C0.5X20) + (0.48100) 1500 = 10 +40 $30 por machine hower 1200 Setting op equipment overhead allocation rate a robe * 9 +6.00 - 1200 4+4 = $150 per setup Product movement overhead allocation rate = 800 . 174 =$.160 per move

- Page No ③ - Direct material cord per unit = $40 Direct labor comodo per eit = 0.8 DLH's x $ 5. = $ 20 (1oox0.8 * $5) + (100 x 0.44 $ 30) + Overhead cost per unit - ( 10 x $150) + ( x $160) 100 400 + 1200 + 600 + 640 100 $08:40 = Total per unit coil = - 70+ 20 + 28.40 $118.4 $118 1. Total per unit coof for the electric line onder activity . based costing (proposed ) syafem = $118 Tretical amount by which each product line over onder cookies Acoustic line Overheads as per traditional method = $40 x 20 guitars - $800 -

- Page No Overhead as per activity based costing method (2031* $5) +(2040.5 x $30) + (30 x $150) + 60 x $160) - R 100 + 300 + 600 +160 = $1160 Electric line Overheads as per traditional method - 40X0.8 X 100 $ 3200 Overheads as per activity based costing methed = $ 2804x100 = $2840 | Acoustic line Electric line Overheads as per traditional method $ 800 $3200 Overheads as per ABC method $ 1160 $2840 $360 ( 360) 1. Over/ under costed Undes costed Overconfed