Question

Hi! I am able to do most of this problem myself but I get stuck when told to calculate the cost of an interior door and an exterior door under an​ activity-based costing system. Please help! show work too

Decorative Doors, Inc., produces two types of doors, interior and exterior. 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. Recently, the owners of Decorative Doors have been concemed about a decline in the market share for their interior doors, usually their biggest seller. Information related to Decorative Doors production for the most recent year follows: (Click the icon to view the production data.) (Click the icon to view additional information.) Read the requirements. Requirement 1. Calculate the cost of an interior door and an exterior door under the existing simple costing system. Before calculating the cost of an interior and exterior door, begin by calculating the overhead rate under the simple costing system. First select the formula, then enter the applicable amounts and calculate the rate. (Round your answer to the nearest cent. Abbreviations used: bgt. = budgeted, qty = quantity.) Budgeted overhead rate = Simple costing system * Data Table More Info Requirements Interior 3,000 145 55 $ $ Exterior 1,600 $ 225 $ 75 $ 20 S Units sold Selling price Direct material cost per unit Direct manufacturing labor cost per hour Direct manufacturing labor-hours per unit Production runs Material moves Machine setups Machine-hours Number of inspections 20 2.00 The owners have heard of other companies in the industry that are now using an activity-based costing system and are curious how an ABC system would affect their product costing decisions. After analyzing the indirect cost pool for Decorative Doors, the owners identify six activities as generating indirect costs: production scheduling, material handling, machine setup, assembly. inspection, and marketing. Decorative Doors collected the following data related to the indirect cost activities: Activity Activity Cost Activity Cost Driver Production scheduling $ 67,450 Production runs Material handling $ 40,940 Material moves Machine setup 26,040 Machine setups Assembly 30,000 Machine-hours Inspection 16,000 Number of inspections Marketing costs were determined to be 5% of the sales revenue for each type of door. 1. Calculate the cost of an interior door and an exterior door under the existing simple costing system. 2. Calculate the cost of an interior door and an exterior door under an activity-based costing system. 3. Compare the costs of the doors in requirements 1 and 2. Why do the simple and activity-based costing systems differ in the cost of an interior and exterior door? 4. How might Decorative Doors, Inc., use the new cost information from its activity-based costing system to address the declining market share for interior doors? 1.60 160 156 5,500 240 4,500 160 Print Done Print Done Print Done

Answer 1

		Expected Activity
Activity Cost of Pool	Estimated	Interior	Exterior	Total	Cost per activity
	Overhead Cost
Production Scheduling	$          67,450	30	65	95	$             710.00	per production run
Material Handling	$          40,940	70	160	230	$             178.00	per material move
Machine Setup	$          26,040	55	155	210	$             124.00	per machine setup
Assembly	$          30,000	5500	4500	10000	$                  3.00	per machine hour
Inspection	$          16,000	240	160	400	$                40.00	per inspection
	$       1,80,430

	Interior	Exterior
Direct Material Cost	$       1,65,000	$     1,20,000
Direct Labor Cost	$          96,000	$        64,000
Indirect Costs
Production Scheduling	$          21,300	$        46,150
Material Handling	$          12,460	$        28,480
Machine Setup	$            6,820	$        19,220
Assembly	$          16,500	$        13,500
Inspection	$            9,600	$           6,400
Marketing Costs	$          21,750	$        18,000
Total Indirect Costs	$          88,430	$     1,31,750
Total Costs	$       3,27,680	$     2,97,750
Units	3000	1600
Unit Cost	$          109.23	$        186.09