Question

Elton Company manufactures wheel rims. The company produces two wheel rim models: standard and deluxe. For 2019, Elton's managers have decided to use the same indirect manufacturing costs per wheel rim that they computed in 2018 using activity-based costing. (Click the lcon to view the 2018 indirect manufacturing costs per wheel rim.) In addition to the unit indirect manufacturing costs, the following data are expected for the company's standard and deluxe models for 2019 (Cick the icon to view the expected information.) Because of limited machine hour capacity, Elton can produce either 2,000 standard rims or 2,000 deluxe rims. Read the requirements Requirement 1. If Elton's managers rely on the ABC unit cost data computed in 2018, which model will they produce? Carry each cost to the nearest cent. (Ignore seling and administrative expenses for this calculation.) Use the ABC unit cost data to compute the gross profit per unit for each model. ABC Data Gross Profits Standard Deluxe Sales price Direct materials Direct labor Indirect manufacturing costs Gross profit per unit Eton's managers will produce 2000 units of the model to maximize income.

Answer 1

Activity based costing system is a process in which overhead costs are accumulated based on the activity done and then those are allocated product based on actual consumption of those activities by the product. It is more complex and accurate as compared to traditional costing system Traditional costing system is the system in which the factory overhead is allocated based consumption of the production resources i.e. on direct labour hour or machine hour consumed. This system is very simple and less accurate as compared to Activity based costing system ABC Data Gross profit Particulars Sales Price (A) Ans 1 Standard Deluxe $900.00 $1,040.00 Direct Material (B) Direct Labor (C) S34,00 S51.00 $48,00 $54,00 $140.00 $232,00 Indirect Manufacturing Overhead (D) Gross Profit per unit (A) - (B)-(C)-(D) $678.00 $703.00 Elton's Manager will produce 2000 units of Deluxe Model maximise income. Ans 2 Single Allocation Base Data Gross profit Particulars Standard Deluxe Sales Price (A) $900,00 $1,040.00 Direct Material (B) $34.00 S51.00 Direct Labor (C) $48,00 S54,00 Indirect Manufacturing Overhead (D) Gross Profit per unit (A) (B)-(C)-(D) $139.50 $232.50 $678.50 $702.50 If they rely on the single plant wide allocation rate cost data, Elton's Manager will produce 2000 units of Deluxe mode. It will appear to maximise income. Elton will earn more income by producing the Deluxe model. Activity based costing data are generally more accurate than single plant wide allocation rate Ans 3