Question

4.13 Functional-Based versus Activity-Based Costing Baldwin Company produces treadmills. One of its plants produces two versions a stan- dard model and a deluxe model. The deluxe model has a wider and sturdier base and a variety of clectronic gadgets to help the exerciser monitor heartbeat, calories burned, distance traveled, and so on. At the beginning of the year, the following data were pre pared for this plant Chapter 4 Activity-Based Costing Expected quantity Selling price Prime costs Machine hours Direct labor hours Engineering support (hours) Receiving (orders processed) Materials handling (number of moves) Purchasing (number of requisitions) Maintenance (hours used) Paying suppliers (invoices processed) Setting up batches (number of setups) Standard Model 20.000 $280 $3 million 25.000 50.000 9.000 2.000 10,000 Deluxe Model 10.000 $575 $3,5 million 25.000 50.000 21,000 3,000 30.000 1.000 16.000 2,500 360 50 4.000 2,500 Additionally, the following overhead activity costs are reported: Maintenance Engineering support Material handling Setups Purchasing Receiving Paying suppliers $ 400,000 600,000 800,000 500,000 300,000 200,000 200.000 $3,000,000 At the end of the year, every item was realized as budgeted. Required: 1. Calculate the cost per unit for cach product using direct labor hours to assign all overhead costs 2. Calculate activity rates and determine the overhead cost per unit. Compare these costs with those calculated using the functional-based method. Which cost is more accurate! Explain

Answer 1

Calaulaling usina airat Labour hone fxeab pnduut Cest unat Standard Partiuulars paluxe To ta modl modul Prime ceet CA 3500,000 6,500,000 3000,000 E)Ousheads (8) 1500,000 3000000 S 00,DOD hrhhani 4, SOD,ODO Total (eet(A+8) 9,500,00D Number eunits Cost 4,50P,000 20,000 4,560,000 20,00o 4500,0001,000 295 unit 450 ar apportienadaio the direit LabDn Oushead basia Ouenhead natfoLaboun heu otar -Dihead Total houra 3,D00,000 50,000+50D00 3,000,000 t00,D00 20/Lakour hour 2. Standad model Deluxe modut. LSDO,O0D 20x 50.00o houss = 1500,000 3D X50,0oo boure

Activity Rates Formuta Deluxe Standard Durhead modet mode. Maintananu Maintinanu heure used 4000 housi u 6000 hour use 20/hourusd 20 per houruse = 4000X 20 0,000 400,000 4000+1600o 6O00 X 20 320,000 20/hour ured Engingerng support Enginesing Ouenead howrs 21000 houra 9Dooboure x 20per houn G00,000 20 per houg gooD + 210DO 21000 X 20 [420,000 g000 x20 = 2০ |bo material handung expense Material handing No. af mous 3D,000 maus 10.000 pmours B0D,000 20/moue 20/moue msio,000 t 30,000 20/mou

Setup Setup Expenee Number of Seup 360 Sep 40 Sthupsx 1250/bup brabaci X 500, 00D 12S0 Dex set 40+360 1250/ sekup 50,000 4 50,000 Purchasing Puchasing expense Noeqsitiens A0 ID00 uis 500 requisihom 3OD, 000 200 per reqw 500+1000 200 per vequis ition 100,000 t2 DD, DOD Recinn Reing espae 0din patsstd 2000 03das19 3000 Oxdens. 200,000 2 Do0 +3000 40 Drde 0dey 40 40/odus Procesced 30,000 120,00D এ fag expense 4nvace poocess ed2500 invoiu 2500 X 40 Dex fnvoike X 200,000 40per gnvoie 2s00 +2500 OD,000 40/ainvoie passed

Dueghead Lest pe unut PartiularS Deluxe Standard Maintinanle B0,DD0 320,000 Enguiusing Eupport 180,000 420, 000 material handing 200,000 600D00 Setup 4 S0,DOD S0,000 Purchacing 2D0,000 Reeising &0,000 120,000 Paying suppues DO,DOO I00,000 Total ouahead 490.000 2,210000 kxputud BuarT. 0,DOD 20,000 (घो Onhead Lest unir (AB 29-6 pez 221

Based umtienal Based & Auhuity Companisien Lest Partilars Funutional basedest fA Standard Deliuexe po.1500,000 1500,0OD 790,0O0 2.210,o00 g0 Actiuity based Lest e) 10000 Cost distortien A B H10,000 Lst moresracuiat calulatis ouhaads by classiping Auhn based because i actieil