Question

E18-22. Activity-Based Costing and Conventional Costs Compared

Hickory Grill Company manufactures two types of cooking grills: the Gas Cooker and the Charcoal Smoker. The Cooker is a premium product sold in upscale outdoor shops; the Smoker is sold in major discount stores. Following is information pertaining to the manufacturing costs for the current month

Gas Cooker Charcoal Smoker Units.... 2,000 50 90 $70,000 $44,000 8,000 20 50 $130,000 $56,000

Manufacturing overhead follows:

a. Determine the total and per-unit costs of manufacturing the Gas Cooker and Charcoal Smoker for the month, assuming all manufacturing overhead is assigned on the basis of direct labor dollars.

b. Determine the total and per-unit costs of manufacturing the Gas Cooker and Charcoal Smoker for the month, assuming manufacturing overhead is assigned using activity-based costing.

E18-23. Activity-Based Costing Versus Conventional Costing

Refer to the previous exercise in E18-22 for Hickory Grill.

a. Comment on the differences between the solutions to requirements (a) and (b). Which is more accurate? What errors might managers make if all manufacturing overhead costs are assigned on the basis of direct labor dollars?

b. Hickory Grill’s manufacturing process has become increasingly automated over the past few years. Discuss how this will likely impact its ability to accurately measure product costs.

c. Comment on the adequacy of the preceding data to meet management’s needs

Can someone provide the answers accordingly based on the given question? Thank you. I will rate it if it is correct:-)

Answer 1

Part-a
Manufacturiing overhead Rate=131000/(44000+56000)=$1.31

Computation of price per unit and total
	Gas Cooker		Charcoal Smoker
	$ Total	Per Unit	$ Total	Per Unit
Direct Material	$70,000.00	35	$1,30,000.00	16.25
Direct Labor	$44,000.00	22	$56,000.00	7
Overhead cost per unit	$57,640.00	1.31	$73,360.00	1.31
Total cost per unit	$1,71,640.00	$58.31	$2,59,360.00	$24.56

Part b

Allocation of Overhead Cost
Category	Estimated Cost (A)	Activity Pool (B)	Cost Driver	Activity Rate (C=A/B)	Gas Cooker		Charcoal Smoker
	$				No. of Activity (D)	$(D*C)	No. of Activity ( E)	$ (EXC)
Material Acquisition and Inspection	$68,000	200000	Amount of Direct Materal Cost	$0.34	70000	$23,800	10000	$3,400
Material Movement	$19,600	140	No. of Batches Move	$140.00	90	$12,600	50	$7,000
Scheduling	$43,400	70	No. of Batches	$620.00	50	$31,000	20	$12,400
Total overhead cost	$1,31,000					$67,400		$22,800
Units produced						2,000		8,000
Overhead cost per unit						$33.70		$2.85

Computation of price per unit and total ( using ABC)
	Gas Cooker		Charcoal Smoker
	$ Total	Per Unit	$ Total	Per Unit
Direct Material	$70,000.00	35	$1,30,000.00	16.25
Direct Labor	$44,000.00	22	$56,000.00	7
Overhead cost per unit	$67,400.00	33.7	$22,800.00	2.85
Total cost per unit	$1,81,400.00	$90.70	$2,08,800.00	$26.10