Problem

Selecting Cost Drivers, Assigning Costs Using Activity RatesMuffintop Company makes two mo...

Selecting Cost Drivers, Assigning Costs Using Activity Rates

Muffintop Company makes two models of snack cake, the poppyseed and the blueberry. Basic production information follows:

 

Poppyseed

Blueberry

Direct materials cost per unit

$0.75

$0.85

Direct labor cost per unit

$0.25

$0.25

Sales price per unit

$2.50

$2.50

Expected production per month

140,000 units

190,00 units

Muffintop has monthly overhead of $135,000, which is divided into the following cost pools:

Setup costs

$ 50000

Quality control

28300

Maintenance

37800

Engineering

18900

Total

$135000

The company has also compiled the following information about the chosen cost drivers:

 

Poppyseed

Blueberry

Total

Number of setups required

40

60

100

Number of inspections

275

350

625

Number of machine hours

1,500

750

2,250

Number of Engineering hours

65

70

135

Required:

1.Suppose Muffintop used a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line.


2. Calculate the production cost per unit for each of Muffintop's products under a traditional costing system.


3. Calculate Muffintop's gross margin per unit for each product under the traditional costing system.


4. Select the appropriate cost driver for each cost pool and calculate the activity rates if Muffintop wanted to implement an ABC system.


5. Assuming an ABC system, assign overhead costs to each product based on activity demands.


6. Calculate the production cost per unit for each of Muffintop's products with an ABC system.


7. Calculate Muffintop's gross margin per unit for each product under an ABC system.


8. Compare the gross margin of each product under the traditional system and ABC.

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