(L.OBJ. 1, 2) Using activity-based costing to make decisions [10 min] Fetch Dog Collars...

(L.OBJ. 1, 2) Using activity-based costing to make decisions [10 min]

Fetch Dog Collars uses activity-based costing. Fetch’s system has the following features:

Each collar has 2 parts; direct materials cost per collar is $10. Suppose PetStart has asked for a bid on 20,000 clog collars. Fetch will issue a total of 175 purchase orders if PetStart accepts Fetch’s bid.

Requirements

1. Compute the total cost Fetch will incur to purchase the needed materials and then assemble and package 20,000 dog collars. Also compute the cost per collar.

2. For bidding, Fetch adds a 35% markup to total cost. What total price will the company bid for the entire PetStart order?

3. Suppose that instead of an ABC system, Fetch has a traditional product costing system that allocates all costs other than direct materials at the rate of $9.20 per direct labor hour. The dog collar order will require 10,000 direct labor hours. What total price will Fetch bid using this system’s total cost?

4. Use your answers to requirements 2 and 3 to explain how ABC can help Fetch make a better decision about the bid price it will offer PetSmart.