Destiny Dog Collars uses activity-based costing. Destiny€™s system has the following features:

Each collar has two parts, direct materials cost is $8.00 per collar, and direct labor cost is $3.00 per collar. Suppose Animal Hut has asked for a bid on 25,000 dog collars. Destiny will issue a total of 75 purchase orders if Animal Hut accepts Destiny€™s bid.
Requirements
1. Compute the total estimated cost Destiny will incur to purchase the needed materials and then assemble and package 25,000 dog collars. Also compute the cost per collar.
2. For bidding, Destiny adds a 25% markup to total cost. What total price will the company bid for the entire Animal Hut order?
3. Suppose that instead of an ABC system, Destiny has a traditional product costing system that allocates indirect costs at the rate of $9.20 per direct labor hour. The dog collar order will require 14,000 direct labor hours. What total price will Destiny bid using this systems total cost?
4. Use your answers to Requirements 2 and 3 to explain how ABC can help Destiny make a better decision about the bid price it will offer Animal Hut.

Transcribed Image Text:

Predetermined Overhead Allocation Rate S 60.00 per purchase order Activity Purchasing Assembling Packaging Allocation Base Number of purchase orders Number of parts Number of finished collars 0.42 per part 0.20 per collar