Question

Grandma’s Rocking Chair Company produces 1,000 units each of the Kennedy Rocker and the Bentwood Rocker. Currently, the company uses a traditional cost system, but is considering an activity-based cost system. The company is committed to producing only the highest-quality chairs. Consequently, the management group wants to know what the cost of inspection would be for both products given the following data:
Number of inspections per unit:
Kennedy ............ 3
Bentwood ............ 1
Inspection cost (in total) ...... $50,000
Direct labor hours:
Kennedy ............. 3,000
Bentwood............ 2,000

Required
A. Under traditional costing, how much of the inspection cost would be allocated to Kennedy Rockers and Bentwood Rockers, respectively?
B. Using activity-based costing, how much of the inspection cost would be allocated to Kennedy Rockers and Bentwood Rockers, respectively?
C. Discuss what caused the difference. Would this difference affect management decisions? How? Which method is more accurate? Why?



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  • CreatedMarch 11, 2015
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