Kiddy Company manufactures bicycles. It recently received a request to manufacture 10 units of a mountain bike
Question:
The controller, Sanjay, has recently researched the possibility of using activity-based multiple overhead rates instead of the single rate currently in use. He has promised more accurate estimated overhead product costing, and Melany is curious about how this approach would affect product costing and pricing of the mountain bike.
The plant-wide overhead rate is based on an expected volume of 10,000 direct labour hours and the following budgeted overhead:
Expected activities for selected cost drivers for 2016:
Estimated data for the production of one mountain bike:
Instructions
(a) Using the single-rate method to assign overhead on a plant-wide basis, determine whether or not Kiddy should accept the order for the 10 mountain bikes. Explain your decision.
(b) Using activity-based costing to assign overhead, determine whether or not Kiddy should accept the order for the 10 mountain bikes. Explain your decision.
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Related Book For
Managerial Accounting Tools for Business Decision Making
ISBN: 978-1118856994
4th Canadian edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, Ibrahim M. Aly
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