Noble Industries manufactures two models of tiffany-style lamps, a table-top model and a floor model. Summary data for the two products for the most recent fiscal year showed the following:
Under the company's current costing, manufacturing overhead is allocated on the basis of direct labour-hours. The company president is concerned that the use of a single overhead cost pool does not result in accurate costing of the two product lines and is wondering whether the company should implement activity-based costing (ABC).
The overhead for the year has been estimated at a total of $1,600,000. Further analysis of the overhead costs resulted in the following classification:
Materials handling ............ $450,000
Setups .................. 750,000
General factory overhead ......... 400,000
The company has identified the appropriate cost driver for each activity. Materials handling will be allocated using number of parts, setups will be allocated based on number of setups, and general factory overhead will be allocated using direct labour-hours. The company has budgeted for the production of 40,000 units of the table-top model and 80,000 units of the floor model. Consumption of the cost drivers, based on this production volume, is estimated as follows:
The company currently prices its products by adding a 40% markup to the total manufacturing cost.
1. Compute the per-unit cost and selling price of both models of lamps based on the current costing system.
2. Compute the per-unit cost and selling price of both models of lamps using an ABC costing system.
3. Compare and briefly outline the significance of your results from requirements 1 and 2.

  • CreatedJuly 31, 2015
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