Outdoor Texas makes umbrellas, gazebos, and chaise lounges. The company uses a traditional overhead allocation scheme and assigns overhead to products at the rate of $ 30 per direct labor hour. The costs per unit for each product group in 2013 were as follows:

Because profitability has been lagging and competition has been getting more intense, Outdoor Texas is considering implementing an activity-based costing system for 2014. In analyzing the 2013 data, management determined that its $ 12,030,000 of factory overhead could be assigned to four basic activities: quality control, setups, material handling, and equipment operation. Data for the 2013 costs associated with each of the four activities follow.

Management determined that the following allocation bases and total 2013 volumes for each allocation base could have been used for ABC:

Volume measures for 2013 for each product and each allocation base were as follows:

a. How much direct labor time is needed to produce an umbrella, a gazebo, and a chaise lounge?
b. For 2013, determine the total overhead allocated to each product group using the traditional allocation based on direct labor hours.
c. For 2013, determine the total overhead that would have been allocated to each product group if activity-based costing were used. Compute the cost per unit for each product group.
d. Outdoor Texas has a policy of setting sales prices based on product costs. How would the sales prices using activity-based costing differ from those obtained using the traditional overheadallocation?

  • CreatedJune 03, 2014
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