Daisy Dog Collars uses activity-based costing. Daisy's system has the following features:

Each collar has 3 parts; direct materials cost per collar is $8. Suppose PetSmart has asked for a bid on 30,000 dog collars. Daisy will issue a total of 1 00 purchase orders if PetSmart accepts Daisy's bid.

Requirements 

1. Compute the total cost Daisy will incur to purchase the needed materials and then assemble and package 30,000 dog collars. Also compute the cost per collar.

2. For bidding, Daisy adds a \(30 \%\) markup to total cost. What total price will the company bid for the entire PetSmart order?

3. Suppose that instead of an ABC system, Daisy has a traditional product costing system that allocates all costs other than direct materials at the rate of \(\$ 9.50\) per direct labor hour. The dog collar order will require 10,000 direct labor hours. What total price will Daisy bid using this system's total cost?

4. Use your answers to Requirements 2 and 3 to explain how \(A B C\) can help Daisy make a better decision about the bid price it will offer PetSmart.

Transcribed Image Text:

Activity Allocation Base Purchasing Number of purchase orders Assembling Number of parts Packaging Number of finished collars Cost Allocation Rate $60.00 per purchase order 0.40 per part 0.20 per collar