Platt Sports Products manufactures and distributes three types of golf clubs: beginners, intermediate, and advanced. The materials
Question:
Platt Sports Products manufactures and distributes three types of golf clubs: beginners, intermediate, and advanced. The materials used in these clubs increases in each level and allows for more precise balancing and longer wear. Production is highly automated for the beginners' clubs, whereas the intermediate and advanced clubs require a varying degree of labor, depending on the intricacy of the balancing process. Platt applies all indirect costs according to a predetermined rate based on direct labor hours. A consultant recently suggested that Platt switch to an activity-based costing (ABC) system, and identified the following cost breakdown for the upcoming year:
In addition, management estimates 50,000 direct labor hours will be used in the upcoming year at a rate of $14 per hour.
Assume that the following activity took place in the first month of the upcoming year:
Required:
a. Compute the production costs for each product in the first month of the upcoming year using direct labor hours as the allocation base.
b. Compute the production costs for each product in the first month of the upcoming year using machine hours as the allocation base.
c. Compute the production costs for each product in the first month of the upcoming year using activity based costing.
Step by Step Answer:
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