Under traditional costing, the gross profit on the two containers was: Ice House $3.84 or ($35 ? $31.16), and Cool Chest $4.46 or ($24 ? $19.54). Because of this difference, management is considering phasing out the Ice House model and increasing production of the Cool Chest Model.

Before finalizing its decision, management asks the controller Sven Meza to prepare a product costing analysis using activity-based costing (ABC). Meza accumulates the following information about overhead for the year ended December 31, 2008.

The cost drivers used for each product were:

1. Assign the total 2008 manufacturing overhead to the two products using activity based costing (ABC). Show calculations

2. What were the total cost per unit and the gross profit per unit of each model using ABC costing-show calculations?

3. Are the management?s future plans for the two models sound?

Transcribed Image Text:

Activities Purchasing Machine setups Extruding Quality control Cost Drivers Number of orders Number of setups Machine hours Tests and inspections Estimated Overhead $179,000 $195,000 $ 320,000 $ 160,000 Expected Use of Cost Drivers 4,475 purchase orders 780 setups 80,000 machine hours 8,000 tests Activity-Based Overhead Rate $40 per order $250 per setup $4 per machine hour $20 per test Cost Drivers Purchase orders Machine setups Machine hours Ice House Cool Chest Total 2,500 480 60,000 Tests and inspections 5,000 1,975 300 20,000 3,000 4,475 780 80,000 8,000 Activities Purchasing Machine setups Extruding Quality control Cost Drivers Number of orders Number of setups Machine hours Tests and inspections Estimated Overhead $179,000 $195,000 $ 320,000 $ 160,000 Expected Use of Cost Drivers 4,475 purchase orders 780 setups 80,000 machine hours 8,000 tests Activity-Based Overhead Rate $40 per order $250 per setup $4 per machine hour $20 per test Cost Drivers Purchase orders Machine setups Machine hours Ice House Cool Chest Total 2,500 480 60,000 Tests and inspections 5,000 1,975 300 20,000 3,000 4,475 780 80,000 8,000

Answer rating: 100% (QA)

1 Assigning cost using ABC Ice House of Ice house Over head Ice house Purchasing 0558659218 179000 1... View the full answer