1. Using a single, plantwide overhead rate based on direct labor hours, determine the costs per pair of BB and LL.

2. Determine the costs per pair of BB and LL using activity-based costing.

3. Does Showman Shoes, Inc. have a problem with product cross-subsidization? Explain.

4. What is your recommendation regarding the appropriate product costing system for Showman Shoes? Explain.

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Sandra Saldana, senior vice president for sales for Showman Shoes, Inc., noticed that the company had substantially increased its market share for the high-quality boomer boots (BB) and lost market share for the lower-quality lazy loafers (LL). The company currently uses a plantwide overhead rate based on direct labor hours. The rate is computed at the beginning of the year using the following budgeted data: $1,200,000 49,000 Total manufacturing overhead Total machine hours 49,400 520 Total direct labor hours Total setup hours Your assistant has provided you with the following actual information about the production of batches of BB and LL: For each batch of BB (1,000 pairs) Cutting For each batch of LL (3,000 pairs): Assembly Assembly Total Cutting Total Direct Labor Hours 80 120 200 150 180 330 Machine Hours 160 120 280 150 120 270 Setup Hours Direct Costs 3 1 4 1 1 2 $7,500 $6,000 $13,500 $9,000 S7,200 $16,200 Activities Maintenance Activity Category Product sustaining Cost Cost Driver $160,000 Machine hours Setup hours Setup hours Machine Batch related Setups Cutting supervision Cutting depreciation 400,000 280,000 160,000 Batch related Facility sustaining hours Assembly supervision 160,000 Unit related Direct lab. hrs. Assembly depreciation 40,000 Facility sustaining Machine hours $1,200,000 Sandra Saldana, senior vice president for sales for Showman Shoes, Inc., noticed that the company had substantially increased its market share for the high-quality boomer boots (BB) and lost market share for the lower-quality lazy loafers (LL). The company currently uses a plantwide overhead rate based on direct labor hours. The rate is computed at the beginning of the year using the following budgeted data: $1,200,000 49,000 Total manufacturing overhead Total machine hours 49,400 520 Total direct labor hours Total setup hours Your assistant has provided you with the following actual information about the production of batches of BB and LL: For each batch of BB (1,000 pairs) Cutting For each batch of LL (3,000 pairs): Assembly Assembly Total Cutting Total Direct Labor Hours 80 120 200 150 180 330 Machine Hours 160 120 280 150 120 270 Setup Hours Direct Costs 3 1 4 1 1 2 $7,500 $6,000 $13,500 $9,000 S7,200 $16,200 Activities Maintenance Activity Category Product sustaining Cost Cost Driver $160,000 Machine hours Setup hours Setup hours Machine Batch related Setups Cutting supervision Cutting depreciation 400,000 280,000 160,000 Batch related Facility sustaining hours Assembly supervision 160,000 Unit related Direct lab. hrs. Assembly depreciation 40,000 Facility sustaining Machine hours $1,200,000

Answer rating: 100% (QA)

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