ABC Costing

Calculating activity-based product costs; activity-based management Santamaria Skiffs manufactures three models of speedboatsSuperior, Deluxe, and Ultrawhich are sold through marine retail stores. Budgeted information for the coming year is as follows.

Currently, the company allocates overhead using a single predetermined rate based on machine hours. Irvin Santamaria is considering implementing an activity-based costing system. After studying the company's operations, he developed the following five activity cost pools

Irvin also developed the following operating data for the coming year

To ensure the highest level of production quality, all machines are set up and calibrated at

the beginning of every batch.

Required

a.Calculate the unit cost of each of the three speedboat models using the current system of

allocating overhead.

b.Calculate the unit cost of each of the three speedboat models using the proposed

activity-based costing system of allocating overhead.

c.Discuss how the change in costing systems will affect the reported profitability of the

three speedboat models. How will this change affect the overall profitability of the

company?

d.Suppose Santamaria doubles the batch size of each production run. What effect will this

change have on the profitability of each model?

e.Based on your findings, what recommendations do you have for improving the

company's profitability?