Adrian, senior vice-president of sales for Oakville Shoes Inc., noticed that the company substantially increased its...

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Adrian, senior vice-president of sales for Oakville Shoes Inc., noticed that the company substantially increased its market share for the high-quality Boomer Boots (BB) and lost market share for the lower-quality Lazy Loafers (LL). Adrian found Oakville's prices were lower than its competitors for BB but higher for LL. He did not understand the reasons for the price differences because all companies use the same production technology and are equally efficient. The manufacturing process is relatively simple. Oakville's manufacturing facility has a cutting department and an assembly department. The BB are produced in small batches (1,000 pairs of shoes each) and the LL are produced in large batches (3,000 pairs each). Adrian has asked the company's cost accountant to analyze the product costing method to see if the product prices should be changed. The company currently uses a plant-wide cost driver rate based on direct labour hours. The following additional information was gathered about the production of batches of BB and LL: Item Direct costs Direct labour hours (DLH) Machine hours (MH) Setup hours Item Direct costs Direct labour hours (DLH) Machine hours (MH) Setup hours Each batch of BB (1,000 pairs) Cutting $7,500 80 160 3 Assembly $6,000 120 130 1 Each batch of LL (3,000 pairs) Cutting $9,000 140 150 1 Assembly $7,200 180 110 1 Total $13,500 200 290 4 Total $16,200 320 260 2 The support costs to the two service departments and the two production departments have been traced. The following details for potential cost drivers for the various departments were identified: Item Support costs Direct labour hours (DLH) Machine hours (MH) Setup hours Maintenance $153,200 Maintenance Setups Cutting supervision Cutting machine depreciation Assembly supervision 0 0 0 Assembly machine depreciation Total Required: Setup $400,000 The following information on activities and their cost drivers has also been gathered for the departments: Support activities Cost $ 153,200 400,000 280,000 166,800 160,000 0 0 0 40,000 $1,200,000 Cutting Assembly Total $446,800 $200,000 $1,200,000 21,400 27,600 27,800 21,600 340 180 Cost driver Machine hours Setup hours Setup hours Machine hours Direct labour hours Machine hours a) Determine the costs per pair of BB and LL using a single plant-wide cost driver rate based on direct labour hours. b) Determine the costs per pair of BB and LL using activity-based costing. 49,000 49,400 520 Adrian, senior vice-president of sales for Oakville Shoes Inc., noticed that the company substantially increased its market share for the high-quality Boomer Boots (BB) and lost market share for the lower-quality Lazy Loafers (LL). Adrian found Oakville's prices were lower than its competitors for BB but higher for LL. He did not understand the reasons for the price differences because all companies use the same production technology and are equally efficient. The manufacturing process is relatively simple. Oakville's manufacturing facility has a cutting department and an assembly department. The BB are produced in small batches (1,000 pairs of shoes each) and the LL are produced in large batches (3,000 pairs each). Adrian has asked the company's cost accountant to analyze the product costing method to see if the product prices should be changed. The company currently uses a plant-wide cost driver rate based on direct labour hours. The following additional information was gathered about the production of batches of BB and LL: Item Direct costs Direct labour hours (DLH) Machine hours (MH) Setup hours Item Direct costs Direct labour hours (DLH) Machine hours (MH) Setup hours Each batch of BB (1,000 pairs) Cutting $7,500 80 160 3 Assembly $6,000 120 130 1 Each batch of LL (3,000 pairs) Cutting $9,000 140 150 1 Assembly $7,200 180 110 1 Total $13,500 200 290 4 Total $16,200 320 260 2 The support costs to the two service departments and the two production departments have been traced. The following details for potential cost drivers for the various departments were identified: Item Support costs Direct labour hours (DLH) Machine hours (MH) Setup hours Maintenance $153,200 Maintenance Setups Cutting supervision Cutting machine depreciation Assembly supervision 0 0 0 Assembly machine depreciation Total Required: Setup $400,000 The following information on activities and their cost drivers has also been gathered for the departments: Support activities Cost $ 153,200 400,000 280,000 166,800 160,000 0 0 0 40,000 $1,200,000 Cutting Assembly Total $446,800 $200,000 $1,200,000 21,400 27,600 27,800 21,600 340 180 Cost driver Machine hours Setup hours Setup hours Machine hours Direct labour hours Machine hours a) Determine the costs per pair of BB and LL using a single plant-wide cost driver rate based on direct labour hours. b) Determine the costs per pair of BB and LL using activity-based costing. 49,000 49,400 520