MINH TIEN Company produces delivery trucks, TT-14 and TT-13. The company is currently using an absorption...

 

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MINH TIEN Company produces delivery trucks, TT-14 and TT-13. The company is currently using an absorption costing system that applies overhead based on direct- labor hours. The budget for the current year ending December 31, 20x1, is as follows: MINH TIEN COMPANY Budgeted Statement of Gross Margin for 20x1 Sales in units Sales revenue ($) Cost of goods manufactured and sold ($) Beginning finished-goods inventory add: Direct material Direct labour Applid MOH Cost of goods available for sale ($) less: Ending finshed goods inventory Cost of goods sold ($) Gross margin ($) Material handling Inspection Total Cost pool Direct labor 424,728 217,181 56,804 118,125 816,238 + Machining Assembly Material handling Inspection A TT 14 *Total manufacturing overhead applied on the basis of direct labour hours: Maching $ Assembly 5000 2,100,000 TT 13 Beginning inventory, finished goods (in units) Ending inventory, finished goods (in units) Sales (in units) The accountant has been reading about a product-costing method called activity-based costing. He is convinced that activity-based costing will cast a new light on future profits. As a result, the director of cost management, has accumulated cost pool information for this year shown on the following chart. This information is based on a product mix of 5,000 units of TT-14 and 5,000 units of TT-13. Cost pool information for 20x1 Activity DL hour Mahcine hours Assembly hours Number of parts Inspection hours 240,000 300,000 540,000 1,500,000 1,750,000 3,250,000 185,185 92,593 277,778 544,025 272,013 816,038 2,469,210 2,414,606 4,883,816 240,000 300,000 540,000 2,229,210 2,114,606 4,343,816 385,394 256,184 -129,210 5000 10,000 2,500,000 4,600,000 TT 14 Total 10,000 15,000 6,000 25,000 5,000 800 700 5,100 TT 13 In addition, the following information is projected for the next calendar year, 20x2 TT 14 TT 13 5,000 30,000 5,500 50,000 7,500 600 700 4,900 On January 1, 20x2, MINH TIEN is planning to increase the prices of TT-14 to $435 and TT-13 to $515. Material costs are not expected to increase in 20x2, but direct labor will increase by 9 percent, and all manufacturing overhead costs will increase by 5 percent. Due to the nature of the manufacturing process, the company does not have any beginning or ending work-in-process inventories. Required: 1. Explain how activity-based costing differs from traditional product costing methods (0.5 points) 2. Using activity-based costing, calculate the pool rate per unit of the appropriate cost driver for each four activities (0.25 points) Using activity-based costing, calculate the total cost for the activity cost pools: machining, assembly, material handling, inspection (Round to nearest dollar) (0.25 points) 3. Calculate expected full product cost for product TT14 and TT13 using ABC method for year of 20x2. (1 points) 4. Prepare budget statement showing the gross margin for the year 20x2, using ABC method. The statement should show each product and a total for the company, including detailed calculations for the cost of goods manufactured and sold (Round to nearest dollar). (0.5 points) MINH TIEN Company produces delivery trucks, TT-14 and TT-13. The company is currently using an absorption costing system that applies overhead based on direct- labor hours. The budget for the current year ending December 31, 20x1, is as follows: MINH TIEN COMPANY Budgeted Statement of Gross Margin for 20x1 Sales in units Sales revenue ($) Cost of goods manufactured and sold ($) Beginning finished-goods inventory add: Direct material Direct labour Applid MOH Cost of goods available for sale ($) less: Ending finshed goods inventory Cost of goods sold ($) Gross margin ($) Material handling Inspection Total Cost pool Direct labor 424,728 217,181 56,804 118,125 816,238 + Machining Assembly Material handling Inspection A TT 14 *Total manufacturing overhead applied on the basis of direct labour hours: Maching $ Assembly 5000 2,100,000 TT 13 Beginning inventory, finished goods (in units) Ending inventory, finished goods (in units) Sales (in units) The accountant has been reading about a product-costing method called activity-based costing. He is convinced that activity-based costing will cast a new light on future profits. As a result, the director of cost management, has accumulated cost pool information for this year shown on the following chart. This information is based on a product mix of 5,000 units of TT-14 and 5,000 units of TT-13. Cost pool information for 20x1 Activity DL hour Mahcine hours Assembly hours Number of parts Inspection hours 240,000 300,000 540,000 1,500,000 1,750,000 3,250,000 185,185 92,593 277,778 544,025 272,013 816,038 2,469,210 2,414,606 4,883,816 240,000 300,000 540,000 2,229,210 2,114,606 4,343,816 385,394 256,184 -129,210 5000 10,000 2,500,000 4,600,000 TT 14 Total 10,000 15,000 6,000 25,000 5,000 800 700 5,100 TT 13 In addition, the following information is projected for the next calendar year, 20x2 TT 14 TT 13 5,000 30,000 5,500 50,000 7,500 600 700 4,900 On January 1, 20x2, MINH TIEN is planning to increase the prices of TT-14 to $435 and TT-13 to $515. Material costs are not expected to increase in 20x2, but direct labor will increase by 9 percent, and all manufacturing overhead costs will increase by 5 percent. Due to the nature of the manufacturing process, the company does not have any beginning or ending work-in-process inventories. Required: 1. Explain how activity-based costing differs from traditional product costing methods (0.5 points) 2. Using activity-based costing, calculate the pool rate per unit of the appropriate cost driver for each four activities (0.25 points) Using activity-based costing, calculate the total cost for the activity cost pools: machining, assembly, material handling, inspection (Round to nearest dollar) (0.25 points) 3. Calculate expected full product cost for product TT14 and TT13 using ABC method for year of 20x2. (1 points) 4. Prepare budget statement showing the gross margin for the year 20x2, using ABC method. The statement should show each product and a total for the company, including detailed calculations for the cost of goods manufactured and sold (Round to nearest dollar). (0.5 points)

Answer rating: 100% (QA)

1 Explain how activitybased costing differs from traditional product costing methods Activitybased costing ABC is a costing method that allocates cost... View the full answer