Part $3$:$$ Activity$-$Based Costing

Similarly, Mr$.$ Suncat has a couple of questions for you regarding the activity$-$based costing method.$$ He has provided the following additional information:

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Cost

Pools

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Cost

Drivers

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Estimated Overhead

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Expected Use of Cost Drivers

Expected Use of Cost Driver:$$ Basic

Wedding Cake

Expected Use of Cost Driver Multi$-$Layer

Wedding Cake

Expected Use of Cost Driver Custom

Wedding Cake

Initial customer meeting

Number of hours spent with customer

$$15,000$

$4\mathrm{.}5$ hours

$0\mathrm{.}75$ hour

$1\mathrm{.}25$ hours

$2\mathrm{.}5$ hours

Purchasing ingredients

Number of purchase requisitions

$$15,000$

$1000$ requisitions

$150$

requisitions

$300$

requisitions

$550$

requisitions

Making and baking the wedding cakes

Direct Labor hours

$$40,000$

$5\mathrm{.}5$ hours

$1\mathrm{.}25$ hour

$2$ hours

$2\mathrm{.}25$ hours

Decorating the wedding cakes

Direct Labor hours

$$70,000$

$9\mathrm{.}5$ hours

$1\mathrm{.}75$ hours

$3$ hours

$4\mathrm{.}75$ hours

Final customer meeting and cake delivery

Number of wedding cakes

$$10,000$

$4200$

$1500$ cakes

$1700$ cakes

$1000$ cakes

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a$.$ Explain the difference between a job$-$order costing system and an activity$-$based costing system.

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b$.$ Identify two reasons why an activity$-$based costing system may be appropriate for the Suncat Cake Shop.

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c$.$ Above, you will see Mr$.$ Suncat$$s cost pools and cost drivers for Suncat Cake Shop.$$ Do you agree with them?$$ Why or why not?$$ If why not, what changes would you recommend?

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d$.$ Using the information above, compute the activity$-$based overhead rate for each of the five cost pools.$$ Round your answer to the nearest cent.$$ Show all calculations and clearly label your answer.

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a$.$ Using activity$-$based costing, compute the total manufacturing overhead cost that is expected to be allocated to each product.$$ Show all calculations and clearly label your answer.

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$1.$ Basic Wedding Cake

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$2.$ Multi$-$layer Wedding Cake

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$3.$ Custom Wedding Cake

e$.$ Using activity$-$based costing, compute the product cost for each product.$$ Show all calculations and clearly label your answer.

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$1.$ Basic Wedding Cake

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$2.$ Multi$-$layer Wedding Cake

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$3.$ Custom Wedding Cake

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g$.$ Compare the total manufacturing overhead cost and the product cost for each product under both the job$-$order costing method and the activity$-$based costing method.$$ Which costing method would you recommend to Mr$.$ Suncat for Suncat Cake Shop and why?