Pet-O-Rama makes three types of dog toys: the turtle, the spiky ball and the pretzel. It...

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Pet-O-Rama makes three types of dog toys: the turtle, the spiky ball and the pretzel. It takes 25,25 and 10 machine hours to manufacture 1,000-unit batches of each of the three products. The company has provided the following data: Turtle Sales units - projected Per unit: Sales price Direct materials Direct labour Overhead cost per unit (based on DLH) Hours per 1,000-unit batch Direct labour hours Machine hours Setup hours Inspection hours 30,000 Activity Direct labour hours $40 $8 $15 $12 Machine hours Setups Inspections 40 25 1.0 30 Spiky Ball 50,000 $20 $4 $3 $3 $465,500 $405,000 $870,500 10 25 0.5 20 Pretzel The company allocates overhead based on direct labour hours (DLH) under traditional costing. The management accountant has gathered the following information to determine whether an activity-based costing system would be more appropriate: Overhead costs Activity levels 40,000 $30 $8 $9 $9 30 10 1.0 20 c) Using activity-based costing, calculate for each product: i) the total profit showing detail line-by-line (9 marks) ii) the estimated new overhead cost per unit (3 marks) iii) the estimated operating profit per unit (3 marks) d) Create some useful tables and visualisations of your data (20 marks) 2,900 hours 2,400 hours 95 hours 2,700 inspection hours Required: a) Determine the projected operating profit, in total and per unit, for each of the three products, using direct labour hours to allocate overhead, under the traditional system. (9 marks) b) Calculate activity-cost-driver rates for setup costs and inspection costs (6 marks) e) Explain the differences between the traditional and activity-based costing systems. Which system provides a better estimate of profitability for Pet-O-Rama? Explain why. (10 marks). Pet-O-Rama makes three types of dog toys: the turtle, the spiky ball and the pretzel. It takes 25,25 and 10 machine hours to manufacture 1,000-unit batches of each of the three products. The company has provided the following data: Turtle Sales units - projected Per unit: Sales price Direct materials Direct labour Overhead cost per unit (based on DLH) Hours per 1,000-unit batch Direct labour hours Machine hours Setup hours Inspection hours 30,000 Activity Direct labour hours $40 $8 $15 $12 Machine hours Setups Inspections 40 25 1.0 30 Spiky Ball 50,000 $20 $4 $3 $3 $465,500 $405,000 $870,500 10 25 0.5 20 Pretzel The company allocates overhead based on direct labour hours (DLH) under traditional costing. The management accountant has gathered the following information to determine whether an activity-based costing system would be more appropriate: Overhead costs Activity levels 40,000 $30 $8 $9 $9 30 10 1.0 20 c) Using activity-based costing, calculate for each product: i) the total profit showing detail line-by-line (9 marks) ii) the estimated new overhead cost per unit (3 marks) iii) the estimated operating profit per unit (3 marks) d) Create some useful tables and visualisations of your data (20 marks) 2,900 hours 2,400 hours 95 hours 2,700 inspection hours Required: a) Determine the projected operating profit, in total and per unit, for each of the three products, using direct labour hours to allocate overhead, under the traditional system. (9 marks) b) Calculate activity-cost-driver rates for setup costs and inspection costs (6 marks) e) Explain the differences between the traditional and activity-based costing systems. Which system provides a better estimate of profitability for Pet-O-Rama? Explain why. (10 marks).

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The image contains a case study of a company named PetORama that manufactures three types of dog toys turtle spiky ball and pretzel The company is trying to determine whether to continue allocating ov... View the full answer