Question 2. (30 marks)

Squamish Co. makes three product road bikes, mountain bikes and hybrid bikes. The road bikes are a low volume product that is more specialized while the mountain bikes and hybrid bikes are of higher volume and easier to manufacture.

Squamish Co. allocated manufacturing overhead costs to the three products for the month of May. Squamish Co. has an estimated overhead cost of $5,000,000 and uses 500,000 machine hours for the year. Squamish Co. has decided to allocated overheads on the basis of machine hours.

At the end of June, Squamish Co. used 7,000 machine hours for manufacturing road bikes, 15,000 machine hours for manufacturing mountain bikes and 13,000 hours for manufacturing hybrid bikes.

Squamish Co. estimates the following activities to be of importance and notes the estimated number of units:

Activity Base

Amount

Total Costs

Purchase Materials

450,000 pieces

2,500,000

Machine Setups

70,000 set ups

1,000,000

Inspections

7,000 inspection hours

700,000

Running Machines

40,000 hours

800,000

Total Overhead

5,000,000

Information

Road Bike

Mountain Bike

Hybrid Bike

Opening Inventory

40

120

40

Produced Inventory

60

50

158

Ending Inventory

30

70

8

Sold Inventory

70

100

190

Sales Price

5,200

4,800

4,500

Direct Materials per bike

800

300

200

Direct Labour hours

10

8

4

Direct Labour costs

20

15

15

Purchase Materials (pieces)

3,000

2,000

1,000

Machine Setups (set ups)

5,000

2,500

3,000

Inspections (hours)

3,000

4,000

1,000

Running Machines (hours)

5,000

4,000

3,000

Part A: Given the following information prepare a schedule that calculates the full cost of the road bike using activity base costing.

Question 2. (30 marks) Squamish Co. makes three product-road bikes, mountain bikes and hybrid bikes. The road bikes are a low volume product that is more specialized while the mountain bikes and hybrid bikes are of higher volume and easier to manufacture. Squamish Co. allocated manufacturing overhead costs to the three products for the month of May. Squamish Co. has an estimated overhead cost of $5,000,000 and uses 500,000 machine hours for the year. Squamish Co. has decided to allocated overheads on the basis of machine hours. At the end of June, Squamish Co. used 7,000 machine hours for manufacturing road bikes, 15,000 machine hours for manufacturing mountain bikes and 13,000 hours for manufacturing hybrid bikes. Squamish Co. estimates the following activities to be of importance and notes the estimated number of units: Activity Base Purchase Materials Machine Setups Inspections Amount 450,000 pieces 70,000 set ups 7,000 inspection hours 40,000 hours Total Costs 2,500,000 1,000,000 700,000 Running Machines Total Overhead 800,000 5,000,000 Hybrid Bike 40 Road Bike 40 60 30 70 5,200 800 158 Mountain Bike 120 50 70 100 4,800 300 8 190 4,500 200 Information Opening Inventory Produced Inventory Ending Inventory Sold Inventory Sales Price Direct Materials per bike Direct Labour hours Direct Labour costs Purchase Materials (pieces) Machine Setups (set ups) Inspections (hours) Running Machines (hours) 10 8 15 20 3,000 4 15 2,000 1,000 5,000 2,500 3,000 3,000 5,000 4,000 4,000 1,000 3,000 Part A: Given the following information prepare a schedule that calculates the full cost of the road bike using activity base costing