Requirement 1 : An alternative costing method that might benefit Hampshire is the implementation of activity-based costing (ABC). Hampshire would like to implement an ABC approach to analyze the production of this special order of collapsible umbrellas. The controller has assembled the following information.

Units Sold Stick Collapsible

(Stick umbrella) 60,000 3000 (Collapsible Umbrella)

Selling Price $12.50 $14.00

Direct Material Cost per Unit $3 $3.10

Direct Labor Cost Per Hour $7.50 $8.00

Variable Manufacturing Overhead $0.40 $0.40

Variable Selling Costs $1.10 $1.10

Labor Hours per unit $0.2 0.2

Sales Order 120 1

Purchase Orders 50 3

Production Runs 45 6

Material Moves 86 10

Machine Setups 130 6

Machine Hours 525 32

Inspections 200 10

Shipments 60 3

Table 1: Direct Cost Information and Activities

Activity Activity Cost Activity Cost Driver

Order Processing

Purchasing

Material Handling

Machine Setup

Production

Assembly

Inspecting

Shipping

Table 2: Activity Cost Pools and Cost Drivers

Activity Total Costs Quantity of Cost Allocated Base Overhead Allocate Rate

Order Processing

Purchasing

Material Handling

Machine Setup

Production

Assembly

Inspecting

Shipping

Requirement 2

Traditional Costing

Stick Umbrella Collapsible Umbrella Total

Revenues

Direct Materials

Direct Labor

Variable Overhead

Variable Selling costs

order processing costs

purchasing costs

Material Handling costs

Machine Set up costs

Production Costs

Assembly costs

Inspection costs

Shipping costs

Total costs

Operating Income

Operating Income %

Per Unit Operating Income

Requirement 4

Cost per unit Stick Umbrella Collapsible Umbrella

Traditional

ABC

Difference

Operating Income

Operating Income %

Per unit operating income

Requirement 3:

Activity-based costing

Stick Umbrella Collapsible Umbrella Total

Revenue

Direct materials

Direct Labor

Variable Overhead

Total Costs

Operating Income

Operating Income %

Per unit operating income

Requirement 3