ZAPATILLAS RABBIT is a company which is dedicated to the production and marketing of sneakers for: ladies, gentlemen, and children, known as Z-D, Z-C and Z-N.

All its sales are made in its country and currently the company has 160 workers. Sales last year were $1.2 million. Since its beginnings, in 2010, the company has used two costing systems. These two costing systems are Absorption Costing and Direct Costing.

The company allocates its Indirect Manufacturing Costs (IMC), based on the Direct Labor Hours (DLH), consumed in the manufacture of each shoe. The following data are available for the last accounting year (2017):

• Data on units produced, sold, and cost elements (See Table No. 1).

TABLE No. 1

CONCEPT	Z-D	Z-C	Z-N	TOTAL
Units Produced and Sold	20 pairs	50 pairs	10 pairs
Direct Material Cost per unit	$ 5	$ 20	$ 50
DLH cost per unit	$ 5	$ 15	$ 10
IMC				$ 2,000
DLH Hours/Unit	10 Hrs	15 Hrs	5 Hrs	1,000 hours

• The IMC amounts to $ 2,000 and has been incurred by three Cost Centers, which are Engineering, Manufacturing and Warehouse, according to data shown in the following Table No. 2.

TABLE No. 2

COST CENTER	IMC
1. ENGINEERING	$ 300
2. MANUFACTURING	$ 1,050
3. WAREHOUSE AND SHIPPING	$ 650

• IMC Cost Inducing Activities are shown in Table No. 3.

TABLE No. 3

ACTIVITIES	INDUCTORS	IMC
1. Design Models	Number of Design Orders	$ 300
2. Prepare Equipment	Number of Preparation Hours	$ 150
3. Machining	Number of Machine Hours	$ 900
4. Receive Materials	Number of Receptions	$ 400
5 Shipping Products	Number of Shipments to Customers	$ 250
	TOTAL IMC	$ 2,000

• In addition, data has been collected regarding the number of Inductors (Activity Measurement) of each Activity, which is presented in Table No. 4 below:

TABLE No. 4

CONCEPT	Z-D	Z- C	Z- N
A. Number of Design Orders	2	3	1
B. Number of Preparation Hours	5	5	5
C. Number of Machine Hours	20	30	10
D. Number of Receptions	5	10	5
E. Number of Shipments to Customers	5	15	5

Request:

• Cost for products using the Absorption System and the Direct System.
• Make Comparative Tables of the results obtained with the application of each Costing System, identifying the Profits:
  • Unit Cost of Finished Products.
  • IMC per unit of Product.
  • Total IMC by Product.

Answer rating: 100% (QA)

Before calculating the unit costs using absorption and direct costing methods we first need to calcu... View the full answer