The Draper Company produces two product, Standard and Custom, and uses a costing system that accumulates all
Question:
The Draper Company produces two product, Standard and Custom, and uses a costing system that accumulates all overhead in a single cost pool and allocates it based on direct labor cost. Draper's management has decided to implement ABC, having just finished a study that revealed significant amounts of overhead cost are related to setup activity and design activity. The number of setups and the number of design hours were selected as the activity drivers for the two new cost pools, and direct labor cost will continue as the base for allocating the remaining overhead. Information concerning Draper Company's most recent year of operations is as follows:
Required: (1) Calculate the total and per-unit costs reported for the two products by the existing costing system, using the format shown in Exhibit 14-3. (2) Calculate the total and per-unit costs reported for the two products by the ABC system, using the format shown in Exhibit 14-4. (3) Reconcile the costs reported for Custom by the two costing systems. Use columns for total and per-unit costs. (4) What percentage of Draper's total overhead is treated differently by the two costing systems? By what percentage did the cost of Custom change as a result of the change in the system? Calculate each answer to the nearest whole percent.
Transcribed Image Text:
Standard 73,500 Custom 125 otal 73,625 Units produced Direct material cost: Per unit Total $100 Direct labor cost Setups Design hours Overhead 12 $ 882,000 $2,910,000 30 12,000 $12,500 894,500 $90,000 $3,000,000 60 15,000 30 3,000 Setup related Design related Other Total overhead S 300,000 900,000 3,300,000 500,000
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1 2 3 Because the existing system used direct labor cost as the only allocation base and Custom cons...View the full answer
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