The Gruen Toy Company makes a variety of dolls at its operation in Munich.

Its manufacturing process is highly automated. A recently installed ABC system has four activity centers:

Two dolls are called “Ann” and “Andy.” They require .10 and .20 kg of materials, respectively, at a materials cost of €.75 for Ann and €1.10 for Andy. One computer-controlled assembly line makes all dolls. When a production run of a different doll is started, a setup procedure is required to reprogram the computers and make other changes in the process. Normally, 550 Ann dolls are produced per setup, but for Andy dolls, only 110 are produced per setup. Products are packed and shipped separately so a request from a customer for, say, three different products is considered three different orders.

Suppose the gift shop at the Munich Toy Museum (Spielzeugmuseum) just placed an order for 165 Ann dolls and 110 Andy dolls.

1. Compute the cost of the products shipped to the Munich Toy Museum gift shop.

2. Suppose the products made for the Munich Toy Museum gift shop required “Spielzeugmuseum” to be printed on each doll. Because of the automated process, printing the letters takes no extra time or materials, but it requires a special production setup for each product. Compute the cost of the products shipped to the Munich Toy Museum gift shop.

3. Explain how the activity-based-costing system helps Gruen Toy Company to measure costs of individual products or orders better than a traditional system that allocates all non-materials costs based on direct labor.

Transcribed Image Text:

Indirect Resource Activity Center Materials receiving and handling Production setup Catting, sewing, and assembly Packing and shipping Cost Driver Kilograms of materials Number of setups Number of units Number of orders Cost per Driver Unit .80 per kg 55 per setup .50 per unit 7 per order