Whitestone Company produces two subassemblies, JR-14 and RM-13, used in manufacturing trucks. The company is currently using an absorption costing
Whitestone Company produces two subassemblies, JR-14 and RM-13, used in manufacturing trucks. The company is currently using an absorption costing system that applies overhead based on direct-labor hours. The budget for the current year ending December 31, 20x 1 is as follows:
Mark Ward, Whitestone’s president, has been reading about a product-costing method called activity- bused costing. Ward is convinced that activity-based costing will cast a new light on future profits. As a result. Brian Walters, Whitestone’s director of cost management, has accumulated cost pool information for this year shown on the following chart. This information is based on a product mix of 5,000 units of JR-14 and 5,000 units of RM-13,
In addition, the following information is projected for the next calendar year, 20x2
On January 1, 20x2, Whitestone is planning to increase the prices of JR-14 to $355 and RM-13 to $455, Material costs are not expected to increase in 20x2, but direct labor will increase by 8 percent, and all manufacturing overhead costs will increase by 6 percent. Due to the nature of the manufacturing process, the company does not have any beginning or ending work-in-process inventories.
Whitestone uses a just-in-time inventory system and ha materials delivered to the production facility directly from the vendors. The raw-material inventory at both the beginning and the end of the month is immaterial and can be ignored for the purposes of a budgeted income statement. The company uses the first-in, lust-out (FIFO) inventory method.
1. Explain how activity-based costing differs from traditional product-costing methods.
2. Using activity-based costing, calculate the total cost for the following activity cost pools: machining, assembly, material handling, and inspection. (Round to the nearest dollar) Then, calculate the pool rate per unit of the appropriate cost driver fir each of the four activities.
3. Prepare a table showing for each product line the estimated 20x2 cost for each of the following cost elements: direct material, direct labor, machining, assembly, material handling, and inspection.(Round to the nearest dollar,)
4. Prepare a budgeted statement showing the gross margin for Whitestone Company for 20x2, using activity-based costing. The statement should show each product and a total for the company. Be sure to include detailed calculations for die cost of goods manufactured and sold. (Round each amount in the statement to the nearest dollar)
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