12 May EXPLAIN THE DIFFERENCE BETWEEN THE COSTS OBTAINED FROM THE TRADITIONAL COSTING SYSTEM AND THE ABC SYSTEM.
Question 1: (Total 5 Marks)Hackerott Camera is considering eliminating Model AE1 from its camera line because of losses over the past quarter. The past three months of information for model AE1 is summarized below:Sales (1,000 units)$250,000Manufacturing costs:Direct materials140,000Direct labor ($15 per hour)30,000Support100,000Operating loss($20,000)Support costs are 70% variable and the remaining 30% is depreciation of special equipment for model AE1 that has no resale value.Should Hackerott Camera eliminate Model AE1 from its product line? Why or why not?Question 2: (Total 6 Marks)Silver Lake Cabinets is approached by Ms. Jenny Zhang, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. The following per unit data apply for sales to regular customers:Direct materials$100Direct labor125Variable manufacturing support60Fixed manufacturing support75Total manufacturing costs360Markup (60%)216Targeted selling price$576Silver Lake Cabinets has excess capacity. Ms. Zhang wants the cabinets in cherry rather than oak, so direct material costs will increase by $30 per unit.Required:a. For Silver Lake Cabinets, what is the minimum acceptable price of this one-time-only special order?b. Other than price, what other items should Silver Lake Cabinets consider before accepting this one-time-only special order?c. How would the analysis differ if there was limited capacity?Question 3: (Total 9 Marks)Hill Manufacturing uses departmental cost driver rates to apply manufacturing overhead costs to products. Manufacturing overhead costs are applied on the basis of machine-hours in the Machining Department and on the basis of direct labor-hours in the Assembly Department. At the beginning of 20X5, the following estimates were provided for the coming year:MachiningAssemblyDirect labor-hours10,000 dlh90,000 dlhMachine-hours100,000 mh5,000 mhDirect labor cost$ 80,000$720,000Manufacturing overhead costs$250,000$360,000The accounting records of the company show the following data for Job #846:MachiningAssemblyDirect labor-hours50 dlh120 dlhMachine-hours170 mh10 mhDirect material cost$2,700$1,600Direct labor cost$ 400$ 900Required:a. Compute the manufacturing overhead allocation rate for each department.b. Compute the total cost of Job #846.c. Provide possible reasons why Hill Manufacturing uses two different cost allocation rates.Question 4: (Total 10 Marks)Cocoa Pet Corporation manufactures two models of grooming stations, a standard and a deluxe model. The following activity and cost information has been compiled:ProductNumber of SetupsNumber of ComponentsNumber of Direct Labor HoursStandard330650Deluxe750150Overhead costs$20,000$60,000Assume a traditional costing system applies the $80,000 of overhead costs based on direct labor hours.a. What is the total amount of overhead costs assigned to the standard model?b. What is the total amount of overhead costs assigned to the deluxe model?Assume an activity-based costing system is used and that the number of setups and the number of components are identified as the activity-cost drivers for overhead.c. What is the total amount of overhead costs assigned to the standard model?d. What is the total amount of overhead costs assigned to the deluxe model?e. Explain the difference between the costs obtained from the traditional costing system and the ABC system. Which system provides a better estimate of costs? Why?Question 1: (Total 5 Marks)Hackerott Camera is considering eliminating Model AE1 from its camera line because of losses over the past quarter. The past three months of information for model AE1 is summarized below:Support costs are 70% variable and the remaining 30% is depreciation of special equipment for model AE1 that has no resale value.Should Hackerott Camera eliminate Model AE1 from its product line? Why or why not?Question 2: (Total 6 Marks)Silver Lake Cabinets is approached by Ms. Jenny Zhang, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. The following per unit data apply for sales to regular customers:Silver Lake Cabinets has excess capacity. Ms. Zhang wants the cabinets in cherry rather than oak, so direct material costs will increase by $30 per unit.Required:a. For Silver Lake Cabinets, what is the minimum acceptable price of this one-time-only special order?b. Other than price, what other items should Silver Lake Cabinets consider before accepting this one-time-only special order?c. How would the analysis differ if there was limited capacity?Question 3: (Total 9 Marks)Hill Manufacturing uses departmental cost driver rates to apply manufacturing overhead costs to products. Manufacturing overhead costs are applied on the basis of machine-hours in the Machining Department and on the basis of direct labor-hours in the Assembly Department. At the beginning of 20X5, the following estimates were provided for the coming year:The accounting records of the company show the following data for Job #846:Required:a. Compute the manufacturing overhead allocation rate for each department.b. Compute the total cost of Job #846.c. Provide possible reasons why Hill Manufacturing uses two different cost allocation rates.Question 4: (Total 10 Marks)Cocoa Pet Corporation manufactures two models of grooming stations, a standard and a deluxe model. The following activity and cost information has been compiled:Assume a traditional costing system applies the $80,000 of overhead costs based on direct labor hours.a. What is the total amount of overhead costs assigned to the standard model?b. What is the total amount of overhead costs assigned to the deluxe model?Assume an activity-based costing system is used and that the number of setups and the number of components are identified as the activity-cost drivers for overhead.c. What is the total amount of overhead costs assigned to the standard model?d. What is the total amount of overhead costs assigned to the deluxe model?e. Explain the difference between the costs obtained from the traditional costing system and the ABC system. Which system provides a better estimate of costs? Why?
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