90.2K

Verified Solution

Link Copied!

Company A manufactures a line of high-end exercise equipment of commercial quality. Assume that the Controller has proposed changing from a traditional costing system to an activity based costing system. The Vice-President Finance is not convinced, so she requests that the next large order for equipment be costed under both systems to compare and analyze. The company receives an order from Slim Inc, for 150 low impact treadmills, which the Controller identifies as the order to use for dual costing. The following cost data relate to the Slim Inc order: Data Relevant to Both Costing Systems: Direct materials Direct labour hours Direct labour rate per hour $55,500 820 $18 Data Relevant to the Traditional Costing System: The predetermined overhead rate is 300% of direct labour cost. Data Relevant to the Activity-Based costing System: Activity Cost Pools Cost Drivers Activity-Based Overhead Rate Expected Use of Cost Drivers Per Treadmill 330 20 nor hour Data Relevant to the Activity Based costing System: Activity Cost Pools Cost Drivers Activity-Based Overhead Rate Engineering hours Engineering design Machine set-up Machining Assembly Set-ups Expected Use of Cost Drivers Per Treadmill 330 22 732 1,450 $30 per hour $200 per set-up $25 per hour $8 per sub- assembly $15 per hour Machine hours Number of sub assemblies Packaging & hours Machine hours I 152 Packaging & Shipping Building occupancy 732 $6 per hour Required: Calculate the total cost of the Slim Inc order under a) The traditional costing system b) The activity-based costing system c) As a result of this comparison which costing System Company A likely to adopt? And why

Answer & Explanation Solved by verified expert

See Answer