50.1K

Verified Solution

Link Copied!

Question 1 (a) In not more than 150 words, explain how activity-based costing system will be able to address the following problem of the traditional costing system? Unit-level drivers in traditional costing system distort product costs because, effectively, these drivers assume that all indirect activities affect all products in the same proportion. Thus, these drivers assign each unit of product an average cost that fails to recognize the specific activities that are required to produce that product. (6 marks) (b) Brilliant Accents Company manufactures and sells three styles of kitchen faucets: Brass, Chrome, and White. Production takes 25, 25, and 10 machine hours to manufacture 1000-unit batches of brass, chrome and white faucets, respectively. The following additional data apply: BRASS CHROME WHITE Projected sales in units 30,000 50,000 40,000 $30 PER UNIT data: Selling price Direct materials Direct labor $40 $8 $20 $4 $3 $ 8 $ 9 $15 40 10 30 Hours per 1000-unit batch: Direct labor hours Machine hours Setup hours Inspection hours 25 10 1.0 25 0.5 20 1.0 30 20 Total overhead costs and activity levels for the year are estimated as follows: Activity Overhead costs Activity levels Direct labor hours 2,900 hours Machine hours 2,400 hours Setups $465,500 95 setup hours Inspections $405,000 2,700 inspection hours $870,500 Required: (10 marks) i/ Using direct labor hours to allocate overhead costs (traditional costing system), determine the operating profit per unit for the Chrome style of faucet. Correct to 2 decimal places. 2 ii/ Using the ABC system and correct to 1 decimal place 1. compute the estimated overhead costs per unit of Chrome. 2. compute the estimated operating profit per unit of Chrome. iii/ Explain the differences between the profits obtained from the traditional costing system and the ABC system after considering your arguments provided in (a) above. (The number of words should not exceed 120)

Answer & Explanation Solved by verified expert

See Answer