60.1K

Verified Solution

Link Copied!

As you learned in the previous chapters, Current Designs has two main product linescomposite kayaks, which are handmade and very labour-intensive, and rotomoulded kayaks, which require less labour but use more expensive equipment. Current Designs controller, Debra King, is now evaluating several methods of assigning overhead to these products. It is important to ensure that costs are appropriately assigned to the companys products. At the same time, the system that is used must not be so complex that its costs are greater than its benefits. Debra has decided to use the following activities and costs to evaluate the methods of assigning overhead.

As you learned in the previous chapters, Current Designs has two main product lines-composite kayaks, which are handmade and very labor-intensive, and rotomolded kayaks, which require less labor but employ more expensive equipment. Current Designs' controller, Diane Buswell, is now evaluating several different methods of assigning overhead to these products. It is important to ensure that costs are appropriately assigned to the company's products. At the same time, the system that is used must not be so complex that its costs are greater than its benefits. Diane has decided to use the following activities and costs to evaluate the methods of assigning overhead. As Diane examines the data, she decides that the cost of operating the oven for the rotomolded kayaks and the cost of operating the vacuum line for the composite kayaks can be directly assigned to each of these product lines and do not need to be assigned with the other costs. For purposes of this analysis, assume that Current Designs uses $235,000 in direct labor costs to produce 1,000 composite kayaks and $321,250 in direct labor costs to produce 4,000 rotomolded kayaks each year. Activity-based costing requires a cost driver for each cost pool. Use the following information to assign the costs to the product lines using the activity-based costing approach. What amount of overhead should be assigned to each composite kayak using this method? What amount of overhead should be assigned to each rotomolded kayak using this method? (Round cost assigned per unit to 2 decimal places, e.g. 125.25.)

Answer & Explanation Solved by verified expert

See Answer