60.1K

Verified Solution

Link Copied!

please show work to help me understand

Steppin' Out, Inc., produces treadmills. One of its plants produces two versions, a standard model and a deluxe model. The deluxe model has a wider and sturdier base and a variety of electronic gadgets to help the exerciser to monitor heart rate, calories burned, distance traveled, etc. At the beginning of the year, the company had the following budgeted data: Standard Deluxe Expected Sales/Production 20,000 10,000 Quantity Sales Price, per unit $280 $575 Direct Materials Cost $2,000,000 $2,250,000 Direct Manufacturing Labor Costs $1,000,000 $1,250,000 Direct Manufacturing Wage Rate $20.00 $25,00 Machine Hours 25,000 25,000 The company uses a normal costing system that allocates overhead based on direct manufacturing labor hours; they have budgeted total overhead to be $3,000,000 for the coming year. The new accountant, a recent graduate that is up on all the new-fangled trends, suspects that the old system is providing sub-optimal data. She proposes that the company consider implementing an activity-based costing system, and has drawn up the following information to use to substantiate her claim. The production process can be easily divided into the following activities, for which there are readily identifiable cost drivers which can be used to divide the accumulation of overhead costs into related pools: Activity Maintenance Engineering Support Materials Handling Batch Setups Purchasing Cost Driver Maintenance Hours Engineering Hours Number of Moves Number of Setups Number of Requisitions Orders Processed Invoices Processed Cost Pool $400,000 600,000 800,000 500,000 300,000 Amounts of Base to be used by: Standard Deluxe 4,000 16,000 9,000 21,000 10,000 30,000 40 360 500 1,000 Receiving Vendor Payment 200,000 200,000 $3,000,000 2,000 2,500 3,000 2,500 Required: 1. Calculate the costs (in total and per uplit) for each model under the current costing system 2. Calculate the costs in total and per unit) for each model under the proposed costing system. 3. Which method should the company use? Give reasons for your choice

Answer & Explanation Solved by verified expert

See Answer