70.2K

Verified Solution

Link Copied!

Product Costing Application Project

Rawhide, Inc. manufactures leather briefcases. The company produces two models: A small briefcase and a large briefcase. Data regarding the two briefcases are as follows:

	Large Briefcase	Small Briefcase
Annual production in units	10,000	35,000
Sales price per unit	$216	$114
Prime costs (direct material and direct labor)	$96	$54
Machining (machine hours)	9,000	1,000
Production (direct labor hours)	15,000	35,000
Setting up equipment (number of setups)	100	100
Special design (design hours)	900	100
	Overhead Activity Costs
Setting up equipment	$100,000
Special design	364,000
Production	900,000
Machining	300,000
Total	$1,664,000

Based on the above information, please provide the following information:

1. Calculate the cost per unit for each product by using direct labor hours to assign all overhead costs.

	Large Briefcase	Small Briefcase
Prime costs
Overhead
Total

2A. Calculate activity rates and assign costs to each product.

Activity	Activity Rates
Machine setup
Special design
Production
Machining

2B. Calculate cost per unit for each product. Compare those per unit costs with the per unit costs calculated in part 1.

	Large Briefcase	Small Briefcase
Prime costs
Machine setup
Special design
Production
Machining
Total overhead costs
Total manufacturing costs
Divide by units produced
Cost per unit (activity-based costing)
Cost per unit (traditional)

3. Analysis (use 150-250 words to answer each of the following):

A. What are the differences in the two approaches to overhead allocation?

B. Which approach is most accurate?

C. In a competitive market where prices are based, at least in part, on cost, what are the potential consequences in selecting one approach over the other?

Product Costing Application Project Evaluation Matrix

Attribute	Proficient	Satisfactory	Unsatisfactory
Part 1 complete and correct, follows example format.	21-25 points	16-20 points	0-15 points
Part 2A complete and correct, follows example format.	21-25 points	16-20 points	0-15 points
Part 2B complete and correct, follows example format.	21-25 points	16-20 points	0-15 points
All 3 questions in part 3, relevant content answers, sufficient depth/development, well organized.	21-25 points	16-20 points	0-15 points

Answer & Explanation Solved by verified expert

See Answer