Management was very concerned that their traditional method of costing may no longer be appropriate and wanted to consider using the ABC costing method. It has been suggested that three Cost pools be established, with the following cost Drivers, and the Overhead cost be shared among them as follows: Cost Pool Amount Cost Driver Assembling Manufacturing Inspecting $ 50,000 $ 54,000 $ 16,000 Labour cost Labour Hours Number of Inspections In the month of January, the following production data was recorded: Refrigerators Stoves Units produced 15,000 25,000 $ 75,000 $ 40,000 12,000 300 $ 125,000 $ 72,000 15,000 500 Direct Materials Used Direct Labour Cost Direct Labour Hours Number of Inspections Work in Progress at the start of the month Work in Progress at the end of the month. $ 12,500 $ 7,500 $ 14,000 $ 12,000 Manufacturing Overheads for the month amounted to $ 120,000 and this was allocated equally between the two products, using the traditional approach.
Management was very concerned that their traditional method of costing may no longer be appropriate and wanted to consider using the ABC costing method. It has been suggested that three Cost pools be established, with the following cost Drivers, and the Overhead cost be shared among them as follows: Cost Pool Amount Cost Driver Assembling Manufacturing Inspecting $ 50,000 $ 54,000 $ 16,000 Labour cost Labour Hours Number of Inspections In the month of January, the following production data was recorded: Refrigerators Stoves Units produced 15,000 25,000 $ 75,000 $ 40,000 12,000 300 $ 125,000 $ 72,000 15,000 500 Direct Materials Used Direct Labour Cost Direct Labour Hours Number of Inspections Work in Progress at the start of the month Work in Progress at the end of the month. $ 12,500 $ 7,500 $ 14,000 $ 12,000 Manufacturing Overheads for the month amounted to $ 120,000 and this was allocated equally between the two products, using the traditional approach.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter7: Allocating Costs Of Support Departments And Joint Products
Section: Chapter Questions
Problem 23E: Refer to the data in Exercise 7.22. The company has decided to simplify its method of allocating...
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