Sydney Dandons manufactures Motor Skate Boards in two distinct models, Easy and Sharp. Sydney Dandons 2016 books reveal the following pieces of cost and activity information:
Number of Number of
Product Assembly activity Tuning activity Direct Labour Hours
Easy 31 301 6501
Sharp 71 501 1501
Indirect costs pertaining to âAssemblyâ are $201,000 and âTuningâ are $601,000.
Your manager, Joe, is interested in making a comparison between the Simple/Peanut Butter/Traditional costing system and the advanced Activity-Based costing (ABC) system. Joe asks you to work out âaâ and âbâ below under the Simple/Traditional costing system, applying all the $802,000 indirect/overhead costs using direct labour hours as the indirect cost allocation base.
Then, Joe asks you to work out âcâ and âdâ below under the advanced activity-based costing (ABC) system and using the number of âAssembly activityâ and the number of âTuning activityâ as the cost drivers (i.e. cost allocation bases) for allocating the given overhead/indirect costs:
the amount of indirect/overhead costs assigned to the Easy model?
the amount of indirect/overhead costs assigned to the Sharp model?
the amount of indirect/overhead costs assigned to the Easy model?
the amount of indirect/overhead costs assigned to the Sharp model?
Round off all calculations to 2 decimal places.
Finally, Joe, asks you to:
e. Evaluate/interpret the difference you observe in the costs worked out under âaâ and âbâ (i.e. the Simple/Traditional costing system) and the costs worked out under âbâ and âcâ (i.e. under the ABC system), and conclude which of the two costing systems is a better reflection of the allocation of the indirect/overhead costs, and why?
Sydney Dandons manufactures Motor Skate Boards in two distinct models, Easy and Sharp. Sydney Dandons 2016 books reveal the following pieces of cost and activity information:
Number of Number of
Product Assembly activity Tuning activity Direct Labour Hours
Easy 31 301 6501
Sharp 71 501 1501
Indirect costs pertaining to âAssemblyâ are $201,000 and âTuningâ are $601,000.
Your manager, Joe, is interested in making a comparison between the Simple/Peanut Butter/Traditional costing system and the advanced Activity-Based costing (ABC) system. Joe asks you to work out âaâ and âbâ below under the Simple/Traditional costing system, applying all the $802,000 indirect/overhead costs using direct labour hours as the indirect cost allocation base.
Then, Joe asks you to work out âcâ and âdâ below under the advanced activity-based costing (ABC) system and using the number of âAssembly activityâ and the number of âTuning activityâ as the cost drivers (i.e. cost allocation bases) for allocating the given overhead/indirect costs:
the amount of indirect/overhead costs assigned to the Easy model?
the amount of indirect/overhead costs assigned to the Sharp model?
the amount of indirect/overhead costs assigned to the Easy model?
the amount of indirect/overhead costs assigned to the Sharp model?
Round off all calculations to 2 decimal places.
Finally, Joe, asks you to:
e. Evaluate/interpret the difference you observe in the costs worked out under âaâ and âbâ (i.e. the Simple/Traditional costing system) and the costs worked out under âbâ and âcâ (i.e. under the ABC system), and conclude which of the two costing systems is a better reflection of the allocation of the indirect/overhead costs, and why?
