.What is the total cost and gross margin per unit for the Basic and Hi-Tech models assuming FSC uses a traditional costing system? 2.FSC is looking at adopting an activity based costing system instead of using the traditional costing system. Preliminary work shows that manufacturing overhead costs can be sorted into 4 activity cost pools as follows:       Expected Activity Activity Activity Measure Estimated Overhead Costs Basic Hi-Tech Total Supporting direct labour direct labour hours  $         1,150,000            150,000              75,000            225,000 Batch costs # of setups             1,240,000                      75                    275                    350 Product related # of products                 210,000                        1                        1                        2 Other square feet                 100,000              15,000              17,500              32,500      $         2,700,000       3. What is the total cost and the gross margin per unit for the Basic and the Hi-tech models using Activity Based Costing? 4.Comment on the difference in the resulting cost per unit for each model between the traditional costing and activity-based costing. Which is more accurate? Why?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Filling Smoker Company (FSC) makes two types of barbeque smokers - Basic and Hi-Tech. Here is information about these two product lines:

    Basic Hi-Tech
Selling price per unit    $                    430  $                670
Direct materials per unit                          165                    425
Direct labor per unit                             60                      90
Direct labor hours per unit                           2.0                     3.0
Estimated annual unit sales                     75,000              25,000
  (assume inventory is constant)    

FSC has a traditional costing system where manufacturing overhead is applied to units on the basis of direct labor hours. FSC estimates that for the upcoming year it will incur:

Estimated manufacturing overhead  $         2,700,000
Estimated total direct labor hours                 225,000

1.What is the total cost and gross margin per unit for the Basic and Hi-Tech models assuming FSC uses a traditional costing system?

2.FSC is looking at adopting an activity based costing system instead of using the traditional costing system. Preliminary work shows that manufacturing overhead costs can be sorted into 4 activity cost pools as follows:

      Expected Activity
Activity Activity Measure Estimated Overhead Costs Basic Hi-Tech Total
Supporting direct labour direct labour hours  $         1,150,000            150,000              75,000            225,000
Batch costs # of setups             1,240,000                      75                    275                    350
Product related # of products                 210,000                        1                        1                        2
Other square feet                 100,000              15,000              17,500              32,500
     $         2,700,000      

3. What is the total cost and the gross margin per unit for the Basic and the Hi-tech models using Activity Based Costing?

4.Comment on the difference in the resulting cost per unit for each model between the traditional costing and activity-based costing. Which is more accurate? Why?

 

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