Decorative Doors, Inc, produces two types of doors, inte- rior and exterior. The company's simple costing system has two direct-cost categories (materials and labor) and one indirect-cost pool. The simple costing system allocates indirect costs on the basis of machine- hours. Recently, the owners of Decorative Doors have been concemed about a decline in the market share for their interior doors, usually their biggest seller. Information related to Decorative Doors production for the most recent year follows: Exterior Interior Units sold Selling price Direct material cost per unit Direct manufacturing labor cost per hour Direct manufacturing labor-hours per unit Production runs 3,200 1,800 $ 200 $ 125 $ 30 $ 45 $ 16 $ 16 1.50 225 40 85 Material moves 12 168 155 Machine setups Machine-hours 45 5,500 250 4,500 150 Number of inspections The owners have heard of other companies in the industry that are now using an activity-based costing system and are curious how an ABC system would affect their product costing decisions. After analyzing the indirect-cost pool for Decorative Doors, the owners identify six activities as generating indirect costs: production scheduling, material handling, machine setup, assembly. inspection, and marketing. Decorative Doors collected the following data related to the indirect-cost activities: Activity Cost Driver Activity Cost $5,000 $45,000 $25,000 SO0,000 $ 8,000 Activity Production scheduling Material handling Machine setup Assembly Inspection Production runs Material moves Machine setups Machine-hours Number of inspections Marketing costs were determined to be 3% of the sales revenue for each type of door.
Decorative Doors, Inc, produces two types of doors, inte- rior and exterior. The company's simple costing system has two direct-cost categories (materials and labor) and one indirect-cost pool. The simple costing system allocates indirect costs on the basis of machine- hours. Recently, the owners of Decorative Doors have been concemed about a decline in the market share for their interior doors, usually their biggest seller. Information related to Decorative Doors production for the most recent year follows: Exterior Interior Units sold Selling price Direct material cost per unit Direct manufacturing labor cost per hour Direct manufacturing labor-hours per unit Production runs 3,200 1,800 $ 200 $ 125 $ 30 $ 45 $ 16 $ 16 1.50 225 40 85 Material moves 12 168 155 Machine setups Machine-hours 45 5,500 250 4,500 150 Number of inspections The owners have heard of other companies in the industry that are now using an activity-based costing system and are curious how an ABC system would affect their product costing decisions. After analyzing the indirect-cost pool for Decorative Doors, the owners identify six activities as generating indirect costs: production scheduling, material handling, machine setup, assembly. inspection, and marketing. Decorative Doors collected the following data related to the indirect-cost activities: Activity Cost Driver Activity Cost $5,000 $45,000 $25,000 SO0,000 $ 8,000 Activity Production scheduling Material handling Machine setup Assembly Inspection Production runs Material moves Machine setups Machine-hours Number of inspections Marketing costs were determined to be 3% of the sales revenue for each type of door.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter16: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 42P: Good Scent, Inc., produces two colognes: Rose and Violet. Of the two, Rose is more popular. Data...
Related questions
Question
Q.Compare the costs of the doors in requirements 1 and 2. Why do the simple and activity-based costing systems differ in the cost of an interior door and an exterior door?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,