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Northwest Company produces two types of glass shel...




Northwest Company produces two types of glass shelving, rounded edge and squared edge, on the same production line. For the current period, the company reports the following data. Rounded Edge Squared Edge Total Direct material...$19,000 $43,200 $62,200 Direct labor..... 12,200 23,800 36,000 Overhead(300% of direct labor cost)36,000 71,400 108,000 ______ ______ ________ Total cost.... $67,800 $138,400 $206,200 ______ ________ __________ Quantity produuced 10,500 ft. 14,100 ft. Average cost per ft. $6.46 $9.82 Northwest's controller wishes to apply activity-based costing (ABC) to allocate the $108,000 of over head costs incurred by two product lines to see whether cost per foot would change markedly from that reported above. She has collected the following information. Overhead Cost category (Activity Cost Pool) Cost Supervision............... $5,400 Depreciation of machinery........ 56,600 Assembly line preparation........ 46,000 _______ Total overhead............. $108,000 ______________________________________________________ She has also collected the following information about the cost drivers for each category(cost pool)and the amount of each driver used by the two product lines. Overhead Cost Category Usage (Activity cost pool) _______________________ Driver RoundedEdge SquaredEdge Total Supervision.DirectLaborcost($) $12,200 $23,800 $36,000 Depreciation of machinery. Machine Hrs. 500Hrs.1500Hrs. 2,000Hrs Assembly line preparation..Setups(#) 40times 210times 250times ________________________________________________________ Use this information to (1)assign these three overhead cost pools to each of the two products using ABC,(2) determine average cost per foot for each of the two products using ABC, and (3)compare the average cost per foot under ABC with the average cost per foot under the current method for each product. For part 3, explain why a difference between the two cost allocation methods exists.


Paper#9137 | Written in 18-Jul-2015

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