Question

Fluff and​ Chop, Inc. is a manufacturer of decorative pillows. The company produces and sells two​...

Fluff and​ Chop, Inc. is a manufacturer of decorative pillows. The company produces and sells two​ products: Square and Round.​ Currently, the company uses a traditional costing system to allocate manufacturing overhead to production based on machine hours. Management is considering switching to ABC to improve costing accuracy.

In their analysis of manufacturing​ overhead, management has identified two activities and cost​ pools: Machining and Machine Setup.​ $96,000 of the budgeted manufacturing overhead relates to the machine setup activity. Machine setup overhead costs are driven by number of setups.

The projected production levels for the upcoming period are​ 1,000 Square pillows and​ 5,000 Round pillows. The following information was compiled for the product​ lines:

Square

Round

machine hours

0.9 hours per pillow

0.3 hours per pillow

setups

25 pillows per setup

25 pillows per setup

Which of the following statements is correct with regard to the above​ information?

A.

Under activity based​ costing, 50% of the machine setup manufacturing overhead costs will be allocated to the Round product line.

B.

The cost distortion per unit for both the Square and the Round product lines with respect to the machine setup manufacturing overhead costs is equal.

C.

The current costing system is undercosting both the Square and Round product lines with respect to machine setup manufacturing overhead costs.

D.

Under the current costing​ system, 75% of the machine setup manufacturing overhead costs will be allocated to the Square product line.

E.

None of the above statements are correct.

Homework Answers

Answer #1
Square Round
As per ABC $              16,000 $                80,000
As per Current System $              36,000 $                60,000
Cost Distortion $            (20,000) $                20,000

Answer is E. None of the above statements are correct.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Lloyd and Harry, Inc. is a manufacturer of briefcases. The company produces and sells two products:...
Lloyd and Harry, Inc. is a manufacturer of briefcases. The company produces and sells two products: Leather and Vinyl. Currently, the company uses a traditional costing system to allocate manufacturing overhead to production based on a predetermined manufacturing overhead rate of $100 per machine hour. Management is considering switching to activity based costing to improve costing accuracy. In their analysis of manufacturing overhead, management has identified two activities and cost pools: Product Inspection and Machining. 80% of the total budgeted...
Assume a company produces and sells only two products—14,000 units of Product A and 6,000 units...
Assume a company produces and sells only two products—14,000 units of Product A and 6,000 units of Product B. The selling prices are $65 per unit for Product A and $96 per unit for Product B. Product A’s direct materials and direct labor costs per unit are $32 and $12, respectively. Product B’s direct materials and direct labor costs per unit are $34 and $15, respectively. The company is considering implementing an activity-based costing (ABC) system that allocates all of...
Digital Storage Concept Inc. is considering a change to activity-based product costing. The company produces two...
Digital Storage Concept Inc. is considering a change to activity-based product costing. The company produces two products, cell phones and tablet PCs, in a single production department. The production department is estimated to require 4,000 direct labor hours. The total indirect labor is budgeted to be $384,000. Time records from indirect labor employees revealed that they spent 40% of their time setting up production runs and 60% of their time supporting actual production. The following information about cell phones and...
Hickory Company manufactures two products—15,000 units of Product Y and 7,000 units of Product Z. The...
Hickory Company manufactures two products—15,000 units of Product Y and 7,000 units of Product Z. The company uses a plantwide overhead rate based on direct labour-hours. It is considering implementing an activity-based costing (ABC) system that allocates all of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products Y and Z: Activity Measure Estimated Overhead Cost Expected Activity   Machining Machine-hours $ 216,700   11,000 MHs   Machine setups Number...
Coronado has budgeted overhead costs of $1,134,000. It has allocated overhead on a plantwide basis to...
Coronado has budgeted overhead costs of $1,134,000. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 540,000 for the current year. The company has decided to experiment with activity-based costing and has created two activity cost pools and related activity cost drivers. These two cost pools are cutting (cost driver is machine hours) and design (cost driver is number of setups). Overhead allocated to the...
Hickory Company manufactures two products—13,000 units of Product Y and 5,000 units of Product Z. The...
Hickory Company manufactures two products—13,000 units of Product Y and 5,000 units of Product Z. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates all $745,200 of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products Y and Z: Activity Cost Pool Activity Measure Estimated Overhead Cost Expected Activity Machining Machine-hours $ 242,400 12,000...
EcoFabrics has budgeted overhead costs of $963,900. It has allocated overhead on a plantwide basis to...
EcoFabrics has budgeted overhead costs of $963,900. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 459,000 for the current year. The company has decided to experiment with activity-based costing and has created two activity cost pools and related activity cost drivers. These two cost pools are cutting (cost driver is machine hours) and design (cost driver is number of setups). Overhead allocated to the...
Angara Corporation uses activity-based costing to determine product costs for external financial reports. The company has...
Angara Corporation uses activity-based costing to determine product costs for external financial reports. The company has provided the following data concerning its activity-based costing system: Activity Cost Pool (and Activity Measure) Total Cost Machine related (machine-hours) $ 111,600 Batch setup (setups) $ 441,600 Order size (direct labor-hours) $ 91,700 Total Activity Activity Cost Pools Product X Product Y Total Machine related 1,000 5,000 6,000 Batch setup 2,500 3,500 6,000 Order size 6,000 1,000 7,000 The total amount of overhead cost...
4A. Harootunian Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based...
4A. Harootunian Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on machine-hours. The company based its predetermined overhead rate for the current year on the following data: Total machine-hours 80,000 Total fixed manufacturing overhead cost $ 312,000 Variable manufacturing overhead per machine-hour $ 2.10 Recently, Job T629 was completed with the following characteristics: Number of units in the job 50 Total machine-hours 200 The predetermined overhead rate is closest to: Multiple Choice $8.10 per...
Hickory Company manufactures two products—14,000 units of Product Y and 6,000 units of Product Z. The...
Hickory Company manufactures two products—14,000 units of Product Y and 6,000 units of Product Z. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates all $748,800 of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products Y and Z: Activity Cost Pool Activity Measure Estimated Overhead Cost Expected Activity Machining Machine-hours $ 206,000 10,000...