The Alliance For Global Education Operations And Supply Chain Management Assignment Help - Activity Based Costing

Question - Outdoor Texas makes umbrellas, gazebos, and chaise lounges. The company uses a traditional
overhead allocation scheme and assigns overhead to products at the rate of $30 per direct labor hour.
The costs per unit for each product group in 2013 were as follows:

Umbrellas Gazebos Lawn Chairs
Direct material $ 12 $ 120 $ 12
Direct labor
overhead
18
24
135
180
45
60
Total 54 435 117
Because profitability has been lagging and competition has been getting more intense, Outdoor Living
is considering implementing an activity-based costing system for 2014. In analyzing the 2013 data,
management determined that all $12,030,000 of factory over head could be assigned to four basic
activities: quality control, setups, material handlin ...Read More g, and equipment operation. Data from 2013 on the
costs associated with each of the four activities follows:
Quality Control Setups Material Handling Equipment Operation Total costs
$ 630,000 $ 600,000 $1,900,000 $14,970,000 $18,000,000
ManMagement determined that the following allocation bases and total 2013 volumes for each
allocation base could have been useused for ABC:
Activity Base Volume
Quality control Number of units produced 280,000
Setups Number of setups 2,000
Material handling Pounds of material used 4,000,000
Equipment operation Number of machine hours 2,000,000
Volume measures for 2006 for each product and each allocation base were as follows:
Umbrellas Gazebos Chaise Lounges
Number of units 300,000 30,000 90,000
Number of setups 600 1,300 1,100
Pounds of material 1,200,000 3,000,000 1,800,000
Number of machine hours 600,000 1,100,000 1,300,000
a. How much direct labor time is needed to produce an umbrella, a gazebo, and a chaise lounge?
b. For 2013, determine the total overhead allocated to each product group using the traditional
allocation based on direct labor hours.
c. For 2013, determine the total overhead that would have been allocated to each product group if
activity-based costing were used. Compute the cost per unit for each product group.
d. Louisiana Leisure has a policy of setting sales prices based on product costs. How would the sales
prices using activity-based costing differ from those obtained using the traditional overheadallocation? ...Read Less

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