Option #1: Contrasting Traditional Costing and Activity-Based Costing
Fairbanks Corporation produces two types of cell phone electronic chargers: wall chargers and car chargers.
The current traditional costing system allocates overhead costs using a plant-wide overhead rate based on direct labor hours. Since the two products are similar but require different parts and processes, the company controller believes that it might make sense to employ activity-based costing in order to get a better application of overhead expenses to the products produced.
Production expectations for 2017 are 17,000 wall chargers and 15,200 car chargers. The wall chargers take .5 hours to produce. The car chargers take .75 hours to produce.
The direct material and direct labor costs included in the two products are as follows:
Wall chargers use $3.75 of direct material per unit and $9.50 per hour of direct labor. Car chargers use $4.15 of direct material per unit and $9.50 per hour of direct labor. Each charger sells for $23.00.
Budgeted Total Factory Overhead for 2017:
Activity Est. OH Cost Est. Volume LevelsProduction setup$8,50020 setupsMaterials handling$62,0004,500 lbs.Packaging and shipping$120,0006,400 boxesTotal factory overhead$190,500
Fairbanks’ controller worked with the operations group to analyze the three overhead activities in order to effectuate activity-based costing. The estimates related to the two products’ requirements were:
Activity Wall Charger Car ChargerProduction setup35%65%Materials handling60%40%Packaging and shipping55%45%
From the cost information provided, provide responses in Microsoft Excel to the following questions. Reference Lynda.com in the CSU-Global Library (Links to an external site.) for Microsoft Excel tutorials or use the Excel Tutorials link found in the classroom if assistance is needed.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
