Plant wide, department, and activity cost rates. Allen’s Aero Toys makes two models of toy airplanes, fighter jets, and cargo planes. The fighter jets are more detailed and require smaller batch sizes. The controller has asked you to compare plant wide, department, and activity based cost allocations.
|
Allen’s Aero Toys |
|||
|
Assembly Department |
Fighters |
Cargo |
Total |
|
Direct materials |
$2.50 |
$3.75 |
$ 6.25 |
|
Direct manufacturing labor |
3.50 |
2.00 |
5.50 |
|
Total direct cost per unit |
$6.00 |
$5.75 |
$11.75 |
|
Painting Department |
Fighters |
Cargo |
|
|
Direct materials |
$0.50 |
$1.00 |
$ 1.50 |
|
Direct manufacturing labor |
2.25 |
1.50 |
3.75 |
|
Total direct cost per unit |
$2.75 |
$2.50 |
$5.25 |
|
Number of units produced |
800 |
740 |
|
The budgeted overhead cost for each department is as follows:
|
Assembly Department |
Painting Department |
Total |
|
|
Materials handling |
$1,700 |
$ 900 |
$ 2,600 |
|
Quality inspection |
2,750 |
1,150 |
3,900 |
|
Utilities |
2,580 |
2,100 |
4,680 |
|
$7,030 |
$4,150 |
$11,180 |
Other information follows:
Materials handling and quality inspection costs vary with the number of batches processed in each department. The budgeted number of batches for each product line in each department is as follows:
|
Fighters |
Cargo |
Total |
|
|
Assembly department |
150 |
48 |
198 |
|
Painting department |
100 |
32 |
132 |
|
Total |
250 |
80 |
330 |
Utilities costs vary with direct manufacturing labor cost in each department.
1. Calculate the budgeted cost per unit for fighter jets and cargo planes based on a single plant wide overhead rate, if total overhead is allocated based on total direct costs.
2. Calculate the budgeted cost per unit for fighter jets and cargo planes based on departmental overhead rates, where assembly department overhead costs are allocated based on direct manufacturing labor costs of the assembly department and painting department overhead costs are allocated based on total direct costs of the painting department.
3. Calculate the budgeted cost per unit for fighter jets and cargo planes if Allen’s Aero Toys allocates overhead costs using activity based costing.
4. Explain how activity based costing could improve or reduce decision quality.