In order to compare WoolCorp’s current method with activity-based costing, you interview the production staff and compile the following information, which relates to the costs for raw wool and wool yarn. Type of Cost Activity Base Total Cost Sorting Hours of sorting $25,600 Cleaning Units of cleaning machine power 38,400 Combing Hours of combing machine use 1,200 Raw Wool Wool Yarn Hours of sorting required 1,000 4,000 Units of cleaning machine power required 1,800 4,200 Hours of combing machine use required 70 30 In the following table, compute and enter the activity rate for each of the three activities. If required, round your answers to the nearest cent. Activity Activity Rate Sorting per sorting hour Cleaning per unit of cleaning machine power Combing per hour of combing machine use In the following table, allocate the costs of sorting, cleaning, and combing based on the rates of activity consumed by each product’s process. When required, round your answers to the nearest dollar. Raw Wool Wool Yarn Sorting cost $ $ Cleaning cost Combing cost Total cost $ $ X Final Question Answer the following question. After reviewing your work on the Single Plantwide Rate and Activity-Based Costing panels, which of the costing method would you recommend to WoolCorp, and why? Since both the methods give the same costs for each product, there is no advantage to either method. The company should use whichever method is the cheapest to implement. Activity-based costing, because it recognizes differences in how each product uses factory overhead activities, yielding more accurate product costs. Single plantwide factory overhead rate method, because it is a tried-and-true method used for the entire life of the company.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter4: Activity-based Costing

Section: Chapter Questions

Problem 4BE: Activity-based costing: selling and administrative expenses Jungle Junior Company manufactures and...

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In order to compare WoolCorp’s current method with activity-based costing, you interview the production staff and compile the following information, which relates to the costs for raw wool and wool yarn.

Type of Cost	Activity Base	Total Cost
Sorting	Hours of sorting	$25,600
Cleaning	Units of cleaning machine power	38,400
Combing	Hours of combing machine use	1,200

	Raw Wool	Wool Yarn
Hours of sorting required	1,000	4,000
Units of cleaning machine power required	1,800	4,200
Hours of combing machine use required	70	30

In the following table, compute and enter the activity rate for each of the three activities. If required, round your answers to the nearest cent.

Activity	Activity Rate
Sorting		per sorting hour
Cleaning		per unit of cleaning machine power
Combing		per hour of combing machine use

In the following table, allocate the costs of sorting, cleaning, and combing based on the rates of activity consumed by each product’s process. When required, round your answers to the nearest dollar.

	Raw Wool	Wool Yarn
Sorting cost	$	$
Cleaning cost
Combing cost
Total cost	$	$

Final Question

Answer the following question.

After reviewing your work on the Single Plantwide Rate and Activity-Based Costing panels, which of the costing method would you recommend to WoolCorp, and why?

Since both the methods give the same costs for each product, there is no advantage to either method.

The company should use whichever method is the cheapest to implement.

Activity-based costing, because it recognizes differences in how each product uses factory overhead activities, yielding more accurate product costs.

Single plantwide factory overhead rate method, because it is a tried-and-true method used for the entire life of the company.

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