Multiple Cost DriversScottsdale Ltd. manufactures a variety of high-volume and low-volume products to customer demand. Presented is information on 2009 manufacturing overhead and activity cost drivers. Level Total Cost Units of Cost Driver Unit $500,000 20,000 machine hours Batch 200,000 1,000 customer orders Product 200,000 50 products Product X1 required 2,000 machine hours to fill 10 customer orders for a total of 8,000 units. Assuming all manufacturing overhead is estimated and predicted on the basis of machine hours, determine the predicted total overhead costs to produce the 8,000 units of product X1. Assuming manufacturing overhead is estimated and predicted using separate rates for machine hours, customer orders, and products (a multiple-level cost hierarchy), determine the predicted total overhead costs to produce the 8,000 units of product X1. Calculate the error in predicting manufacturing overhead using machine hours versus using multiple cost drivers. Indicate whether the use of only machine hours results in overpredicting or underpredicting the costs to produce 8,000 units of product X1. Determine the error in the prediction of X1 batch-level costs resulting from the use of only machine hours. Indicate whether the use of only machine hours results in overpredicting or underpredicting the batch-level costs of product X1. Determine the error in the prediction of X1 product-level costs resulting from the use of only machine hours. Indicate whether the use of only machine hours results in overpredicting or underpredicting the product-level costs of product X1.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter6: Activity-based, Variable, And Absorption Costing

Section: Chapter Questions

Problem 13EA: Tri-bikes manufactures two different levels of bicycles: the Standard and the Extreme. The total...

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Multiple Cost Drivers
Scottsdale Ltd. manufactures a variety of high-volume and low-volume products to customer demand. Presented is information on 2009 manufacturing overhead and activity cost drivers.

Level	Total Cost	Units of Cost Driver
Unit	$500,000	20,000 machine hours
Batch	200,000	1,000 customer orders
Product	200,000	50 products

Product X1 required 2,000 machine hours to fill 10 customer orders for a total of 8,000 units.

Assuming all manufacturing overhead is estimated and predicted on the basis of machine hours, determine the predicted total overhead costs to produce the 8,000 units of product X1.
Assuming manufacturing overhead is estimated and predicted using separate rates for machine hours, customer orders, and products (a multiple-level cost hierarchy), determine the predicted total overhead costs to produce the 8,000 units of product X1.
Calculate the error in predicting manufacturing overhead using machine hours versus using multiple cost drivers. Indicate whether the use of only machine hours results in overpredicting or underpredicting the costs to produce 8,000 units of product X1.
Determine the error in the prediction of X1 batch-level costs resulting from the use of only machine hours. Indicate whether the use of only machine hours results in overpredicting or underpredicting the batch-level costs of product X1.
Determine the error in the prediction of X1 product-level costs resulting from the use of only machine hours. Indicate whether the use of only machine hours results in overpredicting or underpredicting the product-level costs of product X1.

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