Answered: Q2. Bolts and Brackets Limited…

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter11: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 11.2E: Identify cost graphs The following cost graphs illustrate various types of cost behavior: For each...

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Q2. Bolts and Brackets Limited manufactures and sells two products: arms and brackets. This year for the first time it is operating an activity-based costing system before it followed absorption costing method. The planned production activity cost pools and cost driver activity levels for all the output for the year are as follows: Activity Cost Pool ($) Purchasing materials $41,500 Storing materials $41,600 Setting up machinery $26,400 Running machinery cost $73,000 Activity Level 1,000 purchase orders 650 issue notes 200 set ups 7,300 machine hours An analysis of actual annual production usage based on activity cost pool for two products types are as follows: Arms Units produced 1,000 units Purchase orders 190 Stores issue notes 105 Set ups 35 Machine hours 2600 Direct materials $8250 Direct labor Brackets 500 units 325 200 60 1275 $3750 $46000 $7600 a) Compute the activity rates. b) Calculate the total production cost and cost per unit for arms and brackets using the activity-based costing system. c) Explain why the company decided to adopt activity-based costing system instead of absorption costing system?

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