Using the information provided Compute the predetermined overhead rate.       $38     $48     $30     $45 Instructions Comparing Traditional Costing and Activity Based Costing Double Bounce Trampolines produces two models of trampolines for backyard fun.  The “Original”, and the recently introduced “Deluxe”.  The Deluxe model introduced several safety features that were intended to scare overly protective parents into upgrading.  Since its introduction, the deluxe model has been increasing in sales, but at the same time, the company’s profits have been declining.  The CFO believes that the company’s traditional costing system may be to blame.  Currently, the company uses direct-labor hours as the basis for applying overhead.  The company estimates that it will incur $811,250 in overhead costs in the next year.   The following cost data is known:     Original Deluxe Direct Materials $55 $85 Direct Labour ($10 per hour) 25 35 Number of units produced 7,000 units 2,000 units   The CFO wishes to explore an activity-based costing system   Activity (Cost Driver) Estimated MOH Expected Activity         Total Standard Deluxe   Assembly (Labor Hours) $151,250 21,600 15,000 6,600   Receiving (Receiving Reports) 300,000 6,000 3,000 3,000   Testing (Number of Tests) 360,000 1,200 300 900     $811,250

Survey of Accounting (Accounting I)
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ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter12: Differential Analysis And Product Pricing
Section: Chapter Questions
Problem 12.4.1C: Cost-plus and target costing concepts The following conversation took place between Dean Lancaster,...
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QUESTION 1

  1. Using the information provided Compute the predetermined overhead rate.

     

       

    $38

       

    $48

       

    $30

       

    $45

Instructions

Comparing Traditional Costing and Activity Based Costing

Double Bounce Trampolines produces two models of trampolines for backyard fun.  The “Original”, and the recently introduced “Deluxe”.  The Deluxe model introduced several safety features that were intended to scare overly protective parents into upgrading.  Since its introduction, the deluxe model has been increasing in sales, but at the same time, the company’s profits have been declining.  The CFO believes that the company’s traditional costing system may be to blame.  Currently, the company uses direct-labor hours as the basis for applying overhead.  The company estimates that it will incur $811,250 in overhead costs in the next year.

 

The following cost data is known:

 

 

Original

Deluxe

Direct Materials

$55

$85

Direct Labour ($10 per hour)

25

35

Number of units produced

7,000 units

2,000 units

 

The CFO wishes to explore an activity-based costing system

 

Activity (Cost Driver)

Estimated MOH

Expected Activity

 

 

 

 

Total

Standard

Deluxe

 

Assembly (Labor Hours)

$151,250

21,600

15,000

6,600

 

Receiving (Receiving Reports)

300,000

6,000

3,000

3,000

 

Testing (Number of Tests)

360,000

1,200

300

900

 

 

$811,250

 

 

 

     
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