Kenyon Company Produces Two Products (F56 and F57), Applying Manufacturing

question 56

Essay

Kenyon Company produces two products (F56 and F57), applying manufacturing overhead on the basis of direct labour hours. Anticipated unit production costs (material, labour, and overhead) and manufacturing volumes are:
F56: 2,000 units, $234
F57: 3,500 units, $271
Kenyon's overhead arises because of various activities, one of which is purchase-order processing. Budgeted cost for this activity is expected to be $70,000. The firm believes that the number of purchase orders processed is a key cost driver and expects the following activity for its products: F56, 10 purchase orders; F57, 40 purchase orders. Kenyon's selling prices are based heavily on cost.
Required:
A. Activity-based costing (ABC) is said to result in improved costing accuracy when compared with traditional costing procedures. Briefly explain how this improved accuracy is attained.
B. Compute:
1. the pool rate for purchase-order processing.2. the purchase-order processing cost to be charged to one unit of F56.3. Assume that Kenyon switched to activity-based costing and calculated total unit production costs as follows: F56, $285; F57, $220.1. Which of the two products, F56 or F57, was overcosted prior to the change to ABC? No explanation is necessary.2. Which of the two products, F56 or F57, may have been less competitive in the marketplace prior to the change to ABC? Briefly explain.

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Definitions:

Matched Pairs Experiment

An experimental design in which participants are paired based on certain characteristics, and each pair receives both treatments in a random order to compare outcomes.

Paired Differences

The differences between each pair of observations on two variables, used in statistical analysis to compare two related samples.

Snowfall

The phenomenon of meteorological precipitation where snowflakes, composed of ice crystals, fall from clouds.

Significance Level

The probability of rejecting the null hypothesis when it is actually true, used in hypothesis testing as a threshold for making decisions.