Ballantine Company Manufactures Two Products $\quad$ $\quad$ $\quad$

question 95

Essay

Ballantine Company manufactures two products. Currently, the company uses a traditional costing system assigning overhead on the basis of direct labor hours. The Industrial product is more complex to produce requiring two hours of direct labor time per unit compared to one hour of direct labor time for the Consumer product. Given the company's total overhead costs of $720,000 and production of 1,000 Industrials and 8,000 Consumers, this results in an overhead allocation rate of $72 per direct labor hour. The following unit data are provided:
Because the Industrial product is twice as profitable as the Consumer model, the sales manager wants to reduce or eliminate production of the Consumer product and devote as much capacity as possible to the Industrial product.You are worried that the current cost accounting system may be providing inaccurate results and would like to implement an ABC system. Assume that the company's overhead costs were traced to four major activities. The amount of overhead costs traceable to each activity for the current year is provided below:
Required:
1) In the following table, compute the four activity rates that will be used to assign overhead to the products under activity-based costing:
2) In the following table, compute the amount of overhead cost which should be assigned to Industrials and Consumers under activity-based costing. Also compute the overhead cost per unit for each product.3) Compute the total cost to manufacture one unit of each product if activity-based costing is used.4) Respond to the sales manager's recommendation that capacity be diverted from Consumers to Industrials. $\begin{array}{|l|c|c|}\hline& \text {Industrial }&\text {Consumer}\\\hline \text { Selling price } & \$ 1,440.00 & \$ 720.00 \\\hline \text { Direct material } & (500.00) & (250.00) \\\hline \text { Direct labor } & (400.00) & (200.00) \\\hline \text { Overhead } & (144.00) & (72.00) \\\hline \text { Gross profit } & \$ 396.00 & \$ 198.00 \\\hline\end{array}$
$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$ $\quad$ $\quad$$\text { Cost Driver Date: }$
$\begin{array}{|l|l|r|r|r|r|}\hline \text { Activity } & \text { Cost Driver } & \text { Overhead Costs }&\text { Industrial } & \text { Consumer } & \text { Total } \\\hline \text { Mar'l handline } & \text { No. of Purchase Orders } & \$ 60,000 & 100 & 500 & 600 \\\hline \text { Setup } & \text { No. of setups } & 288,000 & 500 & 250 & 750 \\\hline \text { Assembly } & \text { No. of machine hrs. } & 225,000 & 7,000 & 3,000 & 10,000 \\\hline \text { Mantenance } & \text { No. of maintenance requests } & 147,000 & 440 & 295 & 735 \\\hline \text { Total } & & \$ 720,000 & & &\\\hline\end{array}$ $$\begin{array} { | l | l | } \hline { \text { Activity } } & \text { Application Rate } \\\hline \text { Mat'l handling } & \\\hline \text { Setup } & \\\hline \text { Assembly } & \\\hline \text { Maintenance } & \\\hline\end{array}$$ $$\begin{array} { | l | l | l | } \hline { \text { Activity } } & \underline { \mathbf { 1 , 0 0 0 } \text { Industrials } } & \underline { \mathbf { 8 , 0 0 0 } \text { Consumers } } \\\hline \text { Mat'l handling } & & \\\hline \text { Setup } & & \\\hline \text { Assembly } & & \\\hline \text { Maintenance } & & \\\hline \text { Total Overhead Cost } & & \\\hline & & \\\hline \text { Overhead cost per unit } & & \\\hline\end{array}$$ $$\begin{array} { | l | l | l | } \hline & { \text { Industrials } } & { \text { Consumers } } \\\hline \text { Direct materials } & \$ 500.00 & \$ 250.00 \\\hline \text { Direct labor } & 400.00 & 200.00 \\\hline \text { Overhead } & \\\hline \text { Total cost per unit } & \\\hline\end{array}$$

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Definitions:

Cultural Values

The deeply ingrained principles and standards that guide behavior and decision-making within a specific community or society.

Leadership Style

The relatively consistent pattern of behavior that characterizes a leader.

Urgent Time Orientation

A focus on immediate actions and results, often at the expense of long-term planning.

Cultural Differences

Variations in the norms, values, beliefs, and practices among people from different backgrounds or societies.