PA4 4 Selecting Cost Drivers Assigning Costs Using Activity Rates Complete Solution

Question: #941

PA4-2 Assigning Costs Using Traditional System, Assigning Costs Using Activity Proportions [LO 4-1, 4-3, 4-5, 4-6]

Carlise Corp., which manufactures ceiling fans, currently has two product lines, the Indoor and the Outdoor. Carlise has total overhead of $139,400.

Carlise has identified the following information about its overhead activity cost pools and the two product lines:

Activity Cost Pools Cost Driver Cost
Assigned
to Pool Quantity/Amount
Consumed by
Indoor Line Quantity/Amount
Consumed by
Outdoor Line
Materials handling Number of
moves $ 20,000 575 moves 425 moves
Quality control Number of inspections $ 82,500 6,000 inspections 4,000 inspections
Machine maintenance Number of
machine hours $ 36,900 21,000 machine hours 20,000 machine hours

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Required:
1. Suppose Carlise used a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line. (Do not round intermediate calculation sand round your final answers to the nearest whole dollar amount.)

2. Calculate the activity proportions for each cost pool in Carlise’s ABC system. (Round your answers to 2 decimal places.)

3. Calculate the amount of overhead that Carlise will assign to the Indoor line if it uses an ABC system. (Round your intermediate calculations and final answers to 2 decimal places.)

4. Determine the amount of overhead Carlise will assign to the Outdoor line if it uses an ABC system. (Round your intermediate calculations and final answers to 2 decimal places.)

5. Compare the results for a traditional system with an ABC system. Which do you think is more accurate?

ABC System
Traditional System

rev: 11_07_2013_QC_39351

Solution: #947

PA4-4 Selecting Cost Drivers Assigning Costs Using Activity Rates Complete Solution

Overhead cost per machine hour    $7.986

    Sandy Beach    Rocky River

No. of machine hours    $1,400.00     $1,400.00
*overhead cost per machine hour    $7.99     $7.99

Total overhead applied &...