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45 briefly describe the process of activity based costing 46 why would a firm use ac 4296362

 

45.Briefly describe the process of activity-based costing.  
 
 

46.Why would a firm use activity-based costing (ABC) rather than traditional two-stage methods of cost allocation for overhead? 
 
 

47.Superior Fasteners, Co. is considering switching from traditional allocation of overhead based on direct labor hours to an activity-based costing system. The manager has accumulated the following information on engineering changes for two of the company's major products:
 

Automotive FastenersComputer Fasteners

Total units produced5,0002,500

Cost per engineering change$400$400

Number of engineering changes525

Direct labor hours per unit44

Compute the cost per unit using:

(1) The traditional two-stage allocation of the costs of engineering changes based on direct labor hours.
(2) The activity-based cost allocation of the costs of engineering changes.  
 
 

48.Winterland, Inc., produces two types of skis, downhill skis and cross country skis. Product and production information about the two items is shown below:
 

Downhill skisCross country skis

Number of sets sold75,000125,000

Number of setups20050

Total direct labor hours150,000 hours250,000 hours

Direct labor hours per unit2 hours2 hours

Total machine hours25,000 hours100,000 hours

Machine hours per unit0.333 hours0.08 hours

Indirect costs consist of the following:

Depreciation of factory equipment$2,000,000

Setup costs1,500,000

Miscellaneous indirect costs1,000,000

Total$4,500,000

Required:

1. If Winterland uses the traditional two-stage method of allocating overhead costs based on direct labor hours, what is the amount of indirect costs per set of skis for each of the two types of skis?
2. If Winterland uses activity based costing, what is the total amount of indirect costs per set of skis for each of the two types of skis? Assume that depreciation is allocated based on machine hours, setup costs based on the number of setups, and miscellaneous costs based on the number of direct labor hours.  
 
 

 

 

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