Cost Behavior And Activity-Based Costing ( Critical Thinking )

Critical Thinking Assignment

Complete the following questions using Microsoft Excel. No other submission format is allowed. Review the grading rubric to confirm you are meeting the assignment requirements.

Consider the following information for Hamburg Corporation:

Items

Units

Beginning inventory

85,000

Units started during the year

155,000

Ending inventory

61,000

Inventory is 100% complete as to materials and 60% complete as to conversion.

Items

Materials

Conversion

Beginning costs (SAR)

425,000

686,000

Costs added during the period (SAR)

1,255,000

980,000

Using the WEIGHTED AVERAGE method:

  1. Calculate the number of units completed during the period.
  2. Calculate equivalent units for conversion during the period.
  3. Calculate cost per equivalent units for materials.

Mannheim Corporation manufactures small camping tents and family camping tents. The estimated direct labor time to produce each type of tent is as follows:

Items

Small

Family

Estimated tents produced

24,500

11,000

Direct labor hours per tent

2.5

4.5

Estimated overhead for the period = 1,300,000 SAR.

  1. Compute the overhead cost assigned to each type of tent assuming direct labor hours are used to allocate overhead costs.

The controller is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to the family tent product line because of its complexity. He, therefore, developed the following three activity cost pools and related cost drivers to better understand the costs.

Activity Cost Pools

Expected Use of Cost Drivers

Estimated Overhead Costs (SAR)

Setting up machines

1,000 setups

25,000

Assembling

90,000 labor hours

980,000

Inspection

1,200 inspections

230,000

  1. Calculate the activity-based overhead rates for these three cost pools.
  2. Compute the cost that is assigned to each tent using activity-based costing system, given the following information.

Expected Use of Cost Drivers per Product

Items

Small

Family

Number of setups

130

825

Direct labor hours

29,000

55,000

Number of inspections

125

1,125

  1. What do you believe the controller should do and why?

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