Brilliant Accents Company manufactures and sells three styles of kitchen faucets: Brass, Chrome, and White. Production takes 25, 25, and 10 machine hours to manufacture 1,000-unit batches of brass, chrome, and white faucets, respectively. The following additional data apply:
PER UNIT data:
Overhead cost based on direct labor hours
Hours per 1000-unit batch:
Total overhead costs and activity levels for the year are estimated as follows:
Required:
a. Using the traditional system, determine the operating profit per unit for the brass style of faucet.
b. Determine the activity-cost-driver rate for setup costs and inspection costs.
c. Using the ABC system, for the brass style of faucet:
d. Explain the difference between the profits obtained from the traditional system and the ABC system. Which system provides a better estimate of profitability? Why?

Question

Brilliant Accents Company manufactures and sells three styles of kitchen faucets: Brass, Chrome, and White. Production takes 25, 25, and 10 machine hours to manufacture 1,000-unit batches of brass, chrome, and white faucets, respectively. The following additional data apply:
  PER UNIT data:
   Overhead cost based on direct labor hours
  Hours per 1000-unit batch:
  Total overhead costs and activity levels for the year are estimated as follows:
  Required:
a. Using the traditional system, determine the operating profit per unit for the brass style of faucet.
b. Determine the activity-cost-driver rate for setup costs and inspection costs.
c. Using the ABC system, for the brass style of faucet:
  d. Explain the difference between the profits obtained from the traditional system and the ABC system. Which system provides a better estimate of profitability? Why?

Quizplus · Accepted Answer

The Answer of Brilliant Accents Company manufactures and sells three styles of kitchen faucets: Brass, Chrome, and White. Production takes 25, 25, and 10 machine hours to manufacture 1,000-unit batches of brass, chrome, and white faucets, respectively. The following additional data apply:
  PER UNIT data:
   Overhead cost based on direct labor hours
  Hours per 1000-unit batch:
  Total overhead costs and activity levels for the year are estimated as follows:
  Required:
a. Using the traditional system, determine the operating profit per unit for the brass style of faucet.
b. Determine the activity-cost-driver rate for setup costs and inspection costs.
c. Using the ABC system, for the brass style of faucet:
  d. Explain the difference between the profits obtained from the traditional system and the ABC system. Which system provides a better estimate of profitability? Why?

Brilliant Accents Company Manufactures and Sells Three Styles of Kitchen