Roadmaster Tires produces a variety of auto and truck tires at its Indianapolis manufacturing plant.The plant is highly automated and uses an activity-based costing system to allocate overhead costs to its various product lines.The costs and cost drivers associated with four activity cost pools are given below:
Production of 1,000 units of a small tractor tire required 200 labor hours and two setups and consumed 10% of the product sustaining activities.
Required:
1)Instead of using ABC,suppose the company had used labor hours as a company-wide allocation base.How much total overhead would have been allocated to the tractor tire?
2)How much total overhead cost will be allocated to the tire under activity-based costing?
3)What price will be quoted if the product is priced at 25% above cost? Compute the price under both the direct labor hours approach and under activity-based costing.The direct manufacturing costs consist of direct material of $20 and direct labor of $30.
4)What implications does ABC have on a company that bids on contracts using the costing approach described in Requirement 3?

Question

Roadmaster Tires produces a variety of auto and truck tires at its Indianapolis manufacturing plant.The plant is highly automated and uses an activity-based costing system to allocate overhead costs to its various product lines.The costs and cost drivers associated with four activity cost pools are given below:
  Production of 1,000 units of a small tractor tire required 200 labor hours and two setups and consumed 10% of the product sustaining activities.
Required:
1)Instead of using ABC,suppose the company had used labor hours as a company-wide allocation base.How much total overhead would have been allocated to the tractor tire?
2)How much total overhead cost will be allocated to the tire under activity-based costing?
3)What price will be quoted if the product is priced at 25% above cost? Compute the price under both the direct labor hours approach and under activity-based costing.The direct manufacturing costs consist of direct material of $20 and direct labor of $30.
4)What implications does ABC have on a company that bids on contracts using the costing approach described in Requirement 3?

Quizplus · Accepted Answer

The Answer of Roadmaster Tires produces a variety of auto and truck tires at its Indianapolis manufacturing plant.The plant is highly automated and uses an activity-based costing system to allocate overhead costs to its various product lines.The costs and cost drivers associated with four activity cost pools are given below:
  Production of 1,000 units of a small tractor tire required 200 labor hours and two setups and consumed 10% of the product sustaining activities.
Required:
1)Instead of using ABC,suppose the company had used labor hours as a company-wide allocation base.How much total overhead would have been allocated to the tractor tire?
2)How much total overhead cost will be allocated to the tire under activity-based costing?
3)What price will be quoted if the product is priced at 25% above cost? Compute the price under both the direct labor hours approach and under activity-based costing.The direct manufacturing costs consist of direct material of $20 and direct labor of $30.
4)What implications does ABC have on a company that bids on contracts using the costing approach described in Requirement 3?

Roadmaster Tires Produces a Variety of Auto and Truck Tires