Week 3 Discussion Question 2
Activity Based Costing
From Chapter 9 complete Questions 9-19 and 9-21. Remember to complete all parts of the problems and report the results of your analysis. Do not forget to show the necessary steps and explain how your attained that outcome. Respond to at least two of your classmates’ postings.
“Activity-based costing is just another inventory valuation method. It isn’t relevant for making operating decisions.” Do you agree with this statement? Explain.
Munoz Sporting Equipment manufactures baseball bats and tennis rackets. Department B produces the baseball bats, and Department T produces the tennis rackets. Munoz currently uses plant-wide allocation to allocate its overhead to all products. Direct labor cost is the allocation base. The rate used is 200 percent of direct labor cost. Last year, revenue, materials, and direct labor were as follows:
Baseball Bats Tennis Rackets
Revenue. . . . . . . . . . . . . $1,350,000 $900,000
Direct labor. . . . . . . . . . . 250,000 125,000
Direct materials . . . . . . . . 550,000 275,000
a. Compute the profit for each product using plant-wide allocation.
c. Why are the results different in requirements (a) and (b)?