Activity Based Costing
The KiteSurfRUs Manufacturing Company produces two products. One is a kite surf board designed for ocean surfing. The other product is a professional surf-board (short board) used in world class surfing competition. Most of the sales come from the kite surf product, but recently sales of professional board have been increasing. The following information relates to the products for the most recent fiscal year:
Kite Surf Kit Professional Board
Sales and production (units) 800 500
Sales price $680 $620
Labor hour required per unit 6 9
Machine hour required per unit 4 6
Direct materials $190 $205
Direct labor $65 $65
Variable overhead $60 $70
Current cost accounting system allocates fixed production department overhead based on labor hours and machines hours. The amount of fixed overhead related to labor hours and machine hours are $36,300 and $31,500, respectively.
Concerning the current system�s effectiveness in valuing costs of two products, KiteSurfRUs hires a consultant to create an activity-based costing system. The consultant developed the following data:
Cost pool Cost driver Total amount Kite Surf Professional Board
Equipment Machine hours $ 45,000 1,100 300
Material order Number of orders 16,500 475 150
Machine setups Number of setups 15,300 216 70
Quality control Number of inspection 6,000 25 5
1. Calculate the manufacturing overhead rate based on labor hours and machine hours
2. Determine the cost to manufacturing one unit of each model under the current costing system
3. Determine the cost to manufacturing one unit of each model using the activity-based costing data presented above.
4. Is the kite surf kit as profitable as the company may think it is based on its present system?
5. What should KiteSurfRUs Company do to improve its profitability?
Please see the attached file for all the details on four case problems.
Case1: All the calculations are done based on formulas and use of cell references. This will help to you understand the concepts and calculations in greater detail. ...
Excel file and word files contains the details on four case problems related with activity based costing.