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Cost Accounting: Eldorado Inc.

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Eldorado Inc manufactures products A and B. Manufacturing overhead was allocated to the products based on machine hours which were estimated to be 6,000. Overhead, which includes salaries, rent, utilities, and depreciation, was estimated to be $120,000 for the year. This overhead could have been traced to the following activities:

Activities and Cost Driver Bases Estimated Cost Estimated Activity Levels
Production Setup (# of setups) $35,000 350
Material handling (# of pounds of material) 50,000 25,000
Quality control (# of inspections) 15,000 30
Packing (# of units shipped) 20,000 40,000
Total Estimated Overhead $120,000

The following actually occurred for the year:
Product A Product B
Direct material cost $7,500 $10,000
Direct labor cost $15,000 $20,000
Number of machine hours 500 750
Number of setups 12 18
Number of pounds of materials 750 900
Number of inspections 3 4
Number of united shipped 4,000 6,000

What is the total product cost for Product A if Eldorado uses the traditional product costing method?
a. $32,500
b. $33,000
c. $33,500
d. $35,000
What is the total product cost for Product B if Eldorado uses the activity based costing method?
a. $38,600
b. $33,600
c. $39,400
d. $35,400

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ANSWERS
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EXERCISE

Eldorado Inc manufactures products A and B. Manufacturing overhead was allocated to the products based on machine hours which were estimated to be 6,000. Overhead, which includes salaries, rent, utilities, and depreciation, was ...

Solution Summary

The cost accounting for Eldorado Inc.

$2.19