Smith manufactures karaoke machine. The machines differ significantly in their complexity and their manufacturing batch sizes. The following costs were recognized in 2016:
Indirect manufacturing labor costs that supports direct manufacturing labor - $825,000
Procurement costs of placing orders related to number of purchase order received - $525,000
Cost of indirect materials - $160,000
Machine setup cost to change to different product - $365,000
Design process to make changes to products - $287,500
Machine related depreciation and maintenance - $950,000
Plant management and rent - $512,000
1) Classify each of the preceding costs as output unit-level, batch-level, product-sustaining, or facility-sustaining. Explain your answer.
2) Consider 2 types of karaoke machines. One designed for professional use, complex to make, and produced in many batches. The other, designed for home use, is simple to make and produced in smaller batches. Suppose that Smith needs the same number of machine-hours to make each type of machine and that Smith allocates all overhead costs using machine-hours as the only allocation base. How would the machines be miscosted? Explain.
3) How is the cost hierarchy helpful to Smith in managing its business?
What is broad averaging, and what are its consequences on costs?
What should managers worry about product over-costing or under-costing?
Describe the activity-based approach to designing a costing system.
What are the key reasons for product cost differences between simple costing systems and ABC systems?
Q 6 –
"Activity-based costing is the wave of the future and all companies should adopt it." Explain as to why you agree or disagree with this statement.
These solutions may offer step-by-step problem-solving explanations or good writing examples that include modern styles of formatting and construction of bibliographies out of text citations and references. Students may use these solutions for personal skill-building and practice. Unethical use is strictly forbidden.Question-1
a. The indirect manufacturing labor costs is considered as the Output unit-level costs because direct manufacturing labor will increases with the output of units and indirect costs will support the same.
b. The costs related to purchase order is considered as the batch-level costs because the units of product will produce in groups.
c. The costs of indirect material are Output unit-level costs because the related costs change when the change happened in machine hours and labor costs....
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