ACC310_Week3_Discussion2

ACC310_Week3_Discussion2 - Direct Labor x X = Overhead...

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Problem 9-19 I disagree with this statement, activity-based costing can actually be more relevant for  operating decisions. Activity-based costing can be beneficial for making operating  decisions when product cost data is used. 
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           Profit for each product: Revenue $1,350,000 $900,000 Direct Labor 250,000 125,000 Direct Materials 550,000 275,000 Overhead 500,000 250,000 Profit $50,000 $250,000                       Overhead Calculations: Direct Labor x 200% = Overhead Costs Bats: $250,000 x 200% = $500,000  Rackets: $125,000 x 200% = $250,000 Baseball  Bats Tennis  Rackets
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           Profit for each product: Revenue $1,350,000 $900,000 Direct Labor 250,000 125,000 Direct Materials 550,000 275,000 Overhead 375,000 375,000 Profit $175,000 $125,000                       Overhead Calculations:
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Unformatted text preview: Direct Labor x X% = Overhead Costs Bats: $250,000 x 150% = $375,000 Rackets: $125,000 x 300% = $375,000 The baseball bats are actually more profitable Baseball Bats Tennis Rackets Because the company uses a plantwide overhead allocation method the calculations are not as accurate. This is because the plantwide method assumes that both products use the same rate of overhead which is often not the case. The production of baseball bats is given a smaller allocation of overhead when using direct labor cost as the allocation base. It would probably be more appropriate to determine new allocation bases for each department, one may be more accurate using direct materials as an allocation base rather than direct labor....
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