FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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In order to compare WoolCorp’s current method with activity-based costing, you interview the production staff and compile the following information, which relates to the costs for raw wool and wool yarn.
Type of Cost
Activity Base
Total Cost
Sorting Hours of sorting $25,600
Cleaning Units of cleaning machine power 38,400
Combing Hours of combing machine use 1,200
 
 
Raw Wool
Wool Yarn
Hours of sorting required 1,000 4,000
Units of cleaning machine power required 1,800 4,200
Hours of combing machine use required 70 30
 
In the following table, compute and enter the activity rate for each of the three activities. If required, round your answers to the nearest cent.
Activity
Activity Rate
Sorting
 
per sorting hour
Cleaning
 
per unit of cleaning machine power
Combing
 
per hour of combing machine use
 
In the following table, allocate the costs of sorting, cleaning, and combing based on the rates of activity consumed by each product’s process. When required, round your answers to the nearest dollar.
  Raw Wool Wool Yarn
Sorting cost $
 
$
 
Cleaning cost
 
 
Combing cost
 
 
Total cost $
 
$
 
 
 
 
 
X
Final Question
 
 
Answer the following question.
After reviewing your work on the Single Plantwide Rate and Activity-Based Costing panels, which of the costing method would you recommend to WoolCorp, and why?
Since both the methods give the same costs for each product, there is no advantage to either method.
 
The company should use whichever method is the cheapest to implement.
 
Activity-based costing, because it recognizes differences in how each product uses factory overhead activities, yielding more accurate product costs.
 
Single plantwide factory overhead rate method, because it is a tried-and-true method used for the entire life of the company.
 
 
 
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