Hickory Grill Company manufactures two types of cooking grills: the Gas Cooker and the Charcoal Smoker. The Cooker is a premium product sold in upscale outdoor shops; the Smoker is sold in major discount stores. Following is information pertaining to the manufacturing costs for the current month.
Gas CookerCharcoal Smoker
Units..........................................1,0005,000
Number of batches ..............................4010
Number of batch moves ..........................8040
Direct materials.................................$40,000$100,000
Direct labor ....................................$22,000$27,000
Manufacturing overhead follows:
Activity Cost Driver
Materials acquisition and inspection ..............$30,800Amount of direct materials cost
Materials movement ...........................16,200Number of batch moves
Scheduling...................................36,000
Number of batches
$83,000
Required
a. Determine the total and per-unit costs of manufacturing the Gas Cooker and Charcoal Smoker for the month, assuming all manufacturing overhead is assigned on the basis of direct labor dollars.
b. Determine the total and per-unit costs of manufacturing the Gas Cooker and Charcoal Smoker for the month, assuming manufacturing overhead is assigned using activity-based costing.
E18-23. Activity-Based Costing Versus Conventional Costing
Refer to the previous exercise in E18-22 for Hickory Grill.
Required
a. Comment on the differences between the solutions to requirements (a) and (b). Which is more accurate? What errors might managers make if all manufacturing overhead costs are assigned on the basis of direct labor dollars?
b. Comment on the adequacy of the preceding data to meet management’s needs.