Hickory Grill Company manufactures two types of grills: the gas cooker and 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 cost for the current month.
|
|
Gas Cooker
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Charcoal Smoker
|
|
Units
|
1,000
|
5,000
|
|
# of batches
|
40
|
10
|
|
# of batch moves
|
80
|
40
|
|
Direct materials
|
$40,000
|
$100,000
|
|
Direct labor
|
$22,000
|
$27,000
|
|
Activity
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Cost
|
Cost Driver
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|
Materials acquisition & inspection
|
$30,800
|
Amount of direct material cost
|
|
Materials movement
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$16,200
|
# of batch moves
|
|
Scheduling
|
$36,000
|
# of batches
|
|
|
$83,000
|
|
Required:
A) Determine the total and per-unit cost of manufacturing the gas cooker and charcoal smoker for the month, assuming all manufacturing overhead is assigned on the basis of direct labor cost.
B) Determine the total and per-unit cost of manufacturing the gas cooker and the charcoal smoker for the month, assuming manufacturing overhead is assigned using activity-base costing
C) 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?
D) Comment on the adequacy of the preceding data to meet management's needs.