GUAVA
Your company manufactures two sizes of box springs: twin and double. Presented below is the budget estimates for material cost & labor cost per unit and the budgeted overhead within the activity cost pools.
Production Data
Twin Double
Material Cost per unit 27 38
Labor Cost per unit 51 61
Budgeted Production Esti mate 5000 9200
Activity Cost Pools Driver Estimated Ove rhead Use per Twin Use per Double
Framing Square feet of pine 194,400 4,628 1,852
Padding Square feet of quilting 194,500 108,055 86,445
Filling Square feet of filling 320,900 501,406 300,844
Labeling Number of box es 249,800 832,666 416,334
Inspection Number of inspections 264,700 17,646 8,824
A)If the company currently uses a traditional plantwide overhead allocation rate based of 150% of labor cost, calculate the unit cost of the twin and double box springs.
B)The company is investigating the use of activity-based costing and has created the activity cost pools shown above. Calculate the unit cost of the twin and double box springs using ABC. Note: The use of ABC or traditional costing does not change the total overhead amount but instead simply changes the way it is allocated.
C)Analyze the results. If you believe the ABC numbers are more accurate, discuss the potential impact to pricing of the twin and double if the sales price is determined by the cost.
