Week 3 Discussion Question 2

Activity Based Costing

From Chapter 9 complete Questions 9-19 and 9-21. Remember to complete all parts of the problems and report the results of your analysis. Do not forget to show the necessary steps and explain how your attained that outcome. Respond to at least two of your classmates’ postings.

9-19

“Activity-based costing is just another inventory valuation method. It isn’t relevant for making operating decisions.” Do you agree with this statement? Explain.

9-21

Munoz Sporting Equipment manufactures baseball bats and tennis rackets. Department B produces the baseball bats, and Department T produces the tennis rackets. Munoz currently uses plant-wide allocation to allocate its overhead to all products. Direct labor cost is the allocation base. The rate used is 200 percent of direct labor cost. Last year, revenue, materials, and direct labor were as follows:  

                                                           Baseball Bats               Tennis Rackets

Revenue. . . . . . . . . . . . .         $1,350,000                     $900,000

          Direct labor. . . . . . . . . . .             250,000                       125,000

          Direct materials . . . . . . . .           550,000                        275,000

Required

a.         Compute the profit for each product using plant-wide allocation.

c.         Why are the results different in requirements (a) and (b)?