QUESTION 1 Decorative Doors (DD) produces two types of doors, interior and exterior. The company's simple costing system

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Question 1 Decorative Doors Dd Produces Two Types Of Doors Interior And Exterior The Company S Simple Costing System 1 (132.8 KiB) Viewed 36 times

QUESTION 1 Decorative Doors (DD) produces two types of doors, interior and exterior. The company's simple costing system has two direct-cost categories (materials and labor) and one indirect cost pool. The simple costing system allocates indirect costs on machine-hours. Recently, DD's owners have been concerned about a decline in the market share for their interior doors, usually their biggest seller. Information related to DD's production for the recent year is as follows. Units sold Selling price Direct material cost per unit Direct manufacturing labor cost per hour Direct manufacturing labor-hours per unit Production runs Material moves Machine setups Machine-hours Number of inspections Interior 3,200 $125 $30 $16 1.5 40 72 45 5,500 250 Exterior 1,800 $200 $45 $16 2.25 85 168 155 4,500 150 1 The owners are curious to see how an ABC system would affect their product costing decisions. After analyzing the indirect-cost pool for DD, the owners identify the following six activities and other data relating to the activity cost and the cost driver. Activity Activity cost Activity cost driver Production scheduling $95,000 Production runs Material handling $45,000 Material moves Machine setup $25,000 Machine setups Assembly $60,000 Machine-hours Inspection $8,000 Number of inspections Marketing costs were determined to be 3% of the sales revenue for each type of door. Required: 1. Calculate the cost of an interior door and an exterior door under the existing simple costing system. 2. Calculate the cost of an interior door and an exterior door under activity-based costing. 3. Explain the differences between the simple and activity-based costing systems based on the obtained results?