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High Country Outfitters, Inc., makes backpacks for large sporting goods chains that are sold under the customers store brand names.
High Country Outfitters, Inc., makes backpacks for large sporting goods chains that are sold
under the customers store brand names. The accounting department has identified the following
overhead costs and cost drivers for the next year:
Overhead Item
Expected Costs
Cost Driver
Maximum Quantity
Setup costs……………………$936,000
Number of Setups…………………..7200
Ordering costs…..…………….$240,000
Number of orders…………..………60,000
Maintenance…………………..$1,200,000
Number of machine hours……..80,000
Power………………………………$120,000
Number of kilowatt
hours……….600,000
Total predicted direct labor hours for next year is 60,000. The following data are for tow recently
completed jobs:
Job 201
Job 202
Cost of Direct Materials
$13,500
$15,000
Cost of Direct Labor
$19,125
$71,250
Number of units completed
1,125
915
Number of direct labor hours
270
330
Number of setups
18
22
Number of orders
24
45
Number of machine hours
540
450
Number of kilowatt hours
270
360
Required:
a) Determine the unit cost for each job using a traditional plantwide overhead rate based on
direct labor hours
b) Determine the unit cost for each job using ABC (Round answers to two decimal places).
c) As the manger of High Country, is there additional information that you would want to
help you evaluate the pricing and profitability of Jobs 201 and 202?
d) Assuming the company has been using the method required in part a, how should
management react to the finding in part b?
