Activity Based Costing Problem Essay

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Cost AccountingA. The allocation system might not be accurate, because it allocates based on the number of units produced. However, it does not take into account the time it takes to produce an individual unit. The overhead costs would be more accurate if they reflected not just the number of units, but the time taken to produce each unit. If the Ogunquit takes up more than 12% of the total production time for the company, then the current system undervalues it from an overhead allocation perspective. Last year, the allocation wasUnits% total UnitsOverhead AllocationGoose Rocks5029.41%1350000Kennebunkport10058.82%2700000Ogunquit2011.76%540000B. By direct labor hours, the overhead allocation would look much different:Direct Labor%DLOverhead AllocationGoose Rocks100014.81%680,000Kennebunkport100014.81%680,000Ogunquit475070.37%3,230,000total6750C. The use of more than one cost pool would improve the overhead allocation because it would better reflect the way that resources are used in the production of each boat. Using one cost pool places the entire emphasis on just that one cost, whether it is direct labor or whether it is number of boats produced. Using multiple cost pools can help better reflect the totality of resources that the company uses for each boat.D.Manufacturing OverheadAmountGR %GR valueKBP %KBP ValueOQ %OQ ValueDepreciation220000025.0%55000037.5%82500037.5%825000Maintenance70000020.4%14285740.8%28571438.8%271429Purchasing18000016.7%3000016.7%3000066.7%120000Inspection35000012.5%4375025.0%8750062.5%218750Indirect Materials29000029.4%8529458.8%17058811.8%34118Supervision80000033.3%26622366.6%5324460.2%1331Supplies7000029.4%2058858.8%4117611.8%8235Total113871219724251478863E.OgunquitDirect Materials250000Direct Labor440000Overhead73943Total Unit Cost$763,943.13F. The costs are different…

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…depending on the level of activity. But you could work with the current traditional allocation at which point 5 units is the breakeven point:Price800000Direct Costs690000Contribution110000Overheads Allocated540000Breakeven4.9L. There are a few lessons. One is that activity-based costing is a more accurate way to allocate costs. Further, that having more accurate costing information can aid with pricing and production decisions. Companies will often find that they aren’t making as much money on some products as they think they are, because those products require far more resources to produce. Understanding the true cost structure of producing each product h

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