Help!! This question is about Activity Based Costing
Peggy Playground produces children’s swing-sets. 4,500 swing-sets were produced in a recent production run. The run required 1,500 machine hours, and also required four “set-ups” of equipment. Final inspection required 75 hours of inspection activity. Estimated overhead is estimated at $25 per machine hour, plus $3,500 per “set-up” and $20 per inspection hour. Direct materials and direct labor total $500 per swing-set.
a) Apply activity-bases costing and determine the amount assigned to a swing-set.
b) For GAAP purposes, Peggy Playground applies traditional costing methods, and allocates overhead at $40 per machine hour. How much cost would be assigned to the 4,500 swing-sets? What is the per unit cost of a swing-set under the traditional approach? What might explain the higher cost assignment, and how could this influence business decision making?