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stealth61 [152]
3 years ago
5

Question 2: Allocating costs using ABC You have an ABC system with three pools number of cost driver units total cost in the poo

l product A product B total pool 1 $20,000 4,000 DL$ 6,000 DL$ 10,000 DL$ pool 2 $15,000 20 setups 30 setups 50 setups pool 3 $10,000 50 hours 150 hours 200 hours Compute the activity rates and the allocated costs for products A and B. activity rate allocated costs for product A allocated costs for product B pool 1 $ per DL$ $ $ pool 2 $ per setup $ $ pool 3 $ per hour $ $ total allocated costs for each product $ $
Business
1 answer:
allochka39001 [22]3 years ago
8 0

Answer:

Results are below.

Explanation:

<u>To calculate the activities rates, we need to use the following formula on each pool:</u>

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Pool 1= 20,000/10,000= $2 per direct labor dollar

Pool 2= 15,000/50= $300 per setup

Pool 3= 10,000/200= $50 per hour

<u>Now, we can allocate costs to each product:</u>

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Product A:

Pool 1= 2*4,000= 8,000

Pool 2= 300*20= 6,000

Pool 3= 50 *50= 2,500

Total allocated costs= $16,500

Product B:

Pool 1= 2*6,000= 12,000

Pool 2= 300*30= 9,000

Pool 3= 50 *150= 7,500

Total allocated costs= $28,500

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Answer and Explanation:

I will go through each and every option explaining the reasons and what option would be the best:

The (a) part says 'difference in wages will eventually disappear since a haircut is a homogeneous good' - This is not true because even though it is an homogeneous product, some customers do have a strong preference for barbers who are not going bald. Therefore, they know their worth and they would want to capitalize on that and get paid just a bit more than bald barbers.

The (b) part says 'barbershops that hire barbers with hair will be able to charge a higher price for a haircut to those consumers who have a strong preference for barbers with hair'. - If the barbershop charges higher price for barbers that have hair then the customers will prefer bald barbers as the questions mentions that there is high competition and since it is an homogeneous, customers would be willing to save money and get their haircut from some other barber.

The (c) part says 'barbershops that hire bald barbers will always be much more profitable' - Not necessarily. The reason is that some customers have a strong preference for barbers who are not bald and therefore, that would help barbershops who have barbers with hair to be a bit more profitable as some additional customers would want their services.

The (d) part says 'barbershops that hire barbers with hair will always be much more profitable' - This is the best option and the reason for it is because some customers have a strong preference for barbers with hair and that would help the barbershop to earn more. They would have the customers who already indifferent to whoever cuts their hair and in addition to that, they would also have the customers who have their preference.

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Answer: See explanation

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