Roadmaster Tires Produces a Variety of Auto and Truck Tires

Essay

Roadmaster Tires produces a variety of auto and truck tires at its Indianapolis manufacturing plant. The plant is highly automated and uses an activity-based costing system to allocate overhead costs to its various product lines. The costs and cost drivers associated with four activity cost pools are given below:
Production of 1,000 units of a small tractor tire required 200 labor hours, 2 setups, and consumed 10% of the product sustaining activities.Required:
1) Instead of using ABC, suppose the company had used labor hours as a company-wide allocation base. How much total overhead would have been allocated to the tractor tire?
2) How much total overhead costs will be allocated to the tire under activity-based costing?
3) What price will be quoted if the product is priced at 25% above cost? Compute the price under both the direct labor hours approach and under activity-based costing. The direct manufacturing costs consist of direct material of $20 and direct labor of $30.4) What implications does ABC have on a company that bids on contracts using the costing approach described in requirement 3?
$\begin{array}{|l|c|r|r|r|}\hline \text { Activities: } & \text { Unit-Level } & \text { Batch-Level } & \text { Product-Level } & \text { Facility-Level } \\\hline \text { Cost } & \$ 80,000 & \$ 40,000 & \$ 20,000 & \$ 100,000 \\\hline \text { Cost Driver } & 4,000 \text { labor hrs } & 100 \text { set ups } & \% \text { of use } & 50,000 \text { units } \\\hline\end{array}$ This terminology not used in this chapter. However, requirements 3 and 4 can stay without the wording.Agree with change made. JMF
? Perhaps, using a traditional costing system versus the ABC?
Agree with change made. JMF