Question: GoGo Ltd. manufactures three models of children'
GoGo Ltd. manufactures three models of children's swing sets: Standard, Deluxe, and Super. The Standard set is made of steel, the Deluxe set is made of aluminum, and the Super set is made of a titanium aluminum alloy. Because of the different materials used, production requirements differ significantly across models in terms of machine types and time requirements. However, once the parts are produced, assembly time per set is similar for the three models. For this reason, GoGo has adopted the practice of allocating overhead costs on the basis of machine hours. Last year, the company produced 5,000 Standard sets, 500 Deluxe sets, and 2,000 Super sets. The company had the following revenues and expenses for the year:
Assign overhead costs using traditional costing and ABC; compare results.
The chief financial officer of GoGo has hired a consultant to recommend cost allocation bases. The consultant has recommended the following:
The consultant found no basis for allocating the plant administration and other fixed overhead costs, and recommended that they not be applied to products.
Instructions
a. Complete the income statement using the bases recommended by the consultant. Do not allocate any fixed overhead costs.
CM for Super $233,167
b. Explain how activity-based costing might result in better decisions by
GoGo's management.
Transcribed Image Text:
GOGO LTD. Income Statement Year Ended December 31, 2020 Standard Deluxe Super Total Sales $475,000 $380,000 $560,000 $1,415,000 Direct costs: Direct materials 200,000 150,000 240,000 590,000 Direct labour 54,000 14,000 24,000 92,000 Variable overhead costs: Machine set-ups ? ? 25,000 Order processing ? ? ? 60,000 Warehouse ? ? ? 90,000 Shipping ? ? ? 35,000 Contribution margin ? ? ? 523,000 Fixed overhead costs: Plant administration 88,000 Other 182,000 Gross profit $ 253,000 . Activity Level Activities Cost Drivers Standard Deluxe Super Total Machine set-ups No. of production runs 22 50 11 17 Sales order No. of sales orders 300 200 300 800 processing received Warehouse costs No. of units held in 200 100 100 400 |inventory Shipping No. of units shipped 5,000 500 2,000 7,500
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