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Assume that SunSpecs Corporation makes three types of sunglasses Razors Slims and Eagles for major retailers such as Ray-Ban and Gucci SunSpecs presently applies overhead using a predetermined

Assume that SunSpecs Corporation makes three types of sunglasses, Razors, Slims, and Eagles, for major retailers such as Ray-Ban and Gucci. SunSpecs presently applies overhead using a predetermined rate based on direct labor hours. A consultant recommended that SunSpecs switch to activity-based costing. Management decided to give ABC a try and identified the following activities, cost drivers, and estimated costs for Year 2 for each activity center.  The company estimated 10,000 labor hours would be worked in Year 2. Assume the following activities occurred in February of Year 2:  a. Compute an overhead allocation rate for each of the cost drivers recommended by the consultant and for direct labor. b. Compute the production costs for each product for February using the cost drivers recommended by the consultant. c. Management has seen your numbers and wants to know how you account for the discrepancy between the product costs using only direct labor hours as the allocation base and using activity-based costing. Write a brief response to management, including calculation of product costs using direct labor hours to allocateoverhead.

Jun 25 2020 View more View Less

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