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E18-18 Dino Dog Collars uses activity-based costing

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E18-18 Using activity-based costing to make decisions [10 min]
Dino Dog Collars uses activity-based costing. Dino’s system has the following features:

Allocation Base
Purchasing  Number of purchase orders $65.00 per purchase order
Assembling Number of parts $ 0.36 per part
Packaging Number of finished collars $ 0.25 per collar

Each collar has 4 parts; direct materials cost per collar is $9. Direct labor cost is $4
per collar. Suppose Animal Hut has asked for a bid on 25,000 dog collars. Dino will
issue a total of 150 purchase orders if Animal Hut accepts Dino’s bid.

1. Compute the total cost Dino will incur to purchase the needed materials and
then assemble and package 25,000 dog collars. Also compute the cost per collar.
2. For bidding, Dino adds a 40% markup to total cost. What total price will the
company bid for the entire Animal Hut order?
3. Suppose that instead of an ABC system, Dino has a traditional product costing system
that allocates indirect costs other than direct materials and direct labor at the
rate of $9.60 per direct labor hour. The dog collar order will require 12,000 direct
labor hours. What total price will Dino bid using this system’s total cost?
4. Use your answers to Requirements 2 and 3 to explain how ABC can help Dino
make a better decision about the bid price it will offer Animal Hut.

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