Franklin Manufacturing manufactures two models of windows,bay windows and casement windows.Franklin uses an activity-based costing system.The following information about the activities used to produce the company's products has been provided. $$\begin{array} { l c c c c }
\text { Category } & \text { Estimated Cost } & \text { Cost Driver } & \text { Bay Windows } & \text { Casement } \
\text { Unit-level } & \$ 125,000 & \text { Labor hours } & 750 & 500 \
\text { Batch-level } & \$ 75,000 & \text { Inspections } & 30 & 20 \
\text { Product-level } & \$ 35,000 & \text { Storage Space } & 3 , 5 0 0 \text { sq feet } & 2,100 \text { sq feet } \
\text { Facility-level } & \$ 165,000 & \text { Machine hours } & 9,000 & 6 , 0 0 0
\end{array}$$ If bay windows and casement windows require the same amount of direct labor,using labor hours as the allocation base for facility-level costs would:
A) Undercost the casement windows.
B) Overcost the bay windows.
C) Undercost both the bay windows and casement windows.
D) None of these answers are correct.

Question

Franklin Manufacturing manufactures two models of windows,bay windows and casement windows.Franklin uses an activity-based costing system.The following information about the activities used to produce the company's products has been provided. $$\begin{array} { l c c c c } 
\text { Category } & \text { Estimated Cost } & \text { Cost Driver } & \text { Bay Windows } & \text { Casement } \
\text { Unit-level } & \$ 125,000 & \text { Labor hours } & 750 & 500 \
\text { Batch-level } & \$ 75,000 & \text { Inspections } & 30 & 20 \
\text { Product-level } & \$ 35,000 & \text { Storage Space } & 3 , 5 0 0 \text { sq feet }  & 2,100 \text { sq feet } \
\text { Facility-level } & \$ 165,000 & \text { Machine hours } & 9,000 & 6 , 0 0 0 
\end{array}$$ If bay windows and casement windows require the same amount of direct labor,using labor hours as the allocation base for facility-level costs would:
A) Undercost the casement windows.
B) Overcost the bay windows.
C) Undercost both the bay windows and casement windows.
D) None of these answers are correct.

Quizplus · Accepted Answer

Using labor hours as the allocation base for facility-level costs would not accurately reflect the consumption of facility-level resources by each product type since facility-level costs are driven by machine hours, not labor hours. The question's premise is incorrect because it suggests using an inappropriate allocation base for facility-level costs, which does not directly lead to undercosting or overcosting as described in options A, B, or C.

Franklin Manufacturing Manufactures Two Models of Windows,bay Windows and Casement