Author Question: Traditions Home Accessories Company manufactures pillows using an activity-based costing system to ... (Read 67 times)

yoroshambo · **on:** Jan 4, 2020

Traditions Home Accessories Company manufactures pillows using an activity-based costing system to allocate all manufacturing conversion costs. The following information is provided for the month of June:

Activity	Estimated Indirect Activity Costs	Allocation Base	Estimated Quantity of Allocation Base
Materials handling	$3,000	Number of parts	6,000 parts
Assembling	$7,200	Number of parts	6,000 parts
Packaging	$4,000	Number of pillows	2,000 pillows

Each pillow consists of 3 parts; the total direct materials cost per pillow is $8.00.

If the cost to purchase the same pillow from a supplier is $17.00, what should Traditions Home Accessories do to maximize profits?
◦ Purchase the pillow from the supplier.
◦ Continue to manufacture the pillow.
◦ Close down the business.
◦ Since the cost to manufacture the pillow is also $17.00, the company would make the same profit whether it bought the pillow or manufactured it.

dudman123 · **Reply #1 on:** Jan 4, 2020

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