23.70 30.00 6.30 21%

4. How should G.G. Toys account for the excess capacity created to produce the holiday reindeer dolls? Qualitatively, how will this impact your calculated cost of the Geoffrey doll and the specialty-­‐ branded dolls in question number 2? Explain your method and its impact. (Answer qualitatively. Do not recompute any of your product costs from question 2.) Since the excess capacity created would be used only for few months, it would lead to large volume variances where, for example, it would reflect failure to reach production levels built into the overhead rate. To account for the unused capacity, we can follow an opportunity cost approach where lost profit margins are traced to underutilized capacity. By determining the full cost of unused capacity, including cost for machine depreciation, a basis for establishing accountability for the cost of all resources committed in establishing capacity can be achieved. If the holiday reindeer dolls do not use any resources such as setup, production runs, or shipments, the costing of other dolls would not be affected. However, if they share the same cost pools, it would impact the overhead cost allocated to Geoffrey Doll and Specialty Doll #106. We would recalculate the cost per driver unit for each cost pool. Then, for each cost pool for a particular doll, we would multiply the corresponding cost driver per unit with the driver units and sum them up to find the total cost a particular doll. To derive the per unit overhead cost for that doll, we would divide the total cost by the number of units produced.