Question

In: Accounting

No need to show working. Due Co. manufactures two bicycles, the Mountain Bike and the Street...

No need to show working.

Due Co. manufactures two bicycles, the Mountain Bike and the Street Racer, and anticipates producing 8,000 Mountain Bikes and 4,000 Street Racers.

The direct material cost and direct labor cost for each bike are:

                       

Direct Materials

Direct Labor

Mountain Bike

$120

$240

Street Racer

$60

$160

Due’s budgeted overhead cost of $2,140,000 is based on the following:

  • Set-up procedures                      $   400,000
  • Assembling stations        $1,200,000
  • Finishing                        $   240,000
  • Shipping                        $   300,000

The following activities are needed to manufacture the bikes:

Set-up Procedures

Assembling Stations

Finishing

Shipping

Mountain Bike

6,000

12,000

8,000

4,000

Street Racer

4,000

8,000

4,000

2,000

For Questions 32 – 35, assume Due uses activity-based costing.

  1. What is the cost driver rate for finishing?

           

  1. What is the cost driver rate for shipping?

  1. What is the manufacturing overhead cost per bike for the Mountain Bike?

  1. What is the total cost per bike of the Mountain Bike?

Solutions

Expert Solution

Solution 1:

Cost driver rate for Finishing = Total Finishing cost / Total Finishing Activities = $240,000/ (8000+4000)

= $240,000/ 12000 = $20

Solution 2:

Cost driver rate for shipping = Total Shipping cost / Total Shipping Activities = $300,000/ (4000+2000)

= $300,000/ 6000 = $50

Solution 3:

Cost Pool Overhead Cost Total Drivers Cost driver Rate
Setup procedure $4,00,000 10000 $40.00
Assembly Stations $12,00,000 20000 $60.00
Finishing $2,40,000 12000 $20.00
Shipping $3,00,000 6000 $50.00
Total $21,40,000
Computation of Overhead allocated and Overhead cost per Mountain Bike
Mountain Bike Cost driver Rate Activities-Mountain Bike Overhead allocated
Setup procedure $40.00 6000 $2,40,000
Assembly Stations $60.00 12000 $7,20,000
Finishing $20.00 8000 $1,60,000
Shipping $50.00 4000 $2,00,000
Total $13,20,000
Number of Mountain bikes 8000
Overhead cost per bike for the Mountain Bike $165

Solution 4:

Total cost per bike of the Mountain Bike = Direct Material + Direct Labor + Overhead per bike = $120 + $240 + $165 = $525


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