Question

Tent Master produces two lines of tents sold to outdoor enthusiasts. The tents are cut to specifications in department A. In department B the tents are sewn and folded. The activities, costs, and drivers associated with these two manufacturing processes and the company’s production support activities follow. Process Activity Overhead cost Driver Quantity Department A Pattern alignment $ 115,000 Batches 1,000 Cutting 49,720 Machine hours 11,300 Moving product 161,700 Moves 3,300 $ 326,420 Department B Sewing $ 425,600 Direct labor hours 5,600 Inspecting 49,500 Inspections 750 Folding 58,590 Units 27,900 $ 533,690 Support Design $ 608,000 Modification orders 320 Providing space 76,800 Square feet 9,600 Materials handling 266,600 Square yards 860,000 $ 951,400 Additional production information on the two lines of tents follows. Pup Tent Pop-Up Tent Units produced 18,600 units 9,300 units Moves 1,100 moves 2,200 moves Batches 250 batches 750 batches Number of inspections 300 inspections 450 inspections Machine hours 7,000 MH 4,300 MH Direct labor hours 3,500 DLH 2,100 DLH Modification orders 80 modification orders 240 modification orders Space occupied 4,800 square feet 4,800 square feet Material required 470,000 square yards 390,000 square yards

1. Using a plantwide overhead rate based on direct labor hours, compute the overhead cost that is assigned to each pup tent and each pop-up tent. (Round your intermediate calculations and final answers to 2 decimal places.)

2. Using the plantwide overhead rate, determine the total cost per unit for the two products if the direct materials and direct labor cost is $15 per pup tent and $21 per pop-up tent. (Round your intermediate calculations and answers to 2 decimal places.)

3. Complete the below table. (Round your intermediate calculations and answers to 2 decimal places.)

3. Assume the market price of the pup tent is $72 and the market price of the pop-up tent is $160, determine the gross profit / loss per unit for each tent assuming overhead is assigned using the plantwide rate.   Pup Tent Pop-Up Tent   Market price         Manufacturing cost per unit         Gross profit (loss) per unit             Pup Tent Pop-Up Tent   Will product line be retained or eliminated?

4. Using ABC, compute the total cost per unit for each tent if the direct labor and direct materials cost is $15 per pup tent and $21 per pop-up tent. (Round your intermediate calculations and final answers to 2 decimal places.)

5. Assume if the market price is $72 per pup tent and $160 per pop-up tent, determine the gross profit / loss per unit for each tent. (Round your intermediate calculations and answers to 2 decimal places.)
  

Answer 1

Tent Master

1. Overhead assigned to each product using plantwide overhead rate based on DLH:

Total overhead costs = 326,420 + 533,690 + 951,400 = $1,811,510

Total direct labor hours = 5,600

Plantwide overhead cost per direct labor hour = 1,546,335/5,600 = $323.48

overhead assigned	Activity Driver	Plantwide OH Rate	Total Overhead Cost	Units Produced	OH Cost per unit
Pup Tent	3,500 DLH	$323.48	$1,132,194	18,600	$60.87
Pop-Up Tent	2,100 DLH	$323.48	$679,316	9,300	$73.04

2 determination of total cost per unit based on plantwide overhead rate:

	Pup Tent	Pop-Up Tent
Material and Labor per unit	$15	$21
Overhead per unit	$60.87	$73.04
Total cost per unit	$75.87	$94.04

1. Gross profit (loss) per unit using plantwide OH rate:

	Pup Tent	Pop-Up Tent
Market price	$72	$160
manufacturing cost per unit	$75.87	$94.04
gross profit (loss) per unit	($3.87)	$65.96
will product be retained or eliminated	Eliminated	Retained

1. Computation of total cost per unit using ABC:

Pattern Alignment
overhead cost	$115,000	1,000 batches
overhead rate per batch	$115
Cutting
Overhead cost	$49,720	11,300 Machine hours
overhead rate per machine hour	$4.40
Moving Product
Overhead cost	$161,700	3,300 moves
overhead rate per move	$49 per move
Sewing
Overhead cost	$425,600	5,600 DLH
overhead rate per DLH	$76 per DLH
Inspecting
Overhead cost	$49,500	750 inspections
overhead rate per inspection	$66 per inspection
Folding
overhead cost	$58,590	27,900 units
overhead rate per unit	$2.10 per unit
Design
overhead cost	$608,000	320 modification orders
overhead rate per order	$1,900 per order
Providing Space
overhead cost	$76,800	9,600 square feet
overhead rate per square feet	$8 per square feet
Materials Handling
overhead cost	$266,600	860,000 square yards
overhead rate per square yard	$0.31 per square yard

Overhead Assigned	Activity Driver
Pup Tent	activity usage	activity rate	total overhead cost
Pattern Alignment	250 batches	$115 per batch	$28,750
Cutting	7,000 MH	$4.40 per MH	$30,800
Moving Product	1,100 Moves	$49 per move	$53,900
Sewing	3,500 DLH	$76 per DLH	$266,000
Inspecting	300 inspections	$66 per inspection	$19,800
Folding	18,600 units	$2.10 per unit	$39,060
Design	80 modification orders	$1,900 per order	$152,000
Providing Space	4,800 square feet	$8 per square feet	$38,400
Materials Handling	470,000 square yards	$0.31 per square yard	$145,700
Total overhead assigned			$774,410
number of units			18,600
OH cost per unit			$41.63

Overhead Assigned	Activity Driver
Pop-Up Tent	activity usage	activity rate	total overhead cost
Pattern Alignment	750 batches	$115 per batch	$86,250
Cutting	4,300 MH	$4.40 per MH	$18,920
Moving Product	2,200 moves	$49 per move	$107,800
Sewing	2,100 DLH	$76 per DLH	$159,600
Inspecting	450 inspections	$66 per inspection	$29,700
Folding	9,300 units	$2.10 per unit	$19,530
Design	240 modification orders	$1,900 per order	$456,000
Providing Space	4,800 square feet	$8 per square feet	$38,400
Materials Handling	390,000 square yards	$0.31 per square yard	$120,900
Total overhead assigned			$1,037,100
number of units			9,300
OH cost per unit			$111.52

Total manufacturing costs:	Pup Tent	Pop-Up Tent
direct materials and direct labor	$15	$21
overhead cost per unit	$41.63	$111.52
Total manufacturing cost per unit	$56.63	$132.52

The direct material and direct labor cost per unit is not given in question above. Total manufacturing cost per unit = direct material cost + direct labor + overhead cost per unit.

Step 1: determination of overhead rates, as follows

Overhead cost/activity usage = activity rate

The activity rates for all the activities are computed.

Step 2: computing the overhead assigned to each product based on the product’s usage of activity. The assigned overhead = activity usage x activity rate

Step 3: computation of overhead rate per unit for each product as follows, overhead rate per unit = total overhead assigned/number of units

Step 4: add direct materials cost, direct labor cost and overhead cost per unit to arrive at total manufacturing cost per unit.

Gross profit (loss); retained or eliminated:

	Pup Tent	Pop-Up Tent
Market price	$72	$160
manufacturing cost per unit	$56.63	$132.52
gross profit (loss) per unit	$15.37	$27.48
will product be retained or eliminated	Retained	Retained