Question

In: Accounting

Ridgeland Inc. makes backpacks for large sporting goods chains that are sold under the customers' store...

Ridgeland Inc. makes backpacks for large sporting goods chains that are sold under the customers' store brand names. The Accounting Department has identified the following overhead costs and cost drivers for next year: Overhead Item Expected Cost Cost Driver Maximum Quantity Setup Cost 489,600 Number of Setups 7,200 Ordering Cost 130,000 Number of Orders 65,000 Maintenance 920,000 Number of Machine Hours 80,000 Power 88,000 Number of Kilowatt Hours 440,000 Total predicted direct labor hours for next year is 42,500. The following data are for two recently completed jobs: Job 201 Job 202 Cost of Direct Materials $10,500 $12,000 Cost of Direct Labor $18,600 $62,300 Number of Units Completed 900 750 Number of Direct Labor Hours 220 270 Number of Setups 15 19 Number of Orders 21 42 Number of Machine Hours 450 360 Number of Kilowatt Hours 200 300

a. Determine the unit cost for each job using a traditional plantwide overhead rate based on direct labor hours. Round cost per unit answers to two decimal places when applicable.

b.b. Determine the unit cost for each job using ABC. Round cost per unit answers to two decimal placeswhen applicable.

c. As the manager of Ridgeland is there any additional information you would want to evaluate the pricing and profitability of jobs 201 and 202 ?

d. Assuming the company has been using the method required in part a, How shuld the management react to the findings in part b.

Solutions

Expert Solution

  1. Overhead rate (on direct labor hours)= Total overhead/Expected direct labor hours

                                                                      =$1627600/42500                                                                                 

                                                                      =$38.30 / labor hour

Total estimated overhead cost =Setup cost + Ordering cost + Maintenance + Power

=$489600 + $130000 +$920000 +$88000

=$1627600

Unit cost using a traditional plantwide overhead rate

Particluars

Job 201

Job 202

$

$

Cost of Direct materials

10500

12000

Cost of Direct labor

18600

62300

Overhead costs

220 Labor Hours*$38.30=8426

270 Hours*$38.3=10341

Total costs (A)

37526

84641

Number of units (B)

900

750

Total cost per unit (C=A/B)

41.70

112.85

ekkarill92 answered 2 years ago
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