Question

In: Accounting

Marine, Inc., manufactures a product that is available in both a flexible and a rigid model....

Marine, Inc., manufactures a product that is available in both a flexible and a rigid model. The company has made the rigid model for years; the flexible model was introduced several years ago to tap a new segment of the market. Since introduction of the flexible model, the company’s profits have steadily declined, and management has become concerned about the accuracy of its costing system. Sales of the flexible model have been increasing rapidly.

Overhead is applied to products on the basis of direct labor-hours. At the beginning of the current year, management estimated that $600,000 in overhead costs would be incurred and the company would produce and sell 1,000 units of the flexible model and 10,000 units of the regular model. The flexible model requires 2.0 hours of direct labor time per unit, and the regular model requires 1.0 hours. Direct materials and labor costs per unit are given below:

Flexible Rigid
Direct materials cost per unit $ 110.00 $ 80.00
Direct labor cost per unit $ 30.00 $ 15.00

Required:   

1-a. Compute the predetermined overhead rate using direct labor-hours as the basis for allocating overhead costs to products.

1-b. Compute the unit product cost for one unit of each model.

2. An intern suggested that the company use activity-based costing to cost its products. A team was formed to investigate this idea. It came back with the recommendation that four activity cost pools be used. These cost pools and their associated activities are listed as follows:

Expected Activity
Activity Cost Pool and Activity Measure Estimated Overhead Cost Flexible Rigid Total
Purchase orders (number of orders) $ 20,000 100 300 400
Rework requests (number of requests) 10,000 60 140 200
Product testing (number of tests) 210,000 900 1,200 2,100
Machine related (machine-hours) 360,000 1,500 2,500 4,000
$ 600,000

Compute the activity rate for each of the activity cost pools.     

3-a. Using activity-based costing, determine the total amount of overhead that would be assigned to each model for the year.

3-b. Using activity-based costing, compute the unit product cost for one unit of each model.

Solutions

Expert Solution

Answer;

1-a. Compute the predetermined overhead rate using direct labor-hours as the basis for allocating overhead costs to products.

Predetermined overhead rate

= Total estimated overheads/Total estimated direct labor hours

= $600,000/(2 hours * 1,000 units) + (1 hours * 10,000 units)

= $600,000/12,000 DL hours

= $50 per direct labor hour

________________________________________________________

1-b. Compute the unit product cost for one unit of each model.

Flexible

Rigid

Direct materials per unit

110

80

Add: Direct labor cost per unit

30

15

Add: Manufacturing overhead per unit
Flex(50*2), Rgid (50*1)

100

50

Unit product cost

240

145

_____________________________________________________

2

Activity rate for each of the activity cost pools:

Activity Cost Pool and Activity Measure

Estimated
Overhead Cost

Expected Activity total

Rate

A

B

C=A/B

Purchase orders (number of orders)

20000

400

50

Rework requests (number of requests)

10000

200

50

Product testing (number of tests)

210000

2100

100

Machine related (machine-hours)

360000

4000

90

600000

So rate for each of the activity cost pools is

Activity Cost Pool and Activity Measure

Rate

Purchase orders (number of orders)

50

Rework requests (number of requests)

50

Product testing (number of tests)

100

Machine related (machine-hours)

90

___________________________________________________

3

Total amount of overheads assigned to each model:

overheads assigned Flexible ,Model

Activity Cost Pool and Activity Measure

Rate

Expected Activity for Flexible

0

A

B

C=A*B

Purchase orders (number of orders)

50

100

5000

Rework requests (number of requests)

50

60

3000

Product testing (number of tests)

100

900

90000

Machine related (machine-hours)

90

1500

135000

Total

233000

overheads assigned Rigid ,Model

Rate

Expected Activity for Rigid

Activity Cost Pool and Activity Measure

A

B

C=A*B

0

50

300

15000

Purchase orders (number of orders)

50

140

7000

Rework requests (number of requests)

100

1200

120000

Product testing (number of tests)

90

2500

225000

Total

367000

3-b. Using activity-based costing, compute the unit product cost for one unit of each model.

Flexible

Rigid

Direct materials per unit

110

80

Add: Direct labor cost per unit

30

15

Add: Manufacturing overhead per unit

(233,000/1000)

233

(367000/10,000)

36.7

Unit product cost

373

131.7


Related Solutions

Marine, Inc., manufactures a product that is available in both a flexible and a rigid model....
Marine, Inc., manufactures a product that is available in both a flexible and a rigid model. The company has made the rigid model for years; the flexible model was introduced several years ago to tap a new segment of the market. Since introduction of the flexible model, the company’s profits have steadily declined, and management has become concerned about the accuracy of its costing system. Sales of the flexible model have been increasing rapidly. Overhead is applied to products on...
Marine, Inc., manufactures a product that is available in both a flexible and a rigid model....
Marine, Inc., manufactures a product that is available in both a flexible and a rigid model. The company has made the rigid model for years; the flexible model was introduced several years ago to tap a new segment of the market. Since introduction of the flexible model, the company’s profits have steadily declined, and management has become concerned about the accuracy of its costing system. Sales of the flexible model have been increasing rapidly. Overhead is applied to products on...
Marine, Inc., manufactures a product that is available in both a flexible and a rigid model....
Marine, Inc., manufactures a product that is available in both a flexible and a rigid model. The company has made the rigid model for years; the flexible model was introduced several years ago to tap a new segment of the market. Since introduction of the flexible model, the company’s profits have steadily declined, and management has become concerned about the accuracy of its costing system. Sales of the flexible model have been increasing rapidly. Overhead is applied to products on...
Marine, Inc., manufactures a product that is available in both a flexible and a rigid model....
Marine, Inc., manufactures a product that is available in both a flexible and a rigid model. The company has made the rigid model for years; the flexible model was introduced several years ago to tap a new segment of the market. Since introduction of the flexible model, the company’s profits have steadily declined, and management has become concerned about the accuracy of its costing system. Sales of the flexible model have been increasing rapidly. Overhead is applied to products on...
Marine, Inc., manufactures a product that is available in both a flexible and a rigid model....
Marine, Inc., manufactures a product that is available in both a flexible and a rigid model. The company has made the rigid model for years; the flexible model was introduced several years ago to tap a new segment of the market. Since introduction of the flexible model, the company’s profits have steadily declined, and management has become concerned about the accuracy of its costing system. Sales of the flexible model have been increasing rapidly.     Overhead is applied to products on...
Marine, Inc., manufactures a product that is available in both a flexible and a rigid model....
Marine, Inc., manufactures a product that is available in both a flexible and a rigid model. The company has made the rigid model for years; the flexible model was introduced several years ago to tap a new segment of the market. Since introduction of the flexible model, the company’s profits have steadily declined, and management has become concerned about the accuracy of its costing system. Sales of the flexible model have been increasing rapidly.     Overhead is applied to products on...
Marble, Inc. manufactures a product that is available in both a flexible and a rigid model....
Marble, Inc. manufactures a product that is available in both a flexible and a rigid model. The company has made the rigid model for years; the flexible model was introduced several years ago to tap a new segment of the market. Since introduction of the flexible model, the company’s profits have steadily declined, and management has become concerned about the accuracy of its costing system. Sales of the flexible model have been increasing rapidly. Overhead is applied to products on...
Siegel Company manufactures a product that is available in both a deluxe model and a regular...
Siegel Company manufactures a product that is available in both a deluxe model and a regular model. The company has manufactured the regular model for years. The deluxe model was introduced several years ago to tap a new segment of the market. Since introduction of the deluxe model, the company’s profits have steadily declined and management has become increasingly concerned about the accuracy of its costing system. Sales of the deluxe model have been increasing rapidly. Manufacturing overhead is assigned...
Siegel Company manufactures a product that is available in both a deluxe model and a regular...
Siegel Company manufactures a product that is available in both a deluxe model and a regular model. The company has manufactured the regular model for years. The deluxe model was introduced several years ago to tap a new segment of the market. Since introduction of the deluxe model, the company’s profits have steadily declined and management has become increasingly concerned about the accuracy of its costing system. Sales of the deluxe model have been increasing rapidly. Manufacturing overhead is assigned...
Siegel Company manufactures a product that is available in both a deluxe model and a regular...
Siegel Company manufactures a product that is available in both a deluxe model and a regular model. The company has manufactured the regular model for years. The deluxe model was introduced several years ago to tap a new segment of the market. Since introduction of the deluxe model, the company’s profits have steadily declined and management has become increasingly concerned about the accuracy of its costing system. Sales of the deluxe model have been increasing rapidly. Manufacturing overhead is assigned...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT