Question

In: Accounting

British Hairways designs three types of hairdryers: X, Y, and Z. British Hairways recently undertook a...

British Hairways designs three types of hairdryers: X, Y, and Z. British Hairways recently undertook a cost study and determined that there were six main factors causing costs to be incurred. As a result, they designed a new system with a separate cost pool for each factor. The factor, cost driver, and total cost pools are as follows:

Factor Cost Driver Total Cost Pool
Factory worker wages Direct labour hours $1,391,600
Depreciation on machines Machine hours $936,000
Materials handling and storage costs Kilograms of materials $129,600
Labour used to change machinery in preparation of a new batch Number of setups $160,000
Costs of order processing Number of batches $25,650
Shipping expenses Number of orders shipped $114,000

The company is now preparing a budget for next year. The following predictions have been made:

Product X Product Y Product Z
Units to be Produced 10,000 800 5,000
Direct Material Costs $66/unit $88/unit $45/unit
Direct Labour Hours 4 hours/unit 18 hours/unit 9 hours/unit
Machine Hours 7 hours/unit 15 hours/unit 7 hours/unit
Kilograms of Materials 3 kg / unit 4 kg / unit 2 kg / unit
Number of setups 100 50 50
Number of batches 300 200 70
Number of orders shipped 1,000 800 2,000

Required. Complete the following grid with the new costing data for the following cost pools. Do not use $ signs in your final answer.

Product X Product Y Product Z
Factory worker wages $ $ $
Depreciation on machines $ $ $
Shipping expenses $ $ $

Solutions

Expert Solution

STEP 1: ACTIVITY RATE

(i) FACTORY WORKER WAGES

Overhead cost = $1,391,600

Product Computation Direct Labor Hours
X 10,000 units * 4 hours/unit 40,000
Y 800 units * 18 hours/unit 14,400
Z 5,000 units * 9 hours/unit 45,000
Total direct labor hours 99,400

Factory worker wages activity rate = $1,391,600 / 99,400 direct labor hours = $14 per direct labor hour

(ii) DEPRECIATION ON MACHINE

Overhead cost = $936,000

Product Computation Direct Labor Hours
X 10,000 units * 7 hours/unit 70,000
Y 800 units * 15 hours/unit 12,000
Z 5,000 units * 7 hours/unit 35,000
Total direct labor hours 117,000

Depreciation on machine activity rate = $936,000 / 117,000 machine hours = $8 per machine hour

(iii) SHIPPING EXPENSES

Overhead cost = $114,000

Product Number of orders shipped
X 1,000
Y 800
Z 2,000
Total 3,800

Shipping expenses activity rate = $114,000 / 3,800 machine hours = $30 per order shipped

STEP 2: COSTING DATA

Particulars Product X Product Y Product Z
Factory worker wages $560,000 $201,600 $630,000
Depreciation on machines $560,000 $96,000 $280,000
Shipping Expenses $30,000 $24,000 $60,000

Working notes

Factory Worker wages

Product X = 40,000 direct labor hours * $14 = $560,000

Product Y = 14,400 direct labor hours * $14 = $201,600

Product Z = 45,000 direct labor hours * $14 = $630,000

Depreciation on machines

Product X = 70,000 machine hours * $8 = $560,000

Product Y = 12,000 machine hours * $8 = $96,000

Product Z = 35,000 machine hours * $8 = $280,000

Shipping Expenses

Product X = 1,000 orders shipped * $30 = $30,000

Product Y = 800 orders shipped * $30 = $24,000

Product Z = 2,000 orders shipped * $30 = $60,000

All the best...


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