In: Accounting
CableTech Bell Corporation (CTB) operates in the telecommunications industry. CTB has two divisions: the Phone Division and the Cable Service Division. The Phone Division manufactures telephones in two plants located in the Midwest: (1) a conventional phone plant and (2) cellular phone plant. The product lines run from relatively inexpensive touch-tone wall and desk phones to expensive, high quality cellular phones. CTB also operates a cable TV service in Ohio. The Cable Service Division offers three products: a basic package with 25 channels; an enhanced package which is the basic package plus 15 additional channels and two movie channels; and a premium package which is the basic package plus 25 additional channels and three movie channels.
The Cable Service Division reported the following sale and unit cost activity for the month of March:
CableTech Bell Corporation Cable Service Division For the Month Ended March, 20XX |
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Basic | Enhanced | Premium | |
Sales (units) | 50,000 | 500,000 | 300,000 |
Price per unit | $16 | $30 | $40 |
Unit costs: | |||
Directly traced | $3 | $5 | $7 |
Driver traced | $2 | $4 | $6 |
Allocated | $10 | $13 | $15 |
The unit costs are divided as follows: 70 percent production and 30 percent marketing and customer service. Direct labor cost is the only cost driver used for tracing. Typically, the Cable Service Division uses only production costs to define unit costs. The preceding unit product cost information was provided at the request of the marketing manager, Dan Moniker, and was the result of a special study.
Bryce Youngers, the President of CTB, is reasonably satisfied with the March performance of the Cable Service Division. The March numbers were fairly typical of what has been happening over the past two years. The Phone Division, however, is another matter as its overall profit performance has been declining. Two years ago the Phone Division's income before income taxes was about 15 percent of sales. March's dismal performance was typical of the entire calendar year. This performance trend is expected to continue unless management takes actions to reverse it. During March, the Phone Division reported the following results:
CableTech Bell Corporation Phone Division For the Month of March, 20XX |
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Inventories: | |
Materials, March 1 | $23,000 |
Materials, March 31 | 40,000 |
Work in process, March 1 | 130,000 |
Work in process, March 31 | 45,000 |
Finished goods, March 1 | 480,000 |
Finished goods, March 31 | 375,000 |
Costs: | |
Direct labor | $117,000 |
Plant and equipment depreciation | 50,000 |
Material handling | 85,000 |
Inspections | 60,000 |
Scheduling | 30,000 |
Power | 30,000 |
Plant supervision | 12,000 |
Manufacturing engineering | 21,000 |
Sales commissions | 120,000 |
Salary, sales supervisor | 10,000 |
Supplies | 17,000 |
Warranty work | 40,000 |
Rework | 30,000 |
During March, the Phone Division purchased materials totaling $312,000. There are no significant inventories of supplies (beginning or ending). Supplies are accounted for separately from materials. CTB's Phone Division had sales totaling $1,170,000 for the month of March.
After receiving the internal memo, Kim asked Jacob to use the same plant as a pilot for a preliminary ABC analysis. She instructed him to assign all overhead costs to the plant's two products (Regular and Deluxe phone-models), using only four activities. The four activities were:(1) rework, (2) moving materials, (3) inspecting products, and (4) a general catch-all manufacturing activity labeled "other activities". Based on the special study, Kim knew that material handling and inspecting involved significant cost. In addition, based on data from production reports, the rework activity involved significant cost. If the ABC and unit-based cost assignments did not differ by breaking out these three major activities, then ABC may not matter (currently direct labor cost is used to assign overhead to products).
Pursuant to Kim's request, Jacob produced the following cost and driver information:
Activity | Expected Cost | Driver | Activity Capacity |
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Reworking | $152,000 | Rework hours | 1,520 |
Moving Materials | 360,000 | Number of moves | 7,200 |
Inspecting | 288,000 | Inspection hours | 9,600 |
Other Activities | $800,000 | Direct labor dollars | $500,000 |
Total Overhead Cost | $1,600,000 |
Expected activity demands:
Regular Model | Deluxe Model | |
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Units completed | 40,000 | 16,000 |
Direct materials | $200,000 | $160,000 |
Direct labor dollars | $350,000 | $150,000 |
Number of moves | 2,880 | 4,320 |
Inspection hours | 2,400 | 7,200 |
Rework hours | 760 | 760 |
Required:
1. | Calculate the overhead cost per unit for each phone model using direct labor cost to assign all overhead costs to products (round overhead rate to nearest cent). | ||||
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2. | Calculate the overhead cost per unit for each phone model using the four activities and drivers identified by Kim (round activity rates and final answers to the nearest cent, use the rounded answers in subsequent requirements, if required.) | ||||
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3. | Calculate the conversion cost per unit using activity-based assignments (round activity rates and final answers to the nearest cent, use the rounded answers in subsequent requirements, if required): | ||||
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4. | Calculate the prime cost per unit (round prime cost to the nearest cent): | ||||
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5. | Calculate the unit manufacturing cost using direct labor dollars to assign overhead (round overhead rate to the nearest cent): | ||||
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6. | Calculate the unit manufacturing cost using activity-based assignments (round intermediate and final answers to the nearest cent): | ||||
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Summary Questions: | ||||||||||||||||||||||||||
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OH: Over Head
Answer 1:
Number of units produced in march are not given (in case it was provided we would first distribute labor cost among the 2 products), further distribution of labor cost among products is also not provided. therefore we can not proceed with the answer any further.
Answer 2:
we are given with expected activity demands for both products which would be multiplied by cost per unit of activity to distribute the OHs in among the 2 products. after distribution of ohs the total productwise oh would be divided by units completed (given in the question).
Ans 3:
rework cost is not considered as part of conversion cost are it is assumed that it is not applied on all the completed units (it would be irrational to assume that rework has been done on all completed units).
Ans: 4:
Prime cost = (Direct raw materials cost + Direct labor cost) divided by Number of finished units
Under unit-based costing method: Since number of units for finished good under this method are not given, we have assumed same as of ABC analysis.
As per ABC Analysis data
Ans: 6
Answer: If Kim wants to know the unit operating product cost, then the costs of the additional activities |