Question

I need need assistance with all questions below, please.

Part Two

(COGS and COGM: Two products)

      In its second year of operations, Memories, Inc. has decided to expand the product line by producing replicas of historic buildings. These replicas will require the purchase of new building molds at a cost of $.18 per replica. Of course, new doll molds will not be required. All other materials and prices will remain the same.

      The replicas require additional processing time because of the details on the buildings that limits production to 18 replicas per hour per assembly line. The replicas are not expected to affect the sales of dolls. In the second year of operations, MI expects to produce and sell about 352,800 dolls and 25,200 replicas.

      Increasing production is expected to increase overhead costs by 5% in Year 2 as compared to Year 1. Direct labor costs per hour are not expected to change, but the number of labor hours is estimated to be 94,500. The costs of product promotion and advertising are expected to increase to $3,000 per month. All other selling and administrative costs are expected to remain the same as in Year 1.

      Actual production in Year 2 was 345,132 dolls and 25,200 replicas. Direct material costs transferred to Work-in-Process were $259,000 for dolls and $15,624 for replicas. Direct labor costs were $862,830 for the dolls and $70,010 for replicas, representing 86,283 and 7,001 direct labor hours, respectively. Actual overhead costs were $203,600.

Schedule of Beginning and Ending Inventory Amounts for Year 2
	Beginning Inventory	Ending Inventory
Raw Materials	$   1,973	$     3,487
Work in Process	-0-	-0-
Finished Goods	$ 95,000	$ 121,645

      Purchases of raw materials during Year 2 were $276,138 in total.

      Sales during Year 2 were $1,701,410 for 340,282 dolls and $121,275 for 23,100 replicas.

Required:

Compute the cost of materials per replica.

Can Memories, Inc. still allocate overhead in Year 2 using the same cost driver used in Year 1? If not, what appears to be the most logical cost driver to use? (Explain your answers and support your reasoning.)

Compute a predetermined (estimated) overhead allocation rate  per unit for MI in Year 2.

Using “normal costing” (see Page 153 of text) and the predetermined rate from B, compute:

The totalmanufacturing cost for

345,132 dolls in Year 2, and

25,200 replicas produced in Year 2.

Calculate the cost per unitfor one doll and the cost per unitfor one replica.

Was overhead under- or over-applied? By how much?

:  Remember the methodology for “applying” or “allocating” overhead versus the incurring of actual overhead costs.

Prepare a Cost of Goods Manufactured schedule for Year 2 using actual overhead.

Prepare a Cost of Goods Sold schedule for Year 2 using actual overhead.

Calculate MI's operating income (before taxes) for Year 2.

The marketing manager estimates that Year 3 sales will be 385,000 dolls and 30,000 replicas. The production manager is concerned about being able to produce that number of figurines without incurring significant overtime or making changes in the production process. Outline the possible problems, potential objectives, and options that MI should consider.

Answer 1

A	Cost Driver for Allocation
	Direct Labor seems to be a logical cost driver for the allocation of overhead assuming that
	overhead varies with the hours of direct labor incurred.
B		Direct Labor as the cost driver
	Predetermined overhead rate=Total OH Cost /Amount of cost driver units
	Monthly Overhead Costs	16773.8	12	201285(with 5% increase)
		Total Direct Labor Hours		94500
	Predetermined OH Rate			2.13 per DLHr
C		Total Manufacturing Costs(Cost Driver -DL Hrs)
		Dolls	Replicas
	Actual Volume	345132	25200
	DLH	86283	25200
	DM	259000	15624
	DL	862830	70010
	Applied OH Costs	183782	14912	DLHrs
	Total Manufacturing Costs	1305612	100546
D & E	Preparation of cost of goods sold for Yr2 using actual OH and MI operating income		Dolls	Replicas		Total
	Actual production		345132	25200
	Sales		340282	23100
	Ending inventory		4850	2100
	Sales revenues		1701410	121275		1822685
	Direct materials used	259000/345132*340282=	255360	14322	15624/25200*23100=	269682
	Direct labor costs	862830/345132*340282=	850705	64176	70010/25200*23100=	914881
	Actual OHS	203600/914881*850705=	189318	14282	203600/914881*64176=	203600
	Manufacturing cost of goods sold		1295384	92780		1388163
	Gross Margin		406026	28495		434522
	Product promotion & advtg.(3000*12)					36000
	Operating Income before taxes					398522
		Op.+purchases-ending
	Raw materials	1973+276138-3487=	259000	15624	274624
	Labor	Prodn./hr*$ 10/hr.	4	3.599486
			850705	64176	914881
	OH costs		189318	14282	203600
F	Outline Possible Problems .potential objectives and Options- As both the dolls & replicas are going to increase by 10% over the current actuals,raw material , labor & OH costs will increase in direct variation --similar to Year 2 calculations above--in addition to any additional cost towards increased sales effort & promotions.