Question
In: Accounting
Five Card Draw manufactures and sells 23,000 units of Diamonds, which retails for $170, and 26,000...
Five Card Draw manufactures and sells 23,000 units of Diamonds, which retails for $170, and 26,000 units of Clubs, which retails for $190. The direct materials cost is $25 per unit of Diamonds and $31 per unit of Clubs. The labor rate is $20 per hour, and Five Card Draw estimated 124,000 direct labor hours. It takes 2 direct labor hours to manufacture Diamonds and 3 hours for Clubs. The total estimated overhead is $496,000. Five Card Draw uses the traditional allocation method based on direct labor hours.
What is the gross profit per unit for Diamonds and Clubs?
| Gross Profit | ||
| Diamonds | $ | per unit |
| Clubs | $ | per unit |
What is the total gross profit for the year?
b. They use a traditional cost system and estimates next year's overhead will be $180,000, with the estimated cost driver of 180,000 direct labor hours. It manufactures three products and estimates the following costs:
| Small | Medium | Large | |
| Units | 31,000 | 10,000 | 3,000 |
| Direct Material Cost | $6 | $9 | $8 |
| Direct Labor Hours per Unit | 3 | 6 | 9 |
If the labor rate is $25 per hour, what is the per-unit cost of each product?
| Small | Medium | Large | |
| Cost per unit | $ | $ | $ |
c.
| Cost Pool | Cost Driver | Estimated Overhead |
Wholesale | Retail |
| Ordering | Number of Orders | $92,000 | 190,000 | 40,000 |
| Machine Setups | Number of Setups | 102,000 | 210,000 | 130,000 |
| Inspection | Number of Inspections | 74,000 | 60,000 | 14,000 |
What would be the predetermined rate for each cost pool? Round "Rate" answers to two decimal places.
| Cost Pool | Cost Driver | Estimated Overhead |
Total Activity |
Rate | |
| Ordering | Number of Orders | $92,000 | $ | per order | |
| Machine Setups | Number of Setups | 102,000 | $ | per setup | |
| Inspection | Number of Inspections | 74,000 | $ | per inspection | |
Solutions
Expert Solution
Requirement a:
Gross Profit per unit
| Particulars | Diamonds | Clubs |
| Sales per unit | $170 | $190 |
| Less: Cost of goods sold per unit | ||
| Direct material per unit | $25 | $31 |
| Direct labor per unit (2 hours * $20) (3 hours * $20) | $40 | $60 |
| Overhead cost per unit (2 hours * $4) (3 hours * $4) | $8 | $12 |
| Gross profit per unit | $97 | $87 |
Total Gross profit for the year = (23,000 units * $97 per unit) + (26,000 units * $87) = $4,493,000
Alternatively,
| Particulars | Diamonds | Clubs |
| Sales (23,000 Units * $170) (26,000 units * $190) | $3,910,000 | $4,940,000 |
| Less: Cost of goods sold | ||
| Direct Materials (23,000 units * $25) (26,000 units * $31) | $575,000 | $806,000 |
| Direct labor (23,000 units * 2 direct labor hours * $20) (26,000 units * 3 direct labor hours * $20) | $920,000 | $1,560,000 |
| Overhead cost (23,000 units * 2 direct labor hours * $4) (26,000 units * 3 direct labor hours * $4) | $184,000 | $312,000 |
| Gross Profit | 2,231,000 | 2,262,000 |
| Total Gross Profit = $2,231,000 + $2,262,000 = $4,493,000 |
Working Notes:
Predetermined overhead rate = $496,000 / 124,000 direct labor hours = $4.00 per direct labor hour
Requirement b:
Cost per unit
| Particulars | Small | Medium | Large |
| Direct Material cost | $6 | $9 | $8 |
| Direct Labor cost | $75 | $150 | $225 |
| Overhead cost per unit | $3 | $6 | $9 |
| Cost per unit | $84 | $165 | $242 |
Working Notes:
1. Direct Labor cost per unit
Small = 3 direct labor hours per unit * $25 per hour = $75 per unit
Medium = 6 direct labor hours per unit * $25 per hour = $150 per unit
Large = 9 direct labor hours per unit * $25 per hour = $225 per unit
2. Overhead cost per unit
Predetermined overhead rate = $180,000 / 180,000 direct labor hours = $1.00 per direct labor hour
Small = 3 direct labor hours per unit * $1.00 per direct labor hour = $3 per unit
Medium = 6 direct labor hours per unit * $1.00 per direct labor hour = $6 per unit
Large = 9 direct labor hours per unit * $1.00 per direct labor hour = $9 per unit
Requirement c:
| Cost Pool | Cost Driver | Estimated overhead | / | Cost Driver | = | Activity Rate |
| Ordering | Number of orders | $92,000 | / | 230,000 | = | $0.40 per order |
| Machine Setup | Number of setups | $102,000 | / | 340,000 | = | $0.30 per setup |
| Inspection | Number of Inspection | $74,000 | / | 74,000 | = | $1.00 per inspection |
Working Notes:
Cost Driver
Total number of orders = 190,000 + 40,000 = 230,000 orders
Total number of setups = 210,000 + 130,000 = 340,000 setups
Total number of inspection = 60,000 + 14,000 = 74,000 inspections
All the best...
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