In: Accounting
Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost accountants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters.
Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $301,600. During that time, the company produced 12,600 units of the M-008 and 2,500 units of the M-123. The direct costs of production were as follows.
M-008 | M-123 | Total | ||||
Direct materials | $ | 100,800 | $ | 100,000 | $ | 200,800 |
Direct labor | 100,800 | 50,000 | 150,800 | |||
Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows.
Activity Level | |||||||||
Cost Driver | Costs | M-008 | M-123 | Total | |||||
Number of machine-hours | $ | 117,100 | 8,000 | 2,000 | 10,000 | ||||
Number of production runs | 90,000 | 10 | 30 | 40 | |||||
Number of inspections | 94,500 | 20 | 30 | 50 | |||||
Total overhead | $ | 301,600 | |||||||
Required:
a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product?
b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product?
Calculation Of Predetermined Overhead rate on the basis Direct Labour Cost | |||||||
Overhead Rate = | Total Estimated Manufacturing Overhead | "/" By | Total Labor Cost | ||||
Overhead Rate = | $ 301,600 | "/" By | 150,800 | ||||
Overhead Rate = | $ 2.00 | Per $ Labor Cost | |||||
Solution: B | |||||||
Calculation of Cost price Per units as per Traditional Costing Method | |||||||
Product M - 008 | Product M - 123 | ||||||
Particulars | Amount in $ | Amount in $ | |||||
Direct Materials | $ 100,800 | $ 100,000 | |||||
Direct Labour | $ 100,800 | $ 50,000 | |||||
Overhead Cost | $ 201,600 | $ 100,000 | |||||
(100,800 X $ 2) | ($50,000 X $ 2) | ||||||
Total Cost | $ 403,200 | $ 250,000 | |||||
Divide By No. of Units | 12,600 | 2,500 | |||||
Cost Per Unit | $ 32.00 | $ 100.00 | |||||
Solution: A | |||||||
Step 1: Calculation of the Cost Driver Rate | |||||||
Cost Driver Rate = Activity Cost / Cost Driver | |||||||
Activity | Cost Driver | Activity Cost | "/" By | Cost Driver | " = " To | Cost Driver Rate | |
Machine Hours | No. of Machine Hours | $ 117,100 | "/" By | 10,000 | " = " To | $ 12 | |
Production Runs | No. of Production Runs | $ 90,000 | "/" By | 40 | " = " To | $ 2,250 | |
Inspection | No. of Inspection | $ 94,500 | "/" By | 50 | " = " To | $ 1,890 | |
Step 2 : Calculation of the Cost as per ABC | |||||||
Calculation of the Cost allocation for Activity of Product M - 008 | |||||||
Activity | Activity Used | "X " By | Cost Driver rate | Cost | |||
Machine Hours | 8,000 | "X " By | $ 12 | $ 93,680 | |||
Production Runs | 10 | "X " By | $ 2,250 | $ 22,500 | |||
Inspection | 20 | "X " By | $ 1,890 | $ 37,800 | |||
Total Cost | $ 153,980 | ||||||
CALCULATION OF UNIT PRODUCT COST PER UNIT - | |||||||
Product M - 008 | |||||||
Direct Materials | $ 100,800 | ||||||
Direct Labour | $ 100,800 | ||||||
Overhead Cost | $ 153,980 | ||||||
Total Cost | $ 355,580 | ||||||
Divide By | "/" By | ||||||
No. of Units Produced | 12,600 | ||||||
Cost Per Unit | $ 28.22 | ||||||
Answer = Cost Per Unit = $ 28.22 | |||||||
Calculation of the Cost allocation for Activity of Product M - 123 | |||||||
Activity | Activity Used | "X " By | Cost Driver rate | Cost | |||
Total Cost | 2,000 | "X " By | $ 11.71 | $ 23,420 | |||
Divide By | 30 | "X " By | $ 2,250.00 | $ 67,500 | |||
Related SolutionsDoaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions...Doaktown Products manufactures fishing equipment for
recreational uses. The Miramichi plant produces the company’s two
versions of a special reel used for river fishing. The two models
are the M-008, a basic reel, and the M-123, a new and improved
version. Cost accountants at company headquarters have prepared
costs for the two reels for the most recent period. The plant
manager is concerned. The cost report does not coincide with her
intuition about the relative costs of the two models....
Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions...
Doaktown Products
manufactures fishing equipment for recreational uses. The Miramichi
plant produces the company’s two versions of a special reel used
for river fishing. The two models are the M-008, a basic reel, and
the M-123, a new and improved version. Cost accountants at company
headquarters have prepared costs for the two reels for the most
recent period. The plant manager is concerned. The cost report does
not coincide with her intuition about the relative costs of the two
models....
Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions...Doaktown Products manufactures fishing equipment for
recreational uses. The Miramichi plant produces the company’s two
versions of a special reel used for river fishing. The two models
are the M-008, a basic reel, and the M-123, a new and improved
version. Cost accountants at company headquarters have prepared
costs for the two reels for the most recent period. The plant
manager is concerned. The cost report does not coincide with her
intuition about the relative costs of the two models....
Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions...Doaktown Products manufactures fishing equipment for
recreational uses. The Miramichi plant produces the company’s two
versions of a special reel used for river fishing. The two models
are the M-008, a basic reel, and the M-123, a new and improved
version. Cost accountants at company headquarters have prepared
costs for the two reels for the most recent period. The plant
manager is concerned. The cost report does not coincide with her
intuition about the relative costs of the two models....
Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions...Doaktown Products manufactures fishing equipment for
recreational uses. The Miramichi plant produces the company’s two
versions of a special reel used for river fishing. The two models
are the M-008, a basic reel, and the M-123, a new and improved
version. Cost accountants at company headquarters have prepared
costs for the two reels for the most recent period. The plant
manager is concerned. The cost report does not coincide with her
intuition about the relative costs of the two models....
Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions...Doaktown Products manufactures fishing equipment for
recreational uses. The Miramichi plant produces the company’s two
versions of a special reel used for river fishing. The two models
are the M-008, a basic reel, and the M-123, a new and improved
version. Cost accountants at company headquarters have prepared
costs for the two reels for the most recent period. The plant
manager is concerned. The cost report does not coincide with her
intuition about the relative costs of the two models....
Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions...Doaktown Products manufactures fishing equipment for
recreational uses. The Miramichi plant produces the company’s two
versions of a special reel used for river fishing. The two models
are the M-008, a basic reel, and the M-123, a new and improved
version. Cost accountants at company headquarters have prepared
costs for the two reels for the most recent period. The plant
manager is concerned. The cost report does not coincide with her
intuition about the relative costs of the two models....
Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions...Doaktown Products manufactures fishing equipment for
recreational uses. The Miramichi plant produces the company’s two
versions of a special reel used for river fishing. The two models
are the M-008, a basic reel, and the M-123, a new and improved
version. Cost accountants at company headquarters have prepared
costs for the two reels for the most recent period. The plant
manager is concerned. The cost report does not coincide with her
intuition about the relative costs of the two models....
Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions...Doaktown Products manufactures fishing equipment for
recreational uses. The Miramichi plant produces the company’s two
versions of a special reel used for river fishing. The two models
are the M-008, a basic reel, and the M-123, a new and improved
version. Cost accountants at company headquarters have prepared
costs for the two reels for the most recent period. The plant
manager is concerned. The cost report does not coincide with her
intuition about the relative costs of the two models....
Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions...Doaktown Products manufactures fishing equipment for
recreational uses. The Miramichi plant produces the company’s two
versions of a special reel used for river fishing. The two models
are the M-008, a basic reel, and the M-123, a new and improved
version. Cost accountants at company headquarters have prepared
costs for the two reels for the most recent period. The plant
manager is concerned. The cost report does not coincide with her
intuition about the relative costs of the two models....
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
ADVERTISEMENT
|