Question

Question: Required information [The following information applies to the questions displayed below.] Fo...

Required information

[The following information applies to the questions displayed below.]

For many years, Yelena Company manufactured a single product called a Mono-Relay. Then three years ago, the company automated a portion of its plant and at the same time introduced a second product called a Bi-Relay that has become increasingly popular. The Bi-Relay is a more complex product, requiring 1.00 hour of direct labor time per unit to manufacture and extensive machining in the automated portion of the plant. The Mono-Relay requires only 0.50 hour of direct labor time per unit and only a small amount of machining. Manufacturing overhead costs are currently assigned to products on the basis of direct labor-hours.

Despite the growing popularity of the company’s new Bi-Relay, profits have been declining steadily. Management is beginning to believe that there may be a problem with the company’s costing system. Materials and labor costs per unit are given below:

	Mono-Relay			Bi-Relay
Direct materials	$	66.00		$	81.00
Direct labor (0.50 hour and 1.00 hour @ $17.00 per hour)	$	8.50		$	17.00

Management estimates that the company will incur $735,360 in manufacturing overhead costs during the current year and 18,000 units of the Mono-Relay and 7,000 units of the Bi-Relay will be produced and sold.

2.	Management is considering using activity-based costing to apply manufacturing overhead cost to products for external financial reports. The activity-based costing system would have the following four activity cost pools:

Activity Cost Pool	Activity Measure	Estimated Overhead Cost
Maintaining parts inventory	Number of part types	$	128,960
Processing purchase orders	Number of purchase orders		224,800
Quality control	Number of tests run		309,240
Machine related	Machine-hours		72,360
		$	735,360

	Expected Activity
Activity Measure	Mono-Relay	Bi-Relay	Total
Number of part types	656	956	1,612
Number of purchase orders	3,356	1,140	4,496
Number of tests run	5,756	9,706	15,462
Machine-hours	1,156	1,256	2,412

Required information [The following information applies to the questions displayed below.] For many years, Yelena Company manufactured a single product called a Mono-Relay. Then three years ago, the company automated a portion of its plant and at the same time introduced a second product called a Bi-Relay that has become increasingly popular. The Bi-Relay is a more complex product, requiring 1.00 hour of direct labor time per unit to manufacture and extensive machining in the automated portion of the plant. The Mono-Relay requires only 0.50 hour of direct labor time per unit and only a small amount of machining. Manufacturing overhead costs are currently assigned to products on the basis of direct labor-hours. Despite the growing popularity of the company’s new Bi-Relay, profits have been declining steadily. Management is beginning to believe that there may be a problem with the company’s costing system. Materials and labor costs per unit are given below: Mono-Relay Bi-Relay Direct materials $ 66.00 $ 81.00 Direct labor (0.50 hour and 1.00 hour @ $17.00 per hour) $ 8.50 $ 17.00 Management estimates that the company will incur $735,360 in manufacturing overhead costs during the current year and 18,000 units of the Mono-Relay and 7,000 units of the Bi-Relay will be produced and sold. 3. Using the activity rates you computed in part (2) above, do the following: a. Determine the per unit amount of manufacturing overhead cost that would be assigned to each product using the activity-based costing system. (Round your final answers to 2 decimal places.) b. Compute the unit product cost of each product. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

Answer 1

Calculation of Overhead Rate per Activity
Activity Cost Pool	Activity Measure	Estimated Total cost	Expected Activity	Rate/Activity
Maintaining parts inventory	Number of part types	128,960.00	1,612	80.00
Processing purchase orders	Number of purchase orders	224,800.00	4,496	50.00
Quality control	Number of tests run	309,240.00	15,462	20.00
Machine related	Machine-hours	72,360.00	2,412	30.00
		735,360.00

Activity Measure	Mono-Relay	Bi-Relay	Total
Number of part types	656	956	1,612
Number of purchase orders	3,356	1,140	4,496
Number of tests run	5,756	9,706	15,462
Machine-hours	1,156	1,256	2,412

	Mono-Relay	Bi-Relay
Manufactring Overhead Cost
Maintaining parts inventory	52,480.00	76,480.00
Processing purchase orders	167,800.00	57,000.00
Quality control	115,120.00	194,120.00
Machine related	34,680.00	37,680.00
Total Manufactring Overhead	370,080.00	365,280.00
No. of Units Produced	18,000	7,000
Manufactring Overhead per Unit	20.56	52.18

	Mono-Relay	Bi-Relay
No. of Units Produced	18,000	7,000
Direct Material	1,188,000	567,000
Direct Labour	153,000.0	119,000
Overhead	370,080	365,280
Total Cost	1,711,080	1,051,280
Cost per Unit	95.06	150.18

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