Question

Hi I have an exercise and I want to you to solve it step by step, please.. I found the solution here but it did not have steps ..

*Answer the following questions using the information below: Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is analyzed as follows: T-SHIRTS SWEATSHIRTS Production and sales volume 60,000 units 35,000 units Selling price $16.00 $29.00 Direct material $ 2.00 $ 5.00 Direct labor $ 4.50 $ 7.20 Manufacturing overhead $ 2.00 $ 3.00 Gross profit $ 7.50 $13.80 Selling and administrative $ 4.00 $ 7.00 Operating profit $ 3.50 $ 6.80 What is projected operating income if direct materials costs of T-Shirts increase to $4.00 per unit and direct labor costs of Sweatshirts increase to $8.20 per unit? 1) Under the revised ABC system, the activity-cost driver rate for the supervision activity is ________. 2) Under the revised ABC system, supervision costs allocated to Sweatshirts will be ________. 3) Under the revised ABC system, total overhead costs allocated to Sweatshirts will be ________. 4) Under the revised ABC system, overhead costs per unit for the Sweatshirts will be ________. 5) Using an ABC system, next year's estimates show manufacturing overhead costs will total $228,300 for 52,000 T-shirts. If all other T-shirt costs and sales prices remain the same, the profitability that can be expected is ________.

Answer 1

We have been provided with the infomration as under

	T-SHIRTS	SWEATSHIRTS
Production and sales volume	60,000 units	35,000 units
Selling price	$16.00	$29.00
Direct material	$2.00	$5.00
Direct labor	$4.50	$7.20
Manufacturing overhead	$2.00	$3.00
Gross profit	$7.50	$13.80
Selling and administrative	$4.00	$7.00
Operating profit	$3.50	$6.80

1) As per ABC system, the activity-cost driver rate for the supervision activity is _$1.16 per dlh

Working

rate for the supervision activity

=$100,920 / (45,000 dlh + 42,000 dlh)

= $1.16 per dlh

___________________________________________________________

2) Under the revised ABC system, supervision costs allocated to Sweatshirts will be __$48720_____.

Working

$100,920 / (45,000 dlh + 42,000 dlh)

= $1.16 per dlh × 42,000 dlh

= $48,720

________________________________________________________________

3) Under the revised ABC system, total overhead costs allocated to Sweatshirts will be __$76,720__.

Working

$124,000 / (60,000 inspections + 17,500 inspections)

= $1.60 per inspection × 17,500

= $28,000

Add:

$100,920 / (45,000 dlh + 42,000 dlh)

= $1.16 per dlh × 42,000 dlh

= $48,720;

So total is

$28,000 + $48,720

= $76,720

________________________________________________________________

4) Under the revised ABC system, overhead costs per unit for the Sweatshirts will be ___$2.19_____.

Working

$76,720 / 35,000 sweatshirts

= $2.19

___________________________________________________________________

5) Using an ABC system, next year's estimates show manufacturing overhead costs will total $228,300 for 52,000 T-shirts. If all other T-shirt costs and sales prices remain the same, the profitability that can be expected is ___$1.11_____.

Working

[52,000 ($16 - $2.00 - $4.50 - $4.00)] - $228,300

= $57,700 / 52,000

= $1.11