In: Accounting
Scottsdale Ltd. manufactures a variety of high-volume and low-volume products to customer demand. Presented is information on 2009 manufacturing overhead and activity cost drivers.
Level |
Total Cost |
Units of Cost Driver |
Unit |
$600,000 |
20,000 machine hours |
Batch |
200,000 |
1,000 customer orders |
Product |
400,000 |
50 products |
Product X1 required 3,000 machine hours to fill 10 customer
orders for a total of 8,000 units.
(a) Assuming all manufacturing overhead is estimated and predicted
on the basis of machine hours, determine the predicted total
overhead costs to produce the 8,000 units of product X1.
$Answer
(b) Assuming manufacturing overhead is estimated and predicted
using separate rates for machine hours, customer orders, and
products (a multiple-level cost hierarchy), determine the predicted
total overhead costs to produce the 8,000 units of product
X1.
$Answer
(c) Calculate the error in predicting manufacturing overhead using
machine hours versus using multiple cost drivers. Indicate whether
the use of only machine hours results in overpredicting or
underpredicting the costs to produce 8,000 units of product
X1.
$Answer AnswerOver-predictionUnder-prediction
(d) Determine the error in the prediction of X1 batch-level costs
resulting from the use of only machine hours. Indicate whether the
use of only machine hours results in overpredicting or
underpredicting the batch-level costs of product X1.
$Answer AnswerOver-predictionUnder-prediction
(e) Determine the error in the prediction of X1 product-level costs
resulting from the use of only machine hours. Indicate whether the
use of only machine hours results in overpredicting or
underpredicting the product-level costs of product X1.
$Answer AnswerOver-predictionUnder-prediction
(a) Predetermined overhead rate = Total manufacturing ocerhead cost/Total machine-hours = ($600000 + $200000 + $400000)/20000 = $1200000/20000 = $60 per machine-hour
Predicted total overhead costs to produce 8000 units of X1 = 3000 X $60 = $180000
(b) Predicted total overhead costs to produce 8000 units of X1 = $100000
Level | Total Cost | Units of Cost Driver | Activity Rate | Product X1 | |
Cost Driver Usage | Overhead Costs | ||||
Unit | 600000 | 20000 | 30 | 3000 | 90000 |
Batch | 200000 | 1000 | 200 | 10 | 2000 |
Product | 400000 | 50 | 8000 | 1 | 8000 |
Total | 100000 |
(c) $180000 - $100000 = $80000 Over-prediction
(d) Batch-level: ($200000 x 3000/20000) - $2000 = $30000 - $2000 = $28000 Over-prediction
(e) Product-level: ($400000 x 3000/20000) - $8000 = $60000 - $8000 = $52000 Over-prediction