Question

In: Accounting

Tiger Pride produces two product​ lines: Tminus−shirts and Sweatshirts. Product profitability is analyzed as​ follows: ​T-SHIRTS...

Tiger Pride produces two product​ lines:

Tminus−shirts

and Sweatshirts. Product profitability is analyzed as​ follows:

​T-SHIRTS

SWEATSHIRTS

Production and sales volume

72,000 units

40,000 units

Selling price

$18.00

​$29.00

Direct material

$1.90

​$5.00

Direct labor

$ 4.20$4.20

​$7.20

Manufacturing overhead

$ 4.40$4.40

​$3.00

Gross profit

​$7.50

​$13.80

Selling and administrative

$3.70

​$7.00

Operating profit

$3.80

​$6.80

Tiger​ Pride's managers have decided to revise their current assignment of overhead costs to reflect the following ABC cost​ information:

Activity

Activity cost

Activityminus−cost

driver

Supervision

$118,320

Direct labor hours​ (DLH)

Inspection

$143,250

Inspections

Activities demanded

Tminus−SHIRTS

SWEATSHIRTS

0.75​ DLH/unit

1.2​ DLH/unit

54,000 DLHs

48,000 DLHs

80,000 inspections

15,500 inspections

Under the revised ABC​ system, overhead costs per unit for the Sweatshirts will be​ ________. (Do not round interim calculations. Round the final answer to the nearest​ cent.)

A.

$ 1.97$1.97

per unit

B. $ 1.64 per unit

C. $ 1.10 per unit

D.$ 1.50 per unit

Solutions

Expert Solution

Overhead cost per inspection hour = Total inspection cost/total inspection hours

                                                     = $ 143,250/ (80,000 + 15,500) Hrs

                                                                                = $ 143,250/95,500 = $ 1.5 per Hrs

Overhead inspection cost for sweat shirts (15,500 hours) = $ 1.5 x 15,000 = $ 23,250

Overhead cost per supervision hour = Total supervision cost/total direct labor hours

                                                      = $ 118,320/ (54,000 + 48,000) DLH

                                                     = $ 118,320/102,000 DLH

                                                      = $ 1.16 per DLH

Supervision cost for sweat shirts (48,000 DLH) = $ 1.16 x 48,000 = $ 55,680

Total overhead cost for sweat shirts = $ 23,250 + $ 55,680 = $ 78,930

Overhead cost per unit for sweat shirts = Total overhead cost for sweet shirts/No. of sweat shirts

                                                               = $ 78,930/40,000 = $ 1.97

Hence option “A. $ 1.97” is correct answer

ekkarill92 answered 9 months ago
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