Question

In 1990 Bridgeton Industries produced three products at its Automotive Component & Fabrication (ACF) Plant: Fuel Tanks, Manifolds, and Doors. Use the information below to respond to the following:

A.Complete the 1990 pro-forma by-product income statement, given the existing cost system in the case.

B. For each product, calculate the budgeted sales price per unit, full-absorption cost per unit, contribution margin (revenues minus variable costs) per unit, and profit per-unit.

C. Assuming no other changes, evaluate the following statement about Bridgeton’s cost system: “We should switch to machine hours as our cost driver for factory overhead to reduce RUCAG.”

D.Calculate the percentage of each activity driver in the Activity Analysis Table that each cost object consumes. Using the results, determine the number of indirect cost pools you think is needed for a multiple-allocation-base system.

E. Calculate the reported unit cost for each product using a multiple-allocation-base cost approach. Identify all important components of your system (cost pools, cost objects, cost drivers, etc.) and explain the design choices (e.g., number of cost pools, cost drivers) that you make.

1990 Pro-Forma Income Statement, by Product

Bridgeton Industries Automotive Component & Fabrication Plant

	Fuel Tanks		Manifolds		Doors
Revenues		$83,535		$93,120		$49,887
Direct labor	4,599		6,540		2,963
Direct materials	16,996		35,725		16,825
Factory overhead*
Cost of Goods Sold
Gross Margin

*Allocated based on budgeted direct labor dollars.

Other 1990 Information

	Fuel Tanks	Manifolds	Doors
Units budgeted, produced, and sold	5,427	7,532	10,420
Machine hours per unit	0.60	0.62	0.20

Available machine hours:                                   15,000

Activity Analysis Data

Activity	Driver	Consumption by			Total Activity Cost
		Fuel Tanks	Manifolds	Doors
Run machines	Machine hours				$21,153
Maintenance	Maintenance hours	163.1	231.9	105.1	10,000
Quality control	Number of rejects	45	25	5	5,670
Set up	Set up hours	32.6	46.4	21.0	2,710
Supply material	Receipts	72	98	130	3,040
Pack and ship	Shipments	55	75	100	1,565
Plant safety	% of revenues				7,130
Provide personnel	Direct labor dollars				9,435
Provide facilities	Square feet	20,000	10,000	50,000	18,680
Total Indirect Costs					$79,383

Answer 1

Overhead	79383
Total direct labour cost (4599+6540+2963)	14102
Predetermined overhead rate (overhead / total direct labour cost)	562.92%

	Fuel tanks		Manifolds		Doors
Revenues		$83,535		$93,120		$49,887
Direct labor	4,599		6,540		2,963
Direct materials	16,996		35,725		16,825
Factory overhead (direct labor * 562.92%)	25889		36815		16679
Cost of goods sold		47,484		79,080		36,467
Gross margin		$36,051		$14,040		$13,420

	Fuel tanks	Manifolds	Doors
Direct labor	4,599	6,540	2,963
Direct materials	16,996	35,725	16,825
Total variable cost	21,595	42,265	19,788
Unit produced	5,427	7,532	10,420
Variable cost per unit (total variable cost / unit produced)	3.9792	5.6114	1.8990
Revenues	$83,535	$93,120	$49,887
Revenues per unit (revenues / unit produced)	$15.3925	$12.3633	$4.7876
Cost of goods sold	47,484	79,080	36,467
Full-absorption cost per unit (cost of goods sold / unit produced)	8.7495	10.4992	3.4997
Contribution margin per unit (revenues per unit - variable cost per unit)	$11.4133	$6.7519	$2.8886
Gross margin	$36,051	$14,040	$13,420
Profit per unit (gross margin / unit produced)	$6.6430	$1.8641	$1.2879

Activity based costing

	Fuel tanks	Manifolds	Doors	Total
Units budgeted, produced, and sold	5,427	7,532	10,420
Machine hours per unit	0.6	0.62	0.2
Machine hours	3256.2	4669.84	2084	10010.04
	Fuel tanks	Manifolds	Doors	Total
Revenues	83535	93120	49887	226542
% of revenue (sales of product /226542)	36.874%	41.105%	22.021%

Activity	Driver	Consumption by				Total activity cost
		Fuel tanks	Manifolds	Doors	Total activity		Cost driver rate (total activity cost / total activity)
Run machines	Machine hours	3256.2	4669.84	2084	10010.04	$21,153	$2.1132
Maintenance	Maintenance hours	163.1	231.9	105.1	500.1	10,000	$19.9960
Quality control	Number of rejects	45	25	5	75	5,670	$75.6000
Set up	Set up hours	32.6	46.4	21	100	2,710	$27.1000
Supply material	Receipts	72	98	130	300	3,040	$10.1333
Pack and ship	Shipments	55	75	100	230	1,565	$6.8043
Plant safety	% of revenues	36.874%	41.105%	22.021%	1	7,130	$7,130.0000
Provide personnel	Direct labor dollars	4,599	6,540	2,963	14102	9,435	$0.6691
Provide facilities	Square feet	20,000	10,000	50,000	80000	18,680	$0.2335
Total indirect costs						$79,383

Overhead allocation under activity based costing
Activity	Cost driver rate	Fuel tanks		Manifolds		Doors
		Activity	Cost (cost driver rate * activity)	Activity	Cost (cost driver rate * activity)	Activity	Cost (cost driver rate * activity)
Run machines	$2.1132	3256.2	$6,880.93	4669.84	$9,868.20	2084	$4,403.86
Maintenance	$19.9960	163.1	$3,261.35	231.9	$4,637.07	105.1	$2,101.58
Quality control	$75.6000	45	$3,402.00	25	$1,890.00	5	$378.00
Set up	$27.1000	32.6	$883.46	46.4	$1,257.44	21	$569.10
Supply material	$10.1333	72	$729.60	98	$993.07	130	$1,317.33
Pack and ship	$6.8043	55	$374.24	75	$510.33	100	$680.43
Plant safety	$7,130.00	36.874%	$2,629.11	41.105%	$2,930.78	22.021%	$1,570.10
Provide personnel	$0.6691	4599	$3,076.98	6540	$4,375.61	2963	$1,982.41
Provide facilities	$0.2335	20000	$4,670.00	10000	$2,335.00	50000	$11,675.00
Allocated overhead			$25,907.67		$28,797.51		$24,677.82

	Fuel tanks		Manifolds		Doors
Revenues		$83,535		$93,120		$49,887
Direct labor	4,599		6,540		2,963
Direct materials	16,996		35,725		16,825
Factory overhead (as per above)	25908		28798		24678
Cost of goods sold		47,503		71,063		44,466
Gross margin		$36,032		$22,057		$5,421
Unit produced		5427		7532		10420
Unit product cost (cost of goods sold / unit produced)		$8.7530		$9.4347		$4.2674