Details Product J Product G Product P Total Direct $25 $20 $11 $12,38,000 Material Cost Direct Labor 4/3 1 88,000 Hours Machine 4/3 1 2 76,000 Hours Direct Labor $8 $12 $6 Cost No, of 3 7 20 30 production run No. of 9 3 20 32 Deliveries No. of 15 35 220 270 Receipts (2*7) No, of 15 10 25 50 production orders Production 30,000 20,000 8,000 and sales units Raw material 11 usage units The total overhead costs is $18,48,000. Set-up 1.623377%, Machines 41.125541%, Receiving 23.538961%, Packing 13.528139% and Engineering 20.183983% of total overhead costs. The company operates a just-in-time inventory policy, and ach component once per production per run. In the past the company has allocated overheads to products on the basis of direct labor hours. However, the majority of overheads are more closely related to machine hours than direct labor hours. The company has recently redesigned its cost system by recovering overheads using two volume-related bases: machine hours and materials handling overhead rate for recovering overheads of the receiving department. Both the current and previous cost system reported low profit margins of the product J, which is company's highest-selling product. The management accountant has recently attended a conference on activity based costing, and the overheads cost for the last period have been analyzed by the major activities in order to compute activity based costs. From the above information you are required: (a) Compute the product costs using traditional volume related cost system based on assumption that: (1) All overheads are recovered on the basis of direct labor hours (i.e. the company's past product costing system); (2) The overheads of the receiving department are recovered by materials handling overhead rate and the remaining overheads are recovered using a machine hour rate (i.e. the company's current costing system).
Details Product J Product G Product P Total Direct $25 $20 $11 $12,38,000 Material Cost Direct Labor 4/3 1 88,000 Hours Machine 4/3 1 2 76,000 Hours Direct Labor $8 $12 $6 Cost No, of 3 7 20 30 production run No. of 9 3 20 32 Deliveries No. of 15 35 220 270 Receipts (2*7) No, of 15 10 25 50 production orders Production 30,000 20,000 8,000 and sales units Raw material 11 usage units The total overhead costs is $18,48,000. Set-up 1.623377%, Machines 41.125541%, Receiving 23.538961%, Packing 13.528139% and Engineering 20.183983% of total overhead costs. The company operates a just-in-time inventory policy, and ach component once per production per run. In the past the company has allocated overheads to products on the basis of direct labor hours. However, the majority of overheads are more closely related to machine hours than direct labor hours. The company has recently redesigned its cost system by recovering overheads using two volume-related bases: machine hours and materials handling overhead rate for recovering overheads of the receiving department. Both the current and previous cost system reported low profit margins of the product J, which is company's highest-selling product. The management accountant has recently attended a conference on activity based costing, and the overheads cost for the last period have been analyzed by the major activities in order to compute activity based costs. From the above information you are required: (a) Compute the product costs using traditional volume related cost system based on assumption that: (1) All overheads are recovered on the basis of direct labor hours (i.e. the company's past product costing system); (2) The overheads of the receiving department are recovered by materials handling overhead rate and the remaining overheads are recovered using a machine hour rate (i.e. the company's current costing system).
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Details
Product J
Product G
Product P
Total
Direct
$25
$20
$11
$12,38,000
Material Cost
Direct Labor
4/3
1
88,000
Hours
Machine
4/3
1
76,000
Hours
Direct Labor
$8
$12
$6
Cost
No. of
3
7
20
30
production
run
No. of
3
20
32
Deliveries
No. of
15
35
220
270
Receipts
(2*7)
No. of
15
10
25
50
production
orders
Production
30,000
20,000
8,000
and sales
units
Raw material
11
usage units
The total overhead costs is $18,48,000.
Set-up 1.623377%, Machines 41.125541%, Receiving 23.538961%, Packing 13.528139% and Engineering 20.183983% of total
overhead costs.
The company operates a just-in-time inventory policy, and receives each component once per production per run.
In the past the company has allocated overheads to products on the basis of direct labor hours.
However, the majority of overheads are more closely related to machine hours than direct labor hours.
The company has recently redesigned its cost system by recovering overheads using two volume-related bases: machine hours
and materials handling overhead rate for recovering overheads of the receiving department. Both the current and previous cost
system reported low profit margins of the product J, which is company's highest-selling product. The management accountant has
recently attended a conference on activity based costing, and the overheads cost for the last period have been analyzed by the
major activities in order to compute activity based costs.
From the above information you are required:
(a) Compute the product costs using traditional volume related cost system based on assumption that:
(1) All overheads are recovered on the basis of direct labor hours (i.e. the company's past product costing system);
(2) The overheads of the receiving department are recovered by materials handling overhead rate and the remaining
overheads are recovered using a machine hour rate (i.e. the company's current costing system).
(b) Compute product cost using an ABC system.
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