Step by Step answer required. Green Furniture (GF) manufactures a variety of furniture for household use and just two items for office use: desks and cabinets. Theproduction process for desks and cabinets is similar, although machines must be retooled for each product. Both materials and labourcosts are directly traceable to individual products; however, overhead is a common cost and allocated using direct labour-hours as theallocation base. GF's accountant is considering the use of activity-based costing (ABC) and has suggested evaluating the system byapplying it to the two office use products (desks and cabinets). The following data are available for a typical quarter.Activity UsageDesks2,100 partsActivity Cost PoolParts receiptsMachiningAssemblyQuality controlActivity BaseNumber of partsMachine-hoursActivity RateCabinets$ 1.00 per part$15.00 per machine-hour$ 1.40 per unit$ 2.00 per unit1,450 parts315 machine-hours215 machine-hoursUnits producedUnits tested1,450 units1,350 units$ 2,9001,050 units105 units$ 5,250$12,600Direct materialsDirect labour$12,600Each product consumed 630 direct labour-hours.Required:1. Determine the total manufacturing cost and cost per unit for each of the two product lines for the quarter, using activity-basedcosting to allocate overhead costs. (Round "Cost per unit" answers to 2 decimal places.)Answer is complete and correct.DesksCabinetsTotal manufacturing cost2$24,855$26,405Cost per unit$23.67 O $18.21 O2. Redo the above using direct labour-hours as the allocation base. (Round "Cost per unit" answers to 2 decimal places.)Answer is complete but not entirely correct.DesksCabinetsTotal manufacturing cost2426,802 x $38.300 XCost per unit25.5316.86 O

Overhead cost allocation: It is the process of allocating the estimated overhead of a company to its…

Determine the total manufacturing cost and cost per unit for each of the two product lines for the quarter, using activity-based osting to allocate overhead costs. (Round "Cost per unit" answers to 2 decimal places.)

Determine the total manufacturing cost and cost per unit for each of the two product lines for the quarter, using activity-based osting to allocate overhead costs. (Round "Cost per unit" answers to 2 decimal places.)

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter4: Activity-based Costing

Section: Chapter Questions

Problem 36P: Reducir, Inc., produces two different types of hydraulic cylinders. Reducir produces a major...

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Geneva, Inc., makes two products, X and Y, that require allocation of indirect manufacturing costs. The following data were compiled by the accountants before making any allocations: The total cost of purchasing and receiving parts used in manufacturing is 60,000. The company uses a job-costing system with a single indirect cost rate. Under this system, allocated costs were 48,000 and 12,000 for X and Y, respectively. If an activity-based system is used, what would be the allocated costs for each product?
San Mateo Optics, Inc., specializes in manufacturing lenses for large telescopes and cameras used in space exploration. As the specifications for the lenses are determined by the customer and vary considerably, the company uses a job-order costing system. Manufacturing overhead is applied to jobs on the basis of direct labor hours, utilizing the absorption- or full-costing method. San Mateos predetermined overhead rates for 20x1 and 20x2 were based on the following estimates. Jim Cimino, San Mateos controller, would like to use variable (direct) costing for internal reporting purposes as he believes statements prepared using variable costing are more appropriate for making product decisions. In order to explain the benefits of variable costing to the other members of San Mateos management team, Cimino plans to convert the companys income statement from absorption costing to variable costing. He has gathered the following information for this purpose, along with a copy of San Mateos 20x1 and 20x2 comparative income statement. San Mateo Optics, Inc. Comparative Income Statement For the Years 20x1 and 20x2 San Mateos actual manufacturing data for the two years are as follows: The companys actual inventory balances were as follows: For both years, all administrative expenses were fixed, while a portion of the selling expenses resulting from an 8 percent commission on net sales was variable. San Mateo reports any over-or underapplied overhead as an adjustment to the cost of goods sold. Required: 1. For the year ended December 31, 20x2, prepare the revised income statement for San Mateo Optics, Inc., utilizing the variable-costing method. Be sure to include the contribution margin on the revised income statement. 2. Describe two advantages of using variable costing rather than absorption costing. (CMA adapted)
Larsen, Inc., produces two types of electronic parts and has provided the following data: There are four activities: machining, setting up, testing, and purchasing. Required: 1. Calculate the activity consumption ratios for each product. 2. Calculate the consumption ratios for the plantwide rate (direct labor hours). When compared with the activity ratios, what can you say about the relative accuracy of a plantwide rate? Which product is undercosted? 3. What if the machine hours were used for the plantwide rate? Would this remove the cost distortion of a plantwide rate?
Reducir, Inc., produces two different types of hydraulic cylinders. Reducir produces a major subassembly for the cylinders in the Cutting and Welding Department. Other parts and the subassembly are then assembled in the Assembly Department. The activities, expected costs, and drivers associated with these two manufacturing processes are given below. Note: In the assembly process, the materials-handling activity is a function of product characteristics rather than batch activity. Other overhead activities, their costs, and drivers are listed below. Other production information concerning the two hydraulic cylinders is also provided: Required: 1. Using a plantwide rate based on machine hours, calculate the total overhead cost assigned to each product and the unit overhead cost. 2. Using activity rates, calculate the total overhead cost assigned to each product and the unit overhead cost. Comment on the accuracy of the plantwide rate. 3. Calculate the global consumption ratios. 4. Calculate the consumption ratios for welding and materials handling (Assembly) and show that two drivers, welding hours and number of parts, can be used to achieve the same ABC product costs calculated in Requirement 2. Explain the value of this simplification. 5. Calculate the consumption ratios for inspection and engineering, and show that the drivers for these two activities also duplicate the ABC product costs calculated in Requirement 2.
Pelder Products Company manufactures two types of engineering diagnostic equipment used in construction. The two products are based upon different technologies, X-ray and ultrasound, but are manufactured in the same factory. Pelder has computed the manufacturing cost of the X-ray and ultrasound products by adding together direct materials, direct labor, and overhead cost applied based on the number of direct labor hours. The factory has three overhead departments that support the single production line that makes both products. Budgeted overhead spending for the departments is as follows: Pelders budgeted manufacturing activities and costs for the period are as follows: The budgeted cost to manufacture one ultrasound machine using the activity-based costing method is: a. 225. b. 264. c. 293. d. 305.
Southward Company has implemented a JIT flexible manufacturing system. John Richins, controller of the company, has decided to reduce the accounting requirements given the expectation of lower inventories. For one thing, he has decided to treat direct labor cost as a part of overhead and to discontinue the detailed direct labor accounting of the past. The company has created two manufacturing cells, each capable of producing a family of products: the radiator cell and the water pump cell. The output of both cells is sold to a sister division and to customers who use the radiators and water pumps for repair activity. Product-level overhead costs outside the cells are assigned to each cell using appropriate drivers. Facility-level costs are allocated to each cell on the basis of square footage. The budgeted direct labor and overhead costs are as follows: The predetermined conversion cost rate is based on available production hours in each cell. The radiator cell has 45,000 hours available for production, and the water pump cell has 27,000 hours. Conversion costs are applied to the units produced by multiplying the conversion rate by the actual time required to produce the units. The radiator cell produced 81,000 units, taking 0.5 hour to produce one unit of product (on average). The water pump cell produced 90,000 units, taking 0.25 hour to produce one unit of product (on average). Other actual results for the year are as follows: All units produced were sold. Any conversion cost variance is closed to Cost of Goods Sold. Required: 1. Calculate the predetermined conversion cost rates for each cell. 2. Prepare journal entries using backflush accounting. Assume two trigger points, with completion of goods as the second trigger point. 3. Repeat Requirement 2, assuming that the second trigger point is the sale of the goods. 4. Explain why there is no need to have a work-in-process inventory account. 5. Two variants of backflush costing were presented in which each used two trigger points, with the second trigger point differing. Suppose that the only trigger point for recognizing manufacturing costs occurs when the goods are sold. How would the entries be listed here? When would this backflush variant be considered appropriate?
A manufacturing company has two service and two production departments. Building Maintenance and Factory Office are the service departments. The production departments are Assembly and Machining. The following data have been estimated for next years operations: The direct charges identified with each of the departments are as follows: The building maintenance department services all departments of the company, and its costs are allocated using floor space occupied, while factory office costs are allocable to Assembly and Machining on the basis of direct labor hours. 1. Distribute the service department costs, using the direct method. 2. Distribute the service department costs, using the sequential distribution method, with the department servicing the greatest number of other departments distributed first.
The management of Wheeler Company has decided to develop cost formulas for its major overhead activities. Wheeler uses a highly automated manufacturing process, and power costs are a significant manufacturing cost. Cost analysts have decided that power costs are mixed; thus, they must be broken into their fixed and variable elements so that the cost behavior of the power usage activity can be properly described. Machine hours have been selected as the activity driver for power costs. The following data for the past eight quarters have been collected: Required: 1. Prepare a scattergraph by plotting power costs against machine hours. Does the scatter-graph show a linear relationship between machine hours and power cost? 2. Using the high and low points, compute a power cost formula. 3. Use the method of least squares to compute a power cost formula. Evaluate the coefficient of determination. 4. Rerun the regression and drop the point (20,000; 26,000) as an outlier. Compare the results from this regression to those for the regression in Requirement 3. Which is better?
The Bangor Manufacturing Company makes mechanical toy robots that are typically produced in batches of 250 units. Prior to the current year, the company’s accountants used a standard cost system with a simplified method of assigning manufacturing support (i.e., overhead) costs to products: All such costs were allocated to outputs based on the standard machine hours allowed for output produced. You have recently joined the accounting team and are developing a proposal that the company adopt an ABC system for both product-costing and control purposes. To illustrate the benefit of such a system in terms of the latter, you decide to put together an analysis of batch-related overhead costs. You chose these costs because a previous investigation indicated that there is both a variable component to these costs (materials plus power) plus a fixed component (depreciation and salaries). Last year’s budget indicated that the variable overhead cost per setup hour was $20.00 and that the fixed…
The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are some of the costs that are incurred at the company. Required: For each cost, indicate whether it would most likely be classified as direct labor, direct materials ,manufacturing overhead, selling, or an administrative cost. The cost of a hard drive installed in a computer. The cost of advertising in the Puget Sound Computer User newspaper. The wages of employees who assemble computers from components. Sales commissions paid to the company’s salespeople. The wages of the assembly shop’s supervisor. The wages of the company’s accountant. Depreciation on equipment used to test assembled computers before release to customers. 8. Rent on the facility in the industrial park.
North Street Corporation manufactures two models of motorized go-carts, a standard and a deluxe model. The following activity and cost information has been compiled: Number of Number of Number of Product Setups Components Direct Labor Hours Standard 20 5 720 Deluxe 29 17 460 Overhead costs $17,150 $19,800 Number of setups and number of components are identified as activity-cost drivers for overhead. Assuming an activity-based costing system is used, what is the total amount of overhead cost assigned to the standard model? (Do not round interim calculations. Round the final answer to the nearest whole dollar.) A) $18,475 B) $11,500 C) $19,750 D)…
Speediprint Corporation owns a small printing press that prints leaflets, brochures, and advertising materials. Speediprint classifies its various printing jobs as standard jobs or special jobs. Speediprint’s simple job-costing system has two direct-cost categories (direct materials and direct labor) and a single indirect-cost pool. Speediprint operates at capacity and allocates all indirect costs using printing machine-hours as the allocation base. Speediprint is concerned about the accuracy of the costs assigned to standard and special jobs and therefore is planning to implement an activity-based costing system. Speediprint’s ABC system would have the same direct-cost categories as its simple costing system. However, instead of a single indirectcost pool there would now be six categories for assigning indirect costs: design, purchasing, setup, printing machine operations, marketing, and administration. To see how activity-based costing would affect the costs of standard and special…