Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company's two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost ac- countants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters. Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $280,000. During that time, the company produced 12,000 units of the M-008 and 2,000 units of the M-123. The direct costs of production were as follows: M-008 M-123 Total Direct materials $180,000 Direct labor.. $100,000 100,000 $80,000 40,000 140,000 Management determined that overhead costs are caused by three cost drivers. These driv- ers and their costs for last year were as follows: Activity Level Cost Driver Costs M-008 M-123 Total $120,000 70,000 90,000 Number of machine-hours. 5,000 3,000 8,000 Number of production runs Number of inspections.. 10 10 20 20 40 60 Total overhead $280,000 1) Cost driver rate of machine-hours 2) Cost driver rate of production runs 3) Cost driver rate of inspections
Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company's two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost ac- countants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters. Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $280,000. During that time, the company produced 12,000 units of the M-008 and 2,000 units of the M-123. The direct costs of production were as follows: M-008 M-123 Total Direct materials $180,000 Direct labor.. $100,000 100,000 $80,000 40,000 140,000 Management determined that overhead costs are caused by three cost drivers. These driv- ers and their costs for last year were as follows: Activity Level Cost Driver Costs M-008 M-123 Total $120,000 70,000 90,000 Number of machine-hours. 5,000 3,000 8,000 Number of production runs Number of inspections.. 10 10 20 20 40 60 Total overhead $280,000 1) Cost driver rate of machine-hours 2) Cost driver rate of production runs 3) Cost driver rate of inspections
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter18: Activity-based Costing
Section: Chapter Questions
Problem 1MAD: Life Force Fitness, Inc., assembles and sells treadmills. Activity-based product information for...
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Transcribed Image Text:Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi
plant produces the company's two versions of a special reel used for river fishing. The two
models are the M-008, a basic reel, and the M-123, a new and improved version. Cost ac-
countants at company headquarters have prepared costs for the two reels for the most recent
period. The plant manager is concerned. The cost report does not coincide with her intuition
about the relative costs of the two models. She has asked you to review the cost accounting
and help her prepare a response to headquarters.
Manufacturing overhead is currently assigned to products based on their direct labor
costs. For the most recent month, manufacturing overhead was $280,000. During that time,
the company produced 12,000 units of the M-008 and 2,000 units of the M-123. The direct
costs of production were as follows:
M-008
M-123
Total
Direct materials
$100,000
100,000
$80,000
40,000
$180,000
140,000
Direct labor.
Management determined that overhead costs are caused by three cost drivers. These driv-
ers and their costs for last year were as follows:
Activity Level
Cost Driver
Costs
M-008
M-123
Total
$120,000
70,000
90,000
Number of machine-hours
5,000
3,000
8,000
Number of production runs
Number of inspections.
10
10
20
20
40
60
Total overhead
$280,000
1) Cost driver rate of machine-hours
2) Cost driver rate of production runs
3) Cost driver rate of inspections
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