In your role as management accountant, you have been concerned about thedivision's manufacturing overhead cost allocation model. You believe that part of theproblem FPD has with its existing range of household electrical products isinaccurate costing.Given the diversity in the range of electrical household products manufactured, FPDhas contemplated switching the allocation of indirect manufacturing costs to an ABCsystem. Therefore, you decide to prepare an analysis on the usefulness of an ABCsystem for FPD by applying this approach to the three different food processormodels.Analysis of the $810,000 of indirect manufacturing costs indicates that they can beclassified into four broad cost pools, with four different cost drivers. The budgetedindirect manufacturing costs for the food processor product line for next year areshown in the following table.Indirect manufacturing cost poolCost DriverAnnual budgeted costs$270,000$350,000$120,000S70,000$810,000Labour-related costsDirect labour hours (DLHS)Machine-related costsMachine hoursProduct scheduling and other set-up costsMaterials handling costsProduction runsMaterials movementsTotal budgeted costs for all cost poolsBudgeted production details for the food processor product line for next year aresummarised in the next table.Chef Pro1.25Cost driver transactionsHouseholdHome ProDLHS per unitMachine hours per unitNumber of production runs21.51350150200Number of materials movements90260350REQUIRED:Compute the predetermined overhead rate under the traditional costingsystem, with direct labour hours (DLHS) as the cost driver.Calculate the product cost per unit for each of the three food processors usingthe traditional method of costing, with direct labour hours (DLH) as the costdriver.a.b.Using ABC, calculate the pool rates for each cost pool.Using ABC, calculate the unit cost for each product.From your analysis, determine whether FPD should follow William'sC.d.e.recommendation. QUESTION 2FPD Ltd makes and sells three different food processor models: Household, HomePro and Chef Pro. For many years, the Household was the only food processormade by the FPD and was highly regarded for its quality. Unfortunately, demand hassteadily fallen over the past two years. William Prout, FPD's production manager,suspected the reason for the decline in sales was increasing competition fromoverseas suppliers with lower prices.Home Pro and Chef Pro have been added to the product line over the past six years.Both are more advanced and technologically sophisticated than the Household. As aresult, they are significantly more complex to manufacture and require specialmaterials handling, tooling and setting up for each batch produced. Given thecomplexity of manufacturing the Home Pro and Chef Pro, FPD charges what itbelieves is a premium price for both of these products. The selling price of the threemodels are shown in the table below.Home Pro$200.00HouseholdChef ProCurrent selling price$160.00$230.00As mentioned above, sales of the Household model has been in dedine. Wiliam hasbeen advocating to stop selling the Household model as it is too expensive to make.The Chef Pro has been selling well and William has been arguing for FPD toproduce and sell more of the Chef Pro. The Home Pro has also been doing well in itsmarket.The total forecast sales and production volume for the three food processors nextyear is 15,000 units. Expected sales volumes for each model are shown in thefollowing table.Household10,000Home Pro3,000Chef ProTotalSales and production volume2,00015,000The estimated prime costs for the three products are shown in the following table.Prime cost elementDirect materials per unitDirect labour per unitTotal prime costs per unitHouseholdHome ProChef Pro55.00$ 40.00$ 85.00$ 30.00$ 115.00$ 105.00$ 25.00$ 130.0095.00Indirect manufacturing costs are budgeted to be $810,000 and these are currentlyallocated across the three product lines on the basis of direct labour hours (DLHS).as shown in the following table.Cost driver transactionsHouseholdHome ProChef ProDirect labour hours (DLHS) per unit2 hours1.5 hours1.25 hours

Hi student Since there are multiple subparts, we will answer only three subparts.

In your role as management accountant, you have been concerned about the division's manufacturing overhead cost allocation model. You believe that part of the problem FPD has with its existing range of household electrical products is inaccurate costing. Given the diversity in the range of electrical household products manufactured, FPD has contemplated switching the allocation of indirect manufacturing costs to an ABC system. Therefore, you decide to prepare an analysis on the usefulness of an ABC system for FPD by applying this approach to the three different food processor models. Analysis of the $810,000 of indirect manufacturing costs indicates that they can be classified into four broad cost pools, with four different cost drivers. The budgeted indirect manufacturing costs for the food processor product line for next year are shown in the following table. Indirect manufacturing cost pool Cost Driver Annual budgeted costs $270,000 Labour-related costs Direct labour hours (DLHS) Machine-related costs Machine hours $350,000 $120,000 $70,000 $810,000 Product scheduling and other set-up costs Materials handling costs Production runs Materials movements Total budgeted costs for all cost pools Budgeted production details for the food processor product line for next year are summarised in the next table. Cost driver transactions Household Home Pro Chef Pro DLHS per unit Machine hours per unit Number of production runs 2 1.5 1.25 1 3 3 50 150 200 Number of materials movements 90 260 350 REQUIRED: Compute the predetermined overhead rate under the traditional costing system, with direct labour hours (DLHS) as the cost driver. Calculate the product cost per unit for each of the three food processors using the traditional method of costing, with direct labour hours (DLH) as the cost driver. a. b. C. Using ABC, calculate the pool rates for each cost pool.

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 21E