Normandy Office Products (NOP) makes two types of office desks, Manager and Executive. The Executive model is adjustable using electric motors and is made with upgraded materials. The manufacturing process for the Executive model is more complex than that for the Manager model, requiring more frequent inspections and shorter production runs. The Manager model is a basic desk, using good, but easy to work with, materials, and is simpler to manufacture. NOP’s results for the last fiscal year are shown in the following statement. NORMANDY OFFICE PRODUCTS Income Statement Manager Executive Total Sales revenue $ 1,113,600 $ 1,235,400 $ 2,349,000 Direct materials 197,200 208,800 406,000 Direct labor 139,200 174,000 313,200 Overhead costs Administration 250,560 Machine setup 417,600 Inspection 278,400 Packing and shipping 556,800 Operating profit $ 126,440 NOP currently uses labor costs to allocate all overhead, but management is considering implementing an activity-based costing system. After interviewing the sales and production staff, management decides to allocate administrative costs on the basis of direct labor costs but to use the following bases to allocate the remaining costs: Activity Cost Driver Activity Level Manager Executive Machine setup Number of production runs 200 100 Inspection Number of inspections 200 400 Packing and shipping Number of units shipped 12,000 3,000 Required: a. Prepare the product line income statement using the proposed activity bases. c. Restate the product line income statement for Normandy Office Products using direct labor costs as the only overhead allocation base. Prepare the product line income statement using the proposed activity bases. Note: Do not round intermediate calculations. Input all amounts as positive values. Account Manager Executive Total Sales revenue $1,113,600 $1,235,400 $2,349,000 Direct materials 197,200 208,800 406,000 Direct labor 139,200 174,000 313,200 Overhead costs: Administration ? ? 250,560 Machine setup ? ? 417,600 Inspection ? ? 278,400 Packing and shipping ? ? 556,800 Total overhead costs ? ? 0 Operating profit (loss) $777,200 $852,600 $1,629,800 Account Manager Executive Total Sales revenue $1,113,600 $1,235,400 $2,349,000 Direct materials 197,200 208,800 406,000 Direct labor 139,200 174,000 313,200 Overhead costs ? ? 0 Operating profit (loss) $777,200 $852,600 $1,629,800

Normandy Office Products (NOP) makes two types of office desks, Manager and Executive. The Executive model is adjustable using electric motors and is made with upgraded materials. The manufacturing process for the Executive model is more complex than that for the Manager model, requiring more frequent inspections and shorter production runs. The Manager model is a basic desk, using good, but easy to work with, materials, and is simpler to manufacture. NOP’s results for the last fiscal year are shown in the following statement. NORMANDY OFFICE PRODUCTS Income Statement Manager Executive Total Sales revenue $ 1,113,600 $ 1,235,400 $ 2,349,000 Direct materials 197,200 208,800 406,000 Direct labor 139,200 174,000 313,200 Overhead costs Administration 250,560 Machine setup 417,600 Inspection 278,400 Packing and shipping 556,800 Operating profit $ 126,440 NOP currently uses labor costs to allocate all overhead, but management is considering implementing an activity-based costing system. After interviewing the sales and production staff, management decides to allocate administrative costs on the basis of direct labor costs but to use the following bases to allocate the remaining costs: Activity Cost Driver Activity Level Manager Executive Machine setup Number of production runs 200 100 Inspection Number of inspections 200 400 Packing and shipping Number of units shipped 12,000 3,000 Required: a. Prepare the product line income statement using the proposed activity bases. c. Restate the product line income statement for Normandy Office Products using direct labor costs as the only overhead allocation base. Prepare the product line income statement using the proposed activity bases. Note: Do not round intermediate calculations. Input all amounts as positive values. Account Manager Executive Total Sales revenue $1,113,600 $1,235,400 $2,349,000 Direct materials 197,200 208,800 406,000 Direct labor 139,200 174,000 313,200 Overhead costs: Administration ? ? 250,560 Machine setup ? ? 417,600 Inspection ? ? 278,400 Packing and shipping ? ? 556,800 Total overhead costs ? ? 0 Operating profit (loss) $777,200 $852,600 $1,629,800 Account Manager Executive Total Sales revenue $1,113,600 $1,235,400 $2,349,000 Direct materials 197,200 208,800 406,000 Direct labor 139,200 174,000 313,200 Overhead costs ? ? 0 Operating profit (loss) $777,200 $852,600 $1,629,800

Cornerstones of Cost Management (Cornerstones Series)

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ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter18: Pricing And Profitability Analysis

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NORMANDY OFFICE PRODUCTS
Sales revenue	$ 1,113,600	$ 1,235,400	$ 2,349,000
Direct materials	197,200	208,800	406,000
Direct labor	139,200	174,000	313,200
Overhead costs
Administration			250,560
Machine setup			417,600
Inspection			278,400
Packing and shipping			556,800
Operating profit			$ 126,440

Activity	Cost Driver	Activity Level
Machine setup	Number of production runs	200	100
Inspection	Number of inspections	200	400
Packing and shipping	Number of units shipped	12,000	3,000

Required:

a. Prepare the product line income statement using the proposed activity bases.

c. Restate the product line income statement for Normandy Office Products using direct labor costs as the only overhead allocation base.

Prepare the product line income statement using the proposed activity bases.

Note: Do not round intermediate calculations. Input all amounts as positive values.

Account	Manager	Executive	Total
Sales revenue	$1,113,600	$1,235,400	$2,349,000
Direct materials	197,200	208,800	406,000
Direct labor	139,200	174,000	313,200
Overhead costs:
Administration	?	?	250,560
Machine setup	?	?	417,600
Inspection	?	?	278,400
Packing and shipping	?	?	556,800
Total overhead costs	?	?	0
Operating profit (loss)	$777,200	$852,600	$1,629,800

Account	Manager	Executive	Total
Sales revenue	$1,113,600	$1,235,400	$2,349,000
Direct materials	197,200	208,800	406,000
Direct labor	139,200	174,000	313,200
Overhead costs	?	?	0
Operating profit (loss)	$777,200	$852,600	$1,629,800

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	Manager	Executive	Total
NORMANDY OFFICE PRODUCTS
Income Statement
Sales revenue	$ 1,113,600	$ 1,235,400	$ 2,349,000
Direct materials	197,200	208,800	406,000
Direct labor	139,200	174,000	313,200
Overhead costs
Administration			250,560
Machine setup			417,600
Inspection			278,400
Packing and shipping			556,800
Operating profit			$ 126,440