Problem 1Laughton Corporation makes two styles of cases for compact disks, the standard case and thedeluxe case. The company has assigned $210,000 in monthly manufacturing overhead to three costpools as follows: $90,000 to machining costs, $60,000 to production set-up costs, and $60,000 toinspection costs. Additional monthly data is provided below:Standard CaseDeluxe Case$480,000$189,000Sales revenueDirect materials$135,000$45,000$105,000$30,000Direct labor24,000Machine hours6,000Production runs7123,000Units produced and sold33,000The first and last unit in each production run is inspected for quality control purposes. Inspectioncosts are allocated to the products based on the number of inspections required. Machining costsare allocated to products using machine hours as an activity base. Set-up costs are allocated toproducts based on the number of production runs each product line requiresRequired:(1) Allocate manufacturing overhead from the activity cost pools to each product line(2.) Compare the total per-unit cost of manufacturing standard cases and deluxe cases(3.) On a per-unit basis, which product appears to be more profitable?

Question
Asked Nov 25, 2019
1 views
Problem 1
Laughton Corporation makes two styles of cases for compact disks, the standard case and the
deluxe case. The company has assigned $210,000 in monthly manufacturing overhead to three cost
pools as follows: $90,000 to machining costs, $60,000 to production set-up costs, and $60,000 to
inspection costs. Additional monthly data is provided below:
Standard Case
Deluxe Case
$480,000
$189,000
Sales revenue
Direct materials
$135,000
$45,000
$105,000
$30,000
Direct labor
24,000
Machine hours
6,000
Production runs
7
12
3,000
Units produced and sold
33,000
The first and last unit in each production run is inspected for quality control purposes. Inspection
costs are allocated to the products based on the number of inspections required. Machining costs
are allocated to products using machine hours as an activity base. Set-up costs are allocated to
products based on the number of production runs each product line requires
Required:
(1) Allocate manufacturing overhead from the activity cost pools to each product line
(2.) Compare the total per-unit cost of manufacturing standard cases and deluxe cases
(3.) On a per-unit basis, which product appears to be more profitable?
help_outline

Image Transcriptionclose

Problem 1 Laughton Corporation makes two styles of cases for compact disks, the standard case and the deluxe case. The company has assigned $210,000 in monthly manufacturing overhead to three cost pools as follows: $90,000 to machining costs, $60,000 to production set-up costs, and $60,000 to inspection costs. Additional monthly data is provided below: Standard Case Deluxe Case $480,000 $189,000 Sales revenue Direct materials $135,000 $45,000 $105,000 $30,000 Direct labor 24,000 Machine hours 6,000 Production runs 7 12 3,000 Units produced and sold 33,000 The first and last unit in each production run is inspected for quality control purposes. Inspection costs are allocated to the products based on the number of inspections required. Machining costs are allocated to products using machine hours as an activity base. Set-up costs are allocated to products based on the number of production runs each product line requires Required: (1) Allocate manufacturing overhead from the activity cost pools to each product line (2.) Compare the total per-unit cost of manufacturing standard cases and deluxe cases (3.) On a per-unit basis, which product appears to be more profitable?

fullscreen
check_circle

Expert Answer

Step 1
  1. Computation of Cost Allocation based on Activity:

As every first and last products of each production run is inspected, no. of inspections will be double the production runs.

Computation of Cost Allocation
Deluxe
Activity
Associated
Machining Cost90,000 Machine
Particulars
Total
Standard
Cost
24,000
6,000
Hours
Production
Set-up Cost
60,000
7
12
Run
=7x2
Inspection Cost
60,000
No. of
12 x 2
Inspection
24
-14
Machining Cost
90,000 x 24,000
90,000 x 6,000
30,000
= 72,000
60,000 x 7
30,000
-18,000
60,000 x12
Set-up Cost
19
19
37894.74
=22105.26
Inspection Cost
60,000 x14
60,000x 24
38
38
22105.26
37894.74
Total
Manufacturing
Overhead
116210.5
93789.47
help_outline

Image Transcriptionclose

Computation of Cost Allocation Deluxe Activity Associated Machining Cost90,000 Machine Particulars Total Standard Cost 24,000 6,000 Hours Production Set-up Cost 60,000 7 12 Run =7x2 Inspection Cost 60,000 No. of 12 x 2 Inspection 24 -14 Machining Cost 90,000 x 24,000 90,000 x 6,000 30,000 = 72,000 60,000 x 7 30,000 -18,000 60,000 x12 Set-up Cost 19 19 37894.74 =22105.26 Inspection Cost 60,000 x14 60,000x 24 38 38 22105.26 37894.74 Total Manufacturing Overhead 116210.5 93789.47

fullscreen
Step 2

2.  Following is the computation o...

Computation of per unit cost
Particulars
Standard
Deluxe
Total
1. Direct Material
135,000
105,000
45,000
30,000
93789.5
180,000
135,000
210,000
2. Direct labor
3. Manufacturing overhead
116210.5
Total cost (1+2+3)
No. of units
356,210.5
33,000
168,789.5
3,000
525,000
36,000
Cost per unit
Total Cost
10.79425
56.2631
67.0574
No. of units
help_outline

Image Transcriptionclose

Computation of per unit cost Particulars Standard Deluxe Total 1. Direct Material 135,000 105,000 45,000 30,000 93789.5 180,000 135,000 210,000 2. Direct labor 3. Manufacturing overhead 116210.5 Total cost (1+2+3) No. of units 356,210.5 33,000 168,789.5 3,000 525,000 36,000 Cost per unit Total Cost 10.79425 56.2631 67.0574 No. of units

fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Accounting

Other

Related Accounting Q&A

Find answers to questions asked by student like you

Show more Q&A add
question_answer

Q: What is meant by purchase return and sales return in accounting?

A: Purchase return:A purchase return is a transaction that occurs when the buyer of the goods (for exam...

question_answer

Q: Is there a difference between a balance sheet of a profit organization with a non-profit organizatio...

A: Yes, a balance sheet of a profit organization is different from the balance sheet of a non-profit or...

question_answer

Q: Define gaining ratio and why is it calculated.

A: Gaining ratio: The gaining ratio is a ratio used to ascertain the amount of gain in profit percentag...

question_answer

Q: Equation for finding Revenue  (5th time asking) This is now the 4th time I have had to ask the same ...

A: Given information: Dividends declared $3,000Expenses $6,000Retained Earnings (RE) 1/1 $8,000Retained...

question_answer

Q: Why are disclosures important in financial statement and what are its benefits?

A: Click to see the answer

question_answer

Q: How would you recommend stabilizing the company's unit product cost?

A: Unit cost of a product is determined by dividing the total cost of the units produced by the total n...

question_answer

Q: What is meant by company and essential characteristics of a company?

A: Company: The form of business entity, which is incorporated by state law into a separate legal entit...

question_answer

Q: E 1-3 Prepare stockholders’ equity section The stockholders’ equities of Pop Corporation and Son ...

A: Required journal entries:

question_answer

Q: In its first month of operations, Skysong, Inc. made three purchases of merchandise in the following...

A: Determine average cost per unit.