Concept explainers
Vargas, Inc., produces industrial machinery. Vargas has a machining department and a group of direct laborers called machinists. Each machinist is paid $25,000 and can machine up to 500 units per year. Vargas also hires supervisors to develop machine specification plans and to oversee production within the machining department. Given the planning and supervisory work, a supervisor can oversee three machinists, at most. Vargas’s accounting and production history reveal the following relationships between units produced and the costs of direct labor and supervision (measured on an annual basis):
Required:
- 1. Prepare two graphs: one that illustrates the relationship between direct labor cost and units produced, and one that illustrates the relationship between the cost of supervision and units produced. Let cost be the vertical axis and units produced the horizontal axis.
- 2. How would you classify each cost? Why?
- 3. Suppose that the normal range of activity is between 2,400 and 2,450 units and that the exact number of machinists is currently hired to support this level of activity. Further suppose that production for the next year is expected to increase by an additional 400 units. How much will the cost of direct labor increase (and how will this increase be realized)? Cost of supervision?
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Chapter 3 Solutions
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- A manufacturing company has two service and two production departments. Human Resources and Machine Repair are the service departments. The production departments are Grinding and Polishing. The following data have been estimated for next years operations: The direct charges identified with each of the departments are as follows: The human resources department services all departments of the company, and its costs are allocated using the numbers of employees within each department, while machine repair costs are allocable to Grinding and Polishing on the basis of machine 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.arrow_forwardA 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.arrow_forwardReady Company has two operating (production) departments: Assembly and Painting. Assembly has 210 employees and occupies 56,400 square feet; Painting has 140 employees and occupies 37,600 square feet. The company has indirect expenses that consist of administrative expenses of $87,000 and maintenance expenses of $105,000. Administrative expenses are allocated based on the number of workers in each department and maintenance is allocated based on square footage. The amount of maintenance expenses that should be allocated to the Assembly Department for the current period is: Multiple Choice O $52,200. O $63,000. O $115,200. O $115,950. O $126,000.arrow_forward
- Aleutian Company produces two products: Rings and Dings. They are manufactured in two departments: Fabrication and Assembly. Data for the products and departments are listed below. Product Number of Units Direct Labor HoursPer Unit Machine HoursPer Unit Rings 1,000 4 6 Dings 2,000 3 9 All of the machine hours take place in the Fabrication Department, which has estimated total factory overhead of $90,000. All of the labor hours take place in the Assembly Department, which has estimated total factory overhead of $105,000. Aleutian Company uses the multiple production department factory overhead rate method. The Fabrication Department uses machine hours as an allocation base, and the Assembly Department uses direct labor hours. The total factory overhead allocated per unit of Dings is a.$23.25 b.$64.50 c.$56.75 d.$65.25arrow_forwardAleutian Company produces two products: Rings and Dings. They are manufactured in two departments: Fabrication and Assembly. Data for the products and departments are listed below. Number of Direct Labor Hours Machine Hours Product Units Per Unit Per Unit Rings 1,000 4 6 Dings 2,000 3 9 All of the machine hours take place in the Fabrication Department, which has estimated total factory overhead of $90,000. All of the labor hours take place in the Assembly Department, which has estimated total factory overhead of $105,000. Aleutian Company uses the multiple production department factory overhead rate method. The Fabrication Department uses machine hours as an allocation base, and the Assembly Department uses direct labor hours. The total factory overhead allocated per unit of Dings is Oa. $56.75 Ob. $64.50 Oc. $65.25 Od. $23.25arrow_forwardThe Aleutian Company produces two products, Rings and Dings. They are manufactured in two departments—Fabrication and Assembly. Data for the products and departments are listed below. Product Number ofUnits Labor HoursPer Unit Machine HoursPer Unit Rings 1,200 2 5 Dings 1,840 4 9 All of the machine hours take place in the Fabrication Department, which has an estimated overhead of $85,200. All of the labor hours take place in the Assembly Department, which has an estimated total overhead of $69,400. The Aleutian Company uses a departmental overhead rates. The Fabrication Department uses machine hours for an allocation base, and the Assembly Department uses labor hours. What is the overhead cost per unit for Dings? a.$50.86 b.$33.12 c.$62.46 d.$8.48 Blue Ridge Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a…arrow_forward
- Ramapo Company produces two products, Blinks and Dinks. They are manufactured in two departments, Fabrication and Assembly. Data for the products and departments are listed below. Product Number of Units Direct Labor HoursPer Unit Machine HoursPer Unit Blinks 1,002 4 8 Dinks 2,256 7 5 All of the machine hours take place in the Fabrication department, which has an estimated overhead of $112,500. All of the labor hours take place in the Assembly department, which has an estimated total overhead of $83,000. Ramapo Company uses a single plantwide overhead rate to apply all factory overhead costs based on direct labor hours. The factory overhead allocated per unit of Dinks is a. $21.02 b. $55.27 c. $332.02 d. $69.09arrow_forwardAleutian Company produces two products: Rings and Dings. They are manufactured in two departments: Fabrication and Assembly. Data for the products and departments are listed below. Number of Units Direct Labor Hours per Unit 1,000 2,000 Product Rings Dings All of the machine hours take place in the Fabrication Department, which has estimated total factory overhead of $90,000. All of the labor hours take place in the Assembly Department, which has estimated total factory overhead of $105,000. 4 3 Machine Hours per Unit The total factory overhead allocated per unit of Rings is O a. $64.50 O b. $44.10 O c. $23.25 O d. $65.25 6 9 Aleutian Company uses the multiple production department factory overhead rate method. The Fabrication Department uses machine hours as an allocation base, and the Assembly Department uses direct labor hours.arrow_forwardRamapo Company produces two products, Blinks and Dinks. They are manufactured in two departments, Fabrication and Assembly. Data for the products and departments are listed below. Number of Direct Labor Hours Machine Hours Product Units Per Unit Per Unit Blinks 1,103 Dinks 2,163 8 All of the machine hours take place in the Fabrication department, which has an estimated overhead of $93,700. All of the labor hours take place in the Assembly department, which has an estimated total overhead of $95,100. Ramapo Company uses a single plantwide overhead rate to apply all factory overhead costs based on direct labor hours. The factory overhead allocated per unit of Dinks is Oa. $76.16 Ob. $60.93 Oc. $43.69 Od. $190.21arrow_forward
- Madison Enterprises manufactures and sells two types of dump trucks, Standard and Economy. The company's production process is organized into two departments, Fabrication and Assembly. For the upcoming year, Madison estimates total direct labor hours (DLHs) of 15,660, total machine hours (MHs) of 12,500, and total manufacturing overhead of $6,264,000. Historically, Madison applied overhead to jobs using a plantwide rate based on DLHS. Madison's production schedule for the upcoming, in terms of units produced, DLHs per unit, and total DLHS for the plant is as follows: Standard Economy Units produced DLH per unit 180 102 70 30 Madison plans to switch to departmental rates based on MHs for the Fabrication Department and DLHS for the Assembly Department. Here are estimated overhead data for the upcoming year: Fabrication department Assembly department Total overhead costs $2,739,000 $3,525,000 Plantwide DLH 12,600 3,060 O $22,914 higher using departmental rates $4,785 higher using…arrow_forwardAleutian Company produces two products: Rings and Dings. They are manufactured in two departments: Fabrication and Assembly. Data for the products and departments are listed below. Product Number ofUnits Direct Labor HoursPer Unit Machine HoursPer Unit Rings 1,080 6 5 Dings 1,740 5 10 All of the machine hours take place in the Fabrication Department, which has estimated total factory overhead of $83,500. All of the labor hours take place in the Assembly Department, which has estimated total factory overhead of $68,000. Aleutian Company uses the multiple production department factory overhead rate method. The Fabrication Department uses machine hours as an allocation base, and the Assembly Department uses direct labor hours. The Fabrication Department's factory overhead rate is a.$3.58 per direct labor hour b.$4.48 per machine hour c.$4.88 per direct labor hour d.$3.66 per machine hourarrow_forwardAleutian Company produces two products: Rings and Dings. They are manufactured in two departments: Fabrication and Assembly. Data for the products and departments are listed below. Product Number ofUnits Direct Labor Hoursper Unit Machine Hoursper Unit Rings 1,080 7 7 Dings 2,050 5 9 All of the machine hours take place in the Fabrication Department, which has estimated total factory overhead of $84,700. All of the labor hours take place in the Assembly Department, which has estimated total factory overhead of $72,600. Aleutian Company uses the multiple production department factory overhead rate method. The Fabrication Department uses machine hours as an allocation base, and the Assembly Department uses direct labor hours. The Assembly Department's factory overhead rate isarrow_forward
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