MANAGERIAL ACCT.F/MANAGERS>CUSTOM<
4th Edition
ISBN: 9781307090147
Author: Noreen
Publisher: MCG/CREATE
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Textbook Question
Chapter 4A, Problem 4A.4P
Activity-Based Absorption Costing as an Alternative to Traditional Product Costing LO3-5
Elix Company manufactures two models of ultra-high fidelity speakers—the X200 model and the X99 model. Data regarding the two products follow:
Additional information about the company follows:
- Model X200 requires S72 in direct materials per unit, and model X99 requires $50.
- The direct labor workers are paid S20 per hour.
- The company has always used direct labor-hours as the base for applying
manufacturing overhead cost to products. - Model X200 is more complex to manufacture than model X99 and requires the use of special equipment.
- Because of the special work required in (d) above, the company is considering the use of activity-based absorption costing to apply manufacturing overhead cost to products. Three activity cost pools have been identified as follows:
Required:
- Assume that the company continues to use direct labor-hours as the base for applying overhead cost to products.
- Compute the plantwide predetermined overhead rate.
- Compute the unit product cost of each model.
- Assume that the company decides to use activity-based absorption costing to apply overhead cost to products.
- Compute the activity rate for each activity cost pool and determine the amount of overhead cost that would be applied to each model using the activity-based approach.
- Compute the unit product cost of each model.
- Explain why overhead cost shifted from the high-volume model to the low-volume model under the activity-based approach.
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Relevant costs; special order pricingKantrovitz Company is a manufacturer of industrial components. One of its products, AP110, is used as a subcomponent in appliance manufacturing. This product has the following information per unit:
Selling price
$150.00
Costs:
Direct material
$20.00
Direct labor
15.00
Variable manufacturing overhead
12.00
Fixed manufacturing overhead
30.00
Shipping and handling
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Fixed selling and administrative
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Total per-unit cost
$90.00
a. Kantrovitz has received a special, one-time order for 1,600 AP110 parts. Assuming Kantrovitz has excess capacity, what is the minimum price that is acceptable for beginning negotiations on this order?
Answer: $50
d. Referring to (a), Kantrovitz has received a special, one-time order for 1,600 AP110 parts. Assume that Kantrovitz is operating at full capacity, and that the contribution of the output would be displaced by the one-time special order. Using the original data, compute the minimum…
Relevant costs; special order pricingKantrovitz Company is a manufacturer of industrial components. One of its products, AP110, is used as a subcomponent in appliance manufacturing. This product has the following information per unit:
Selling price
$150.00
Costs:
Direct material
$20.00
Direct labor
15.00
Variable manufacturing overhead
12.00
Fixed manufacturing overhead
30.00
Shipping and handling
3.00
Fixed selling and administrative
10.00
Total per-unit cost
$90.00
a. Kantrovitz has received a special, one-time order for 1,000 AP110 parts. Assuming Kantrovitz has excess capacity, what is the minimum price that is acceptable for beginning negotiations on this order? $Answer
b. Kantrovitz has 5,000 units of AP110 in inventory that have some defects. The units cannot be sold through regular channels without a significant price reduction. What per-unit cost figure is relevant for setting a minimum selling price on these units? $Answer
c. During the next…
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