Subject : Accounting Required:a. Compute the estimated per unit product costs for the next fiscal year, based on the current cost accounting system.b. An analyst on the planning process team suggests that a two-stage system would improve the estimated product costs. The analystsuggests that overhead be first assigned to on one of two cost pools: Machine related and labor related. Machine-related overheadconsists of the accounts "Engineering" and "Machine operation and maintenance." Labor-related overhead consists of theremaining manufacturing overhead. Machine-related costs would be allocated based on machine-hours. Labor-related overheadwould be allocated based on direct labor cost. Compute the estimated per unit product costs for the next fiscal year, based on thesystem proposed by the analyst.Complete this question by entering your answers in the tabs below.Required A Required BAn analyst on the planning process team suggests that a two-stage system would improve the estimated product costs. Theanalyst suggests that overhead be first assigned to on one of two cost pools: Machine related and labor related. Machine-related overhead consists of the accounts "Engineering" and "Machine operation and maintenance." Labor-related overheadconsists of the remaining manufacturing overhead. Machine-related costs would be allocated based on machine-hours. Labor-related overhead would be allocated based on direct labor cost. Compute the estimated per unit product costs for the nextfiscal year, based on the system proposed by the analyst.Note: Do not round your intermediate calculations. Round your final answers to 2 decimal places.Product cost per unitStandardUltra< Required ARequired BShow less A Hall, Incorporated manufactures two components, Standard and Ultra, that are designed for the same function, but are made ofdifferent metals for operational performance reasons. The metal used in Standard is easy to work with and there are few quality issuesor reworking required on the machines. The metal used in Ultra is more difficult to work with and often needs additional machine timeand rework.Data on expected operations and direct costs for the next fiscal year follow:StandardAccountAdministrationEngineeringMachine operation and maintenanceUnits producedDirect labor-hours usedMachine-hours usedDirect materials costs$ 2,772,0002,520,000Direct labor costsThe planning process team at Hall, Incorporated has estimated the following manufacturing overhead costs for the next fiscal year:MiscellaneousSupervisionTotalUltra36,000108,00018,00010,50022,50022,500$ 2,685,000855,000Amount$ 825,4002,285,500Total815,000540,100884,500$5,350,50046,500130,50040,500$5,457,0003,375,000The cost accounting system at Hall, Incorporated calculates product costs by adding allocated overhead to the direct costs of theproduct. Overhead costs are allocated based on direct labor-hours.Required:

The overhead may be allocated using a blanket rate or multiple activities identified in the process.…

Hall, Incorporated manufactures two components, Standard and Ultra, that are designed for the same function, but are made of different metals for operational performance reasons. The metal used in Standard is easy to work with and there are few quality issues or reworking required on the machines. The metal used in Ultra is more difficult to work with and often needs additional machine time and rework. Data on expected operations and direct costs for the next fiscal year follow: Account Administration Engineering Machine operation and maintenance Standard Miscellaneous Supervision Total Units produced Direct labor-hours used Machine-hours used Direct materials costs Direct labor costs The planning process team at Hall, Incorporated has estimated the following manufacturing overhead costs for the next fiscal year: 36,000 108,000 18,000 Ultra 10,500 22,500 22,500 $ 2,685,000 855,000 $ 2,772,000 2,520,000 Amount $ 825,400 2,285,500 Total 815,000 540,100 884,500 $ 5,350,500 46,500 130,500 40,500 $5,457,000 3,375,000 The cost accounting system at Hall, Incorporated calculates product costs by adding allocated overhead to the direct costs of the product. Overhead costs are allocated based on direct labor-hours.

Hall, Incorporated manufactures two components, Standard and Ultra, that are designed for the same function, but are made of different metals for operational performance reasons. The metal used in Standard is easy to work with and there are few quality issues or reworking required on the machines. The metal used in Ultra is more difficult to work with and often needs additional machine time and rework. Data on expected operations and direct costs for the next fiscal year follow: Account Administration Engineering Machine operation and maintenance Standard Miscellaneous Supervision Total Units produced Direct labor-hours used Machine-hours used Direct materials costs Direct labor costs The planning process team at Hall, Incorporated has estimated the following manufacturing overhead costs for the next fiscal year: 36,000 108,000 18,000 Ultra 10,500 22,500 22,500 $ 2,685,000 855,000 $ 2,772,000 2,520,000 Amount $ 825,400 2,285,500 Total 815,000 540,100 884,500 $ 5,350,500 46,500 130,500 40,500 $5,457,000 3,375,000 The cost accounting system at Hall, Incorporated calculates product costs by adding allocated overhead to the direct costs of the product. Overhead costs are allocated based on direct labor-hours.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter4: Activity-based Costing

Section: Chapter Questions

Problem 4CE: Larsen, Inc., produces two types of electronic parts and has provided the following data: There are...

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Anderson Company has the following departmental manufacturing structure for one of its products: After some study, the production manager of Anderson recommended the following revised cellular manufacturing approach: Required: 1. Calculate the total time it takes to produce a batch of 20 units using Andersons traditional departmental structure. 2. Using cellular manufacturing, how much time is saved producing the same batch of 20 units? Assuming the cell operates continuously, what is the production rate? Which process controls this production rate? 3. What if the processing times of molding, welding, and assembly are all reduced to six minutes each? What is the production rate now, and how long will it take to produce a batch of 20 units?
Silven Company has identified the following overhead activities, costs, and activity drivers for the coming year: Silven produces two models of cell phones with the following expected activity demands: 1. Determine the total overhead assigned to each product using the four activity drivers. 2. Determine the total overhead assigned to each model using the two most expensive activities. The costs of the two relatively inexpensive activities are allocated to the two expensive activities in proportion to their costs. 3. Using ABC as the benchmark, calculate the percentage error and comment on the accuracy of the reduced system. Explain why this approach may be desirable.
Larsen, Inc., produces two types of electronic parts and has provided the following data: There are four activities: machining, setting up, testing, and purchasing. Required: 1. Calculate the activity consumption ratios for each product. 2. Calculate the consumption ratios for the plantwide rate (direct labor hours). When compared with the activity ratios, what can you say about the relative accuracy of a plantwide rate? Which product is undercosted? 3. What if the machine hours were used for the plantwide rate? Would this remove the cost distortion of a plantwide rate?
Kagle design engineers are in the process of developing a new green product, one that will significantly reduce impact on the environment and yet still provide the desired customer functionality. Currently, two designs are being considered. The manager of Kagle has told the engineers that the cost for the new product cannot exceed 550 per unit (target cost). In the past, the Cost Accounting Department has given estimated costs using a unit-based system. At the request of the Engineering Department, Cost Accounting is providing both unit-and activity-based accounting information (made possible by a recent pilot study producing the activity-based data). Unit-based system: Variable conversion activity rate: 100 per direct labor hour Material usage rate: 20 per part ABC system: Labor usage: 15 per direct labor hour Material usage (direct materials): 20 per part Machining: 75 per machine hour Purchasing activity: 150 per purchase order Setup activity: 3,000 per setup hour Warranty activity: 500 per returned unit (usually requires extensive rework) Customer repair cost: 25 per repair hour (average) Required: 1. Select the lower-cost design using unit-based costing. Are logistical and post-purchase activities considered in this analysis? 2. Select the lower-cost design using ABC analysis. Explain why the analysis differs from the unit-based analysis. 3. What if the post-purchase cost was an environmental contaminant and amounted to 10 per unit for Design A and 40 per unit for Design B? Assume that the environmental cost is borne by society. Now which is the better design?
Young Company is beginning operations and is considering three alternatives to allocate manufacturing overhead to individual units produced. Young can use a plantwide rate, departmental rates, or activity-based costing. Young will produce many types of products in its single plant, and not all products will be processed through all departments. In which one of the following independent situations would reported net income for the first year be the same regardless of which overhead allocation method had been selected? a. All production costs approach those costs that were budgeted. b. The sales mix does not vary from the mix that was budgeted. c. All manufacturing overhead is a fixed cost. d. All ending inventory balances are zero.
Mabbut Company has the following departmental manufacturing layout for one of its plants: A consulting firm recommended a value stream with the following manufacturing cell: Required: 1. Calculate the total time it takes to produce a batch of 10 units using the traditional departmental manufacturing layout. 2. Using cellular manufacturing, how much time is saved producing the same batch of 10 units? Assuming the cell operates continuously, what is the production rate? Which process controls this production rate? 3. Assume the processing time of Welding is reduced to 6 minutes, while the times of the other processes stay the same. What is the production rate now, and how long will it take to produce a batch of 10 units if the cell is in a continuous production mode?
The management of Wheeler Company has decided to develop cost formulas for its major overhead activities. Wheeler uses a highly automated manufacturing process, and power costs are a significant manufacturing cost. Cost analysts have decided that power costs are mixed; thus, they must be broken into their fixed and variable elements so that the cost behavior of the power usage activity can be properly described. Machine hours have been selected as the activity driver for power costs. The following data for the past eight quarters have been collected: Required: 1. Prepare a scattergraph by plotting power costs against machine hours. Does the scatter-graph show a linear relationship between machine hours and power cost? 2. Using the high and low points, compute a power cost formula. 3. Use the method of least squares to compute a power cost formula. Evaluate the coefficient of determination. 4. Rerun the regression and drop the point (20,000; 26,000) as an outlier. Compare the results from this regression to those for the regression in Requirement 3. Which is better?
Pinter Company had the following environmental activities and product information: 1. Environmental activity costs 2. Driver data 3. Other production data Required: 1. Calculate the activity rates that will be used to assign environmental costs to products. 2. Determine the unit environmental and unit costs of each product using ABC. 3. What if the design costs increased to 360,000 and the cost of toxic waste decreased to 750,000? Assume that Solvent Y uses 6,000 out of 12,000 design hours. Also assume that waste is cut by 50 percent and that Solvent Y is responsible for 14,250 of 15,000 pounds of toxic waste. What is the new environmental cost for Solvent Y?
Evans, Inc., has a unit-based costing system. Evanss Miami plant produces 10 different electronic products. The demand for each product is about the same. Although they differ in complexity, each product uses about the same labor time and materials. The plant has used direct labor hours for years to assign overhead to products. To help design engineers understand the assumed cost relationships, the Cost Accounting Department developed the following cost equation. (The equation describes the relationship between total manufacturing costs and direct labor hours; the equation is supported by a coefficient of determination of 60 percent.) Y=5,000,000+30X,whereX=directlaborhours The variable rate of 30 is broken down as follows: Because of competitive pressures, product engineering was given the charge to redesign products to reduce the total cost of manufacturing. Using the above cost relationships, product engineering adopted the strategy of redesigning to reduce direct labor content. As each design was completed, an engineering change order was cut, triggering a series of events such as design approval, vendor selection, bill of materials update, redrawing of schematic, test runs, changes in setup procedures, development of new inspection procedures, and so on. After one year of design changes, the normal volume of direct labor was reduced from 250,000 hours to 200,000 hours, with the same number of products being produced. Although each product differs in its labor content, the redesign efforts reduced the labor content for all products. On average, the labor content per unit of product dropped from 1.25 hours per unit to one hour per unit. Fixed overhead, however, increased from 5,000,000 to 6,600,000 per year. Suppose that a consultant was hired to explain the increase in fixed overhead costs. The consultants study revealed that the 30 per hour rate captured the unit-level variable costs; however, the cost behavior of other activities was quite different. For example, setting up equipment is a step-fixed cost, where each step is 2,000 setup hours, costing 90,000. The study also revealed that the cost of receiving goods is a function of the number of different components. This activity has a variable cost of 2,000 per component type and a fixed cost that follows a step-cost pattern. The step is defined by 20 components with a cost of 50,000 per step. Assume also that the consultant indicated that the design adopted by the engineers increased the demand for setups from 20,000 setup hours to 40,000 setup hours and the number of different components from 100 to 250. The demand for other non-unit-level activities remained unchanged. The consultant also recommended that management take a look at a rejected design for its products. This rejected design increased direct labor content from 250,000 hours to 260,000 hours, decreased the demand for setups from 20,000 hours to 10,000 hours, and decreased the demand for purchasing from 100 component types to 75 component types, while the demand for all other activities remained unchanged. Required: 1. Using normal volume, compute the manufacturing cost per labor hour before the year of design changes. What is the cost per unit of an average product? 2. Using normal volume after the one year of design changes, compute the manufacturing cost per hour. What is the cost per unit of an average product? 3. Before considering the consultants study, what do you think is the most likely explanation for the failure of the design changes to reduce manufacturing costs? Now use the information from the consultants study to explain the increase in the average cost per unit of product. What changes would you suggest to improve Evanss efforts to reduce costs? 4. Explain why the consultant recommended a second look at a rejected design. Provide computational support. What does this tell you about the strategic importance of cost management?
Reducir, Inc., produces two different types of hydraulic cylinders. Reducir produces a major subassembly for the cylinders in the Cutting and Welding Department. Other parts and the subassembly are then assembled in the Assembly Department. The activities, expected costs, and drivers associated with these two manufacturing processes are given below. Note: In the assembly process, the materials-handling activity is a function of product characteristics rather than batch activity. Other overhead activities, their costs, and drivers are listed below. Other production information concerning the two hydraulic cylinders is also provided: Required: 1. Using a plantwide rate based on machine hours, calculate the total overhead cost assigned to each product and the unit overhead cost. 2. Using activity rates, calculate the total overhead cost assigned to each product and the unit overhead cost. Comment on the accuracy of the plantwide rate. 3. Calculate the global consumption ratios. 4. Calculate the consumption ratios for welding and materials handling (Assembly) and show that two drivers, welding hours and number of parts, can be used to achieve the same ABC product costs calculated in Requirement 2. Explain the value of this simplification. 5. Calculate the consumption ratios for inspection and engineering, and show that the drivers for these two activities also duplicate the ABC product costs calculated in Requirement 2.
The controller of the South Charleston plant of Ravinia, Inc., monitored activities associated with materials handling costs. The high and low levels of resource usage occurred in September and March for three different resources associated with materials handling. The number of moves is the driver. The total costs of the three resources and the activity output, as measured by moves for the two different levels, are presented as follows: Required: 1. Determine the cost behavior formula of each resource. Use the high-low method to assess the fixed and variable components. 2. Using your knowledge of cost behavior, predict the cost of each item for an activity output level of 9,000 moves. 3. Construct a cost formula that can be used to predict the total cost of the three resources combined. Using this formula, predict the total materials handling cost if activity output is 9,000 moves. In general, when can cost formulas be combined to form a single cost formula?
Abernathy, Inc., produces two different generators and is concerned about their quality. The company has identified the following quality activities and costs associated with the two products: Required: 1. Calculate the quality cost per unit for each product, and break this unit cost into quality cost categories. Which of the two seems to have the lowest quality? 2. How might a manager use the unit quality cost information?