ments Fire, Inc. of (54,000 units), ha (10,200 units), two-gallon cylinder that
ID: 2331925 • Letter: M
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ments Fire, Inc. of (54,000 units), ha (10,200 units), two-gallon cylinder that holds 10 pounds of multi-purpose dry chemical at 390 PSI. Both products require 1.5 hours of direct labor for total annual direct labor hours are 96,300 or [1.5 hours x (54,00010,200)) rate is $16.46 or ($1,585,37896,300) per direct labor hour. direct labor cost is $19 per unit for both the home and the commercial models. annual manufacturing is $1,585,378. Thus, the predetermined overhead The direct materials cost per unit is $18.50 for the home model and $26.50 for the commercial model. The The company's managers identified six activity cost pools and related cost drivers and accumulated overhead by cost pool as follows. ed Use of Cost Drivers Pounds $87,100 155,050 407,960 49,980 57,838 827,450 35,000 27,000 217,000 165,000 25,500 15,500 5,258 3,680 335,000 215,000 120,000 8,000 52,000 10,000 1,578 120,000 Forming Assembling Number of parts Number of tests Gallons Pounds Packing and shipping Total unit cost MacBook ProExplanation / Answer
1. Computation of total unit cost of each product under traditional costing Home Commercial Direct material $18.50 $26.50 Direct labor $19.00 $19.00 Manufacturing overhead $24.70 $24.70 Total unit cost $62.20 $70.20 Computation of Predetermined Overhead Rate Total Overhead (a) 15,85,378 No. of Labout Hour (b) 96,300 Predtermine Overhead Rate (a/b) $16.46 No. of Hours needed for each Product 1.5 Hour Overall Cost Per Unit ($16.46*1.5) $24.70 Schedule showing computations of activity based overhead rates (per cost driver): Activity Cost Pool Estimated Overhead (A) Estimated Uses of Cost Driver (B) Activity Based overhead rates (A/B) Receiving $87,100 3,35,000 pounds $0.26 pounds Forming $1,55,050 35,000 machine hours $4.43 machine hours Assembling $4,07,960 2,17,000 parts $1.88 parts Testing $49,980 25,500 tests $1.96 tests Painting $57,838 5,258 gallons $11.00 gallons Packing and Shipping $8,27,450 3,35,000 pounds $2.47 pounds Schedule showing assigning of each activity cost pool to each product based on the use of cost drivers: Home Commercial Activity Cost Pool Activity-Based Overhead Rates (A) Estimated Use of Drivers (B) Cost Assigned (AXB) Estimated Use of Drivers ( C) Cost Assigned (AXC) Receiving $0.26 pounds 215000 $55,900 120000 $31,200 Forming $4.43 machine hours 27000 $1,19,610 8000 $35,440 Assembling $1.88 parts 165000 $3,10,200 52000 $97,760 Testing $1.96 tests 15500 $30,380 10000 $19,600 Painting $11.00 gallons 3680 $40,480 1578 $17,358 Packing and Shipping $2.47 pounds 215000 $5,31,050 120000 $2,96,400 Total cost assigned (a) $10,87,620 $4,97,758 Units produced (b) 54,000 10200 Overhead cost per unit [(a)÷ (b)] $20.14 $48.80 Computation of total cost per unit for each product under ABC: Home Commercial Direct material $18.50 $26.50 Direct labor $19.00 $19.00 Manufacturing overhead $20.14 $48.80 Total unit cost $39.14 $67.80 Classify each of the activities as a value-added activity or a non-value-added activity: Activity Receiving Non-Value-Added Forming Value-Added Assembling Value-Added Testing Non-Value-Added Painting Value-Added Packing and Shipping Value-Added
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