two particular parts, shafts and gears. The competition is keen among contract p
ID: 2341212 • Letter: T
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two particular parts, shafts and gears. The competition is keen among contract producers, and LaMesa's top manag market is to cost-cutting competitors. Hence, having a very accurate understanding of costs is important to LaMesa's survival ct Costing Company-wide Overhead Versus ABC LaMesa produces machine parts as a contract provider for a large manuf Product Cos agement realizes vulnerable its produce shafts is $19.49, and the current cost to LaMesa's president, Jose Rodriguez, has observed that the company's current cost to AR. He indicated ta the controller that.be suspertssomn.pmblems with.rbe.rnst.sostem.berause. LaMesais uurtdenhy produce gears is $11 experiencing extraordinary competition on shafts, but it seems to have a virtual corner on the gear study and to consider whether changes in the cost system are necessary. various manufacturing activities for the most recent month: s market. He is even considering dropping the line and converting the company to a one-product manufacturer of manufacturer of gears. He asked the controller, Felix Bernhardt, to conduct a The controller collected the following data about the company's costs and Production units Selling price overhead per unit(based on direct labor hours) Materials and direct labor cost per unit Number of production runs Shafts Gears 50.000 10,500 31.86 $24.00 S1096 SS22 853 $6.26 10 20 Number of purchasing and receiving orders processed 4 100 12,750 6,000 Number of machine hours Number of direct labor hours 25,000 2,500 5,000 509 Number of material moves 50 40 The controliler was able e to summarize the company's total manufacturing overhead into the following pools: Setup costs $15,000 Machine cost 87,500 Purchasing and recelving costs 210,000 200,000 90.000 $602,500 Engineering costs Materials handling costs Total a. Calculate LaMesa's current company-wide overhead rate based on cdirect labor hours Round rate to two decimal places per direct labor hour b. Verify LaMesa's calculation of overhead cost per unit of $12.82 for slhafts and $6.10 for gears. Use rounded rate calculated above. Round per unit rate to two decimail places. Rate XHoursOverheadUnits Per Unit Shafts: Gears: cost pools c. Calculate the manufacturing overhead cost per unit for shafts and gears using activity-based costing, assuming each of the five represents a separate activity pool. Round answers to two decimal places, if needed. Setup 0 per production runExplanation / Answer
Requirement a Schdeule of of company's predetermined overhead rate based on traditional costing method. Activity Amount Machine cost 87500 Material handling 90000 Purchasing & Receiving cost 210000 Setup 15000 Engineering 200000 Total Overhead A 602500 Direct labor hours Shaft 25000 Gears 2500 Total Direct labor hours B 27500 Predetermined overhead rate A/B 21.9091 Requirement b Rate X Hours = overhead Units = Per units Shaft 21.9091 X 25000 = 547727 50000 = 10.9545 Gears 21.9091 X 2500 = 54772.7 10500 = 5.21645 Requirement c Schedule of Pool rates for each cost pool as well as overhead that will be assigned to each product. Activity Cost Driver Setup Driver quanity Production runs 30 Amount $ 15000 500 Per production Hour Machine related Driver quanity Machine Hours 18750 Amount $ 87500 4.66667 Per Machine hour Purchasing Driver quanity Purchase orders 140 Amount $ 210000 1500 Per purchase order Engineering Driver quanity Engineering Hours 10000 Amount $ 200000 20 Per engineering hour Material handling Driver quanity Materials Moves 90 Per material move Amount $ 90000 1000 Schedule of Pool rates for each cost pool as well as overhead that will be assigned to each product. Activity Cost Driver Shaft Gears Setup Driver quanity Production runs 30 10 20 Amount $ 15000 5000 10000 Machine related Driver quanity Machine Hours 18750 12750 6000 Amount $ 87500 59500 28000 Purchasing Driver quanity Purchase orders 140 40 100 Amount $ 210000 60000 150000 Engineering Driver quanity Engineering Hours 10000 5000 5000 Amount $ 200000 100000 100000 Material handling Driver quanity Materials Moves 90 50 40 Amount $ 90000 50000 40000 Total ABC Overhead cost 274500 328000 No. of units 50000 10500 Overhead cost per unit 5.49 31.2381
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