Gaylord Corp. manufactures steering wheels for the auto industry. Gaylord makes
ID: 2341604 • Letter: G
Question
Gaylord Corp. manufactures steering wheels for the auto industry. Gaylord makes both a standard steeering wheel with hand-levers for adjustments and a deluxe steering wheel with electronic adjustments and the ability to heat the steering weel. The company has been using a plant-wide overhead rate based on direct labor hours to allocate its overhead to each model. Tom Smith, the CFO, is convinced that an activity- based costing (ABC) system will provide better information about the costs and profitability of each steering wheel model which should lead to better decisions about whether the company should focus on one model or the other. He has pulled the following information about overhead costs from the past year and inserted activity-based costing (ABC) information: vity llocation Base Activity Cost Allocation Rate $6.50 per part $350.00 per setup Materials handling Number of parts ne setup Number of setups Inspection of parts Number of parts Finishing 31.00 per part ishing direct labor hours$51.00 ndard Deluxe 8.0 20 3.0 3.8 rts per steering wheel Setups per 1,000 steering wheel Finishing direct labor hours per steering 6.0 20.0 Total direct labor hours per steering wheel 2.7 The company's managers expect to produce 1,000 units of each model during the upcoming year. Answer the following questions. Each question is worth 1 point. 1. Compute the total budgeted manufacturing overhead cost for the upcoming year using ABC information. 560500 Submit Answer Tries 2/10 Previous Tries 2. Compute the manufacturing overhead cost per steering wheel of the standard model using ABC. 214700 Submit Answer Tries 1/10 Previous Tries 3. Compute the manufacturing overhead cost per steering wheel of the deluxe model using ABC. Submit Answer Tries 0/10 4. Compute the manufacturing overhead cost per deluxe steering wheel using Gaylord's traditional plant-wide overhead rate. Submit Answer Tries 0/10 5. If Gaylord continues with the traditional method of allocating manufacturing overhead based on direct labor hours instead of switching to the Activity-Based Costing system, by how much will the deluxe steering wheel model be over- or under-costed per unit? Enter an under-costed amount as a negative number and an over-costed amount as a positive number. Submit Answer Tries 0/10 is discussion is closed Send FeedbackExplanation / Answer
Answer: The total budgeted manufacturing overhead cost would be calculated as follows: Standard Deluxe Total Total number of activity Rate per activity Total Cost Total number of activity Rate per activity Total Cost Material handling 6000 6.5 39000 8000 6.5 52000 91000 ($39000+52000) (6*1000) (6000*$6.5) (8*1000) (8000*$6.5) Machine Setup 20 350 7000 20 350 7000 14000 ($7000+7000) (20*$350) (20*$350) Inspection of parts 6000 31 186000 8000 31 248000 434000 ($186000+248000) (6*1000) (6000*$31) (8*1000) (8000*$31) Finishing 1000 51 51000 3000 51 153000 204000 ($51000+153000) (1*1000) (1000*$51) (3*1000) (3000*$51) 283000 460000 743000 ($283000+460000) Requirement 1 Therefore the total budgeted manufacturing overhead cost would be $743,000 2 The manufacturing overhead cost per steering wheel of standard model using ABC would be: Total cost $ 2,83,000.00 Number of units manufactured 1,000.00 Manufacturing overhead cost per unit $ 283.00 Therefore manufacturing overhead cost per unit of standard model would be$283 3 The manufacturing overhead cost per steering wheel of deluxe model using ABC would be: Total cost $ 4,60,000.00 Number of units manufactured 1,000.00 Manufacturing overhead cost per unit $ 460.00 Therefore manufacturing overhead cost per unit of standard model would be$460. 4 The manufacturing overhead cost per steering wheel of deluxe model using traditional system would be: Total cost 743000 Total direct labor hours 6500 $ 114.31 Therefore manufacturing overhead cost per unit of standard model would be$434.378 ($114.31*3.8)
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