The Rings Division of ABC Corporation produces two types of rings at its Central
ID: 2341877 • Letter: T
Question
The Rings Division of ABC Corporation produces two types of rings at its Central Plant: Plain and Engraved. The following data exist for production at the Central Plant:
Ring Type
Quantity (units)
Prime Costs*
Machine Hours
Material Moves
Setups
Plain
1,000,000
$2,000,000
100,000
100,000
25
Engraved
150,000
$450,000
25,000
100,000
75
*Prime costs are direct labor and direct materials costs
The division budgeted the following amounts for its indirect activities:
Machine-Related
Material Movement
Machine Setup
$500,000
$850,000
$650,000
The current cost system assigns all indirect costs based on machine hour consumption.
A. Calculate the (single) pre-determined overhead rate (PDOR) for the Central Plant under the current cost system.
B. Compute the reported unit cost of each product using the current cost system. That is, for the inventory of Plain and Engraved Rings in the warehouse, what does the system report as the cost for one ring of each type? Be sure to show your work clearly and explain any assumptions you make.
Ring Type
Quantity (units)
Prime Costs*
Machine Hours
Material Moves
Setups
Plain
1,000,000
$2,000,000
100,000
100,000
25
Engraved
150,000
$450,000
25,000
100,000
75
Explanation / Answer
a) Machine hours = 100000+25000 = 125000
Predetermine overhead raate = 2000000/125000 = 16 per machine hour
b) Calculate unit cost :
Plain Engraved Prime cost 2000000 450000 Overhead 1600000 400000 Total cost 3600000 850000 Unit 1000000 150000 Unit cost 3.6 5.67 or 5.7Related Questions
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