Valley View Trailmasters makes two types of tents for mountain camping, the Expl
ID: 2343136 • Letter: V
Question
Valley View Trailmasters makes two types of tents for mountain camping, the Explorer and the Climber. Data concerning the two product lines is presented in the table below:
EXPLORER
CLIMBER
Sales price per unit
$390
$615
Direct materials per unit
$92
$115
Direct labor per unit
$51
$75
Estimated annual production
4,000 units
9,000 units
The company has always employed a tradition costing system in which manufacturing overhead is applied to units based on machine hours. Estimated data concerning manufacturing overhead and direct labor hours for the upcoming year appear below:
Estimated total manufacturing overhead $484,746
Estimated total machine hours 1,000
The company is considering replacing its traditional costing system with an activity based costing system that would assign its indirect product costs to four activity cost pools. Information about the amount assigned to these cost pools, the identified cost driver for each and usage of the cost drivers by the two product lines is presented in the following table:
ACTIVITY
TOTAL COST
COST DRIVER
TOTAL
EXPLORER
CLIMBER
Machine maintenance
$78,840
Machine hours
1,000
350
650
Batch setups
$136,364
Setups
146
60
86
Quality control
$163,020
Inspections
1,650
975
675
Technical support
$106,522
Technical support calls
964
352
612
Total manufacturing overhead cost
$484,746
INSTRUCTIONS: Use EXCEL FROMULAS (Show them to next the value) to calculate the following amounts in the spaces provided on your template.
1. Calculate the predetermined overhead rate using the traditional volume-based costing system.
2. Calculate the total amount of overhead cost that would be assigned to each product line under the company’s traditional costing system.
3. Calculate the gross margin per unit for each product line using traditional volume-based costing.
4. Calculate the activity rate for each cost pool using activity-based costing.
5. Calculate the total amount of overhead cost that would be assigned to each product line using activity-based costing.
6. Calculate the gross margin per unit for each product line under the proposed activity based costing system.
Here is the attached template:
Show formulas as well as the values.
EXPLORER
CLIMBER
Sales price per unit
$390
$615
Direct materials per unit
$92
$115
Direct labor per unit
$51
$75
Estimated annual production
4,000 units
9,000 units
Explanation / Answer
Req 1. OH rate: Estimated Overheads 484,746 Divide: Estimated MH 1,000 OH rate per MH 484.75 Req 2. OH assigned: Explorer Total MH useed 350 OH rate 484.75 OH applied 169662.5 Climber Total MH useed 650 OH rate 484.75 OH applied 315087.5 Req 3. Gross Profit: Explorer Climber Sales units 4,000 9000 Selling price 390 615 Sales revenue 1560000 5535000 Less: Cost Material 368000 1035000 Labour 204000 675000 Overheads 169663 315087 Total cost 741663 2025087 Gross profits 818337 3509913 Req 4. Activity rate: STATEMENT SHOWING ACTIVITY RATE OF ACTIVITY POOL Activity Total Expected Activity ACTIVITY COST POOL Measures Overheads Activity Rate Machine Maintenance MH 78,840 1,000 78.84 Batch setups Setups 136,364 146 934.00 Quality c ontrol Inspections 163,020 1,650 98.80 Technical support Support calls 106,522 964 110.50 Req 5. Overheads allocated: Explorer Climber Activity Rate Activity OH Activity OH Machine Maintenance 78.84 350 27594 650 51246 Batch setups 934 60 56040 86 80324 Quality c ontrol 98.8 975 96330 675 66690 Technical support 110.5 352 38896 612 67626 Total Overheads 218860 265886 req 6. Gross profit Gross Profit: Explorer Climber Sales units 4,000 9000 Selling price 390 615 Sales revenue 1560000 5535000 Less: Cost Material 368000 1035000 Labour 204000 675000 Overheads 218860 265886 Total cost 790860 1975886 Gross profits 769140 3559114
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