Sorce Instrument, Inc. manufactures two products: missile range instruments and
ID: 2379225 • Letter: S
Question
Sorce Instrument, Inc. manufactures two products: missile range instruments and space pressure gauges. During April, 50 range instruments and 300 pressure gauges were produced, and overhead costs of $108,200 were estimated. An analysis of estimated overhead costs reveals the following activities.
Cost Driver
Total Cost
35,200
$108,200
The cost driver volume for each product was as follows.
Determine the overhead rate for each activity.
Assign the manufacturing overhead costs for April to the two products using activity-based costing.
Skaros Stairs Co. of Moore designs and builds factory-made premium wooden stairs for homes. The manufactured stair components (spindles, risers, hangers, hand rails) permit installation of stairs of varying lengths and widths. All are of white oak wood. Budgeted manufacturing overhead costs for the year 2011 are as follows.
Amount
180,000
$861,750
For the last 4 years, Skaros Stairs Co. has been charging overhead to products on the basis of machine hours. For the year 2011, 100,000 machine hours are budgeted.
Anthony Morse, owner-manager of Skaros Stairs Co., recently directed his accountant, Neal Seagren, to implement the activity-based costing system that he has repeatedly proposed. At Anthony Morse's request, Neal and the production foreman identify the following cost drivers and their usage for the previously budgeted overhead cost pools.
Activity Cost Pools
Cost Drivers
Expected
Use of
Cost Drivers
David Dion, sales manager, has received an order for 280 stairs from Community Builders, Inc., a large housing development contractor. At David's request, Neal prepares cost estimates for producing components for 280 stairs so David can submit a contract price per stair to Community Builders. He accumulates the following data for the production of 280 stairways.
Compute the predetermined overhead rate using traditional costing with machine hours as the basis. (Round answer to 2 decimal places, e.g. 2.25.)
What is the manufacturing cost per stairway under traditional costing? (Use rounded amount from part (a). Round answer to 2 decimal places, e.g. 10.50.)
What is the manufacturing cost per stairway under the proposed activity-based costing? (Round activity-based overhead rates to 2 decimal places, e.g. 10.50. Round final answer to 2 decimal places, 10.50.)
Question 2Sorce Instrument, Inc. manufactures two products: missile range instruments and space pressure gauges. During April, 50 range instruments and 300 pressure gauges were produced, and overhead costs of $108,200 were estimated. An analysis of estimated overhead costs reveals the following activities.
ActivityCost Driver
Total Cost
1. Materials handling Number of requisitions $43,000 2. Machine setups Number of setups 30,000 3. Quality inspections Number of inspections35,200
$108,200
The cost driver volume for each product was as follows.
Cost Driver Instruments Gauges Total Number of requisitions 400 600 1,000 Number of setups 200 300 500 Number of inspections 250 300 550Explanation / Answer
Answer:
Materials handling: $43000/1000= $43.00 a
Machine setup: $30000/500= $60.00 b
Quality inspections: $35200/550= $64.00 c
Range Instruments:
Requisition: 400 x $43.00= $17,200.00...
Setups: 200 x $60.00= $12,000.00
Inspection: 250 x $64.00= $16,000.00
Total $45,200.00
Per unit cost: $45,200/50= $904.00 d
Gauges:
Requisition: 600 x $43.00= $25,800.00...
Setups: 300 x $60.00= $18,000.00
Inspection: 300 x $64.00= $19,200.00 ...
Total $63,000.00
Per unit cost: $63,000/300= $210.00 e
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