8wekyb3d8bbwe/LocalState/Files/50/3159 /midterm2-13164 The next three questions
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8wekyb3d8bbwe/LocalState/Files/50/3159 /midterm2-13164 The next three questions are based on the following: A company is considering switching to an activity-based costing (ABC) system. The company produces and sells two products: Basic ho. The production of the Pro products requires more expensive materials and more experienced workers. The company consiss of Production (where all manufacturing activities are taken) and Marketing (which engages in selling and admin activity only). The company's traditional costing system computes unit product costs as dictated by GAAP: direct labor cost (DLC) is used as the allocation base for manufacturing overhead cost (the overhead rate is rounded to the nearest cent, The ABC costs all costs easily associated with units, In addition, in the ABC system, there are four major indirect activities: Machine Setups Special Processing. Factory Supervision, and Customer Relations In the ABC system, Cuslomer Relations costs will be associated with customers, the rest of the costs will be associated with units of the two products 9% of Customer Relations cost relates to manufacturing and is incurred in the Production Department; the rest of the Customer Relations cost is incurred in the Marketing Department. The prices, direct material cost (DM), shipping cost and DL.Hs below are given for one unit of the product Hourly Shipping Pot PiseDDLHUnis Product Price S150 $44 Pro ThccompanXcollectedthedatafor ABC asfollows: b600 ew tstimated AS ivitymeasuresused Activity Cost Pool Ac- Activity Measure OH cost Basic Pro Machine Setup Special Processing Factory Supervision Customer Relations (on 5 customers) Machine hours DLC r of customers S 13,000 8,000 12,000 5 225,000 S 200,000 spoo 4 What is the diffierence between the Pro product's unit coses computed by the traditional and ARC systems? A. Ulnder the traditional costing system, the unit cost of the Pro product is lower by B. Under the traditional costing system. the unit cost of the Pro product ts higher by CUnder the traditional costing system, the unit cost of the Pro prodact is lower by D. Under the traditional costing systens, the unit cost of the Pro product is higher by E. None of the ahoveMae S 225 per unit s 2.25 per unit. S 425 per unit 4.25 per unit ABC DLExplanation / Answer
Solution:
Total estimated manufacturing overhead = $360,000 + $135,000 + $225,000 = $720,000
Estimated direct labor cost = (6000 * 1 * $10) + (4000 * 2 * $15) = $180,000
Predetermined overhead rate - traditional costing = Estimated manufacturing overhead / Estimated direct labor cost = $720,000 / $180,000= $4 per direct labor cost
Difference in unit product cost of pro under traditional costing and ABC = $215.25 - $210 = $5.25
Therefore under traditional costing system, the unit cost of pro product is lower by $5.25 per unit
Hence option E is correct.
Solution 5:
Unit level actvities include special processing and factory supervision.
Hence option D is correct.
Solution 6:
Sale value of customer B = (2000 * $150) + (1000 * $250) = $550,000
ABC Production cost = (2000 * $90.50) + (1000 * $215.25) = $396,250
Gross margin from customer B = $550,000 - $396,250 = $153,750
Shipping cost = 2000 * $1 + 1000*$2 = $4,000
Customer relation cost per customer = $200,000 / 5 = $40,000
Net customer margin for customer B = $153,750 - $4,000 - $40,000 = $109,750
Hence option B is correct.
Computation of overhead assigned to product & Overehead cost per unit- Activity Based Costing Activity Cost Cost Driver Qty of cost driver Allocation rate Basic Pro Allocation Qty Allocated Overhead Allocation Qty Allocated Overhead Machine Setups $360,000.00 Nos of setups 160 $2,250.00 40 $90,000.00 120 $270,000.00 Special Processing $135,000.00 Machine hours 20000 $6.75 8000 $54,000.00 12000 $81,000.00 Factory Supervision $225,000.00 DLC $180,000.00 $1.25 $60,000.00 $75,000.00 $120,000.00 $150,000.00 Total $720,000.00 $219,000.00 $501,000.00 Volume (In units) 6000 4000 Overhead cost per unit $36.50 $125.25Related Questions
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