A manufacturer of potting soil has the following financial data: Pounds produced
ID: 2418208 • Letter: A
Question
A manufacturer of potting soil has the following financial data:
Pounds produced and sold
23,900
Sales
$189,800
Less: Variable manufacturing costs
121,000
Fixed manufacturing costs
10,000
Variable selling and administrative costs
30,900
Fixed selling and administrative costs
15,900
Net operating income
$12,000
What is the company’s degree of operating leverage?
Milsaps Company produces sportsmen’s digital scales. In preparing the current budget, Milsaps’ controller estimates a total of $290,000 in direct materials cost, $240,000 in direct labor cost, and $304,800 in manufacturing overhead costs. Since much of the production process requires skilled workers to assemble the scales, direct labor cost is used as the overhead application base. At the end of the period, Milsaps reported actual results as follows: direct materials cost of $289,000, direct labor cost of $208,000, and manufacturing overhead cost $259,490.
How much manufacturing overhead did Milsaps apply during the year?
Megan Industries manufactures several products including a basic case for a popular smart phone. The company is considering adopting an activity-based costing approach for setting its budget. The company’s production activities, budgeted activity costs, and cost drivers for the coming year are as follows.
Calculate the activity-based unit cost of the smart phone case.
Stockin Company produces Tablets and Books. Total overhead costs traditionally have been allocated on the basis of direct labor hours. After implementing activity-based costing, managers determined the following cost pools and cost drivers. They also decided that general costs should no longer be allocated to products.
Activity Pool
Department Costs
Cost driver
Binding
$275,835.00
Number of units
Printing
789,929.00
Machine hours
Product design
200,988.00
Change orders
General
805,948.00
None
Total overhead costs
$2,072,700.00
Other information is as follows:
Tablets
Books
Units
77,700
19,425
Direct materials cost per unit
$4.00
$12.00
Direct labor cost per unit
$5.00
$10.00
Direct labor hours
32,900
16,450
Machine hours
137,200
102,900
Change orders
1,861
3,722
Determine the unit product cost for Tablets using the activity-based costing system
Pounds produced and sold
23,900
Sales
$189,800
Less: Variable manufacturing costs
121,000
Fixed manufacturing costs
10,000
Variable selling and administrative costs
30,900
Fixed selling and administrative costs
15,900
Net operating income
$12,000
Explanation / Answer
Degree of Operating Leverage = Contribution margin/Operating income
Sales
$189800
Less Variable Expenses
Manufacturing
$121000
Selling and Administrative
$30900
$151900
Contribution Margin
$37900
Less Fixed Expenses
Manufacturing
$10000
Selling & Administrative
$15900
$25900
Net Operating Income
$12000
DOL = $37900/$12000 = 3.16
Direct labor Cost
$240000
Manufacturing Overhead Costs
$304800
Predetermined Overhead Rate = $304800/$240000
127%
Actual Direct labor Cost
$208000
Applied Manufacturing Overhead = $208000*127%
$264160
Calculation of Unit Cost Using ABC Method
Tablet
Direct Materials
$310800
Direct Labor
$388500
Over Head
Binding
$220668
Printing
$451388
Product design
$66996
Total Cost
$1438352
Total Units Produced
77700
Unit Cost
$18.51
Activity Wise Overhead Rate
Binding = $275835/(77700+19425) =$2.84
Priniting = $789929/(137200+102900) =$3.29
Product Design = $200988/(1861+3722) = $36
Over head- Tablet
Binding = 77700 * $2.84 = $220668
Priniting = 137200* $3.29 = $451388
Product Design = 1861 * $36 =$66996
Sales
$189800
Less Variable Expenses
Manufacturing
$121000
Selling and Administrative
$30900
$151900
Contribution Margin
$37900
Less Fixed Expenses
Manufacturing
$10000
Selling & Administrative
$15900
$25900
Net Operating Income
$12000
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