Cartwright Ltd. manufactures two models of saddles, the Jordan and Shenandoah. T
ID: 2420104 • Letter: C
Question
Cartwright Ltd. manufactures two models of saddles, the Jordan and Shenandoah. The Jordan is a more basic model and sells for $900. The Shenandoah is a professional-model saddle and sells for $1,500. At the beginning of the year, the following budgeted data were available.
Jordan Shenandoah
Expected production (units) 15,000 5,000
Machine time (hours) 2,000 2,000
Direct materials unit cost $100 $200
Direct labour-hours 30,000 30,000
Receiving (number of orders processed) 150 650
Setups (number of setups) 15 100
Direct labour average wage rate (per hour) $20 $20
Purchasing (number of requisitions) 50 110
Inspection (% of units inspected) 10% 20%
Maintenance hours 450 950
Design and production support (hours) 100 400
The following are the budgeted indirect costs for the year:
Equipment maintenance $140,000
Utilities 48,000
Purchasing materials 50,000
Indirect materials 60,000
Receiving goods 35,000
Factory rental 96,000
Setting up equipment 13,800
Inspection costs 148,000
Design 50,000
Production Support 75,000
Facility-level costs are allocated on the basis of machine-hours.
Required.
Calculate the cost per unit for each product assuming the company uses a single overhead allocation rate based on direct labour-hours.
Form homogeneous cost pools and select appropriate cost drivers. Explain the rationale behind each of your groupings. Calculate the activity rates.
Using the activity rates calculated in requirement 2, calculate the per-unit cost for each product.
Compare your results from requirements 1 and 3, and comment on your results.
Explanation / Answer
1)
Determination of cost per unit under single overhead:
Particulars
Amount
Shena
Jordan
Production units
15000
5000
Direct material cost(a)
100
200
Direct labour cost(b)
(30000*20)/5,15
40
120
Inidrect costs
Total overhead
710800
710800
Direct labour hours
30000
30000
Overhead cost per unit©
24
24
Total cost per unit(a+b+c)
164
344
Thus, the cost per unit for two products is $244 and $264 respectively.
2)
Computation of the activity rates is as follows:
Activity driver
Activity rate
Particulars
Amount
Activity driver
Shena
Jordan
Shena
Jordan
Equipment maintenance
140000
Maintenance hours
450
950
311
147
Utilities
48000
Number of requisitions
50
110
960
436
Purchasing material
50000
Number of requisitions
50
110
1000
455
Indirect materials
60000
Number of requisitions
50
110
1200
545
Receiving goods
35000
Number of ordesr processed
150
650
233
54
Factory rental
96000
Maintenance hours
450
950
213
101
Setting up equipment
13800
Number of set ups
15
100
920
138
Inspection costs
148000
Inspections
1500
100
99
1480
Design
50000
Design hours
100
400
500
125
Production support
75000
Production support hours
100
400
750
188
Particulars
Amount
Shena
Jordan
Production units
15000
5000
Direct material cost(a)
100
200
Direct labour cost(b)
(30000*20)/5,15
40
120
Inidrect costs
Total overhead
710800
710800
Direct labour hours
30000
30000
Overhead cost per unit©
24
24
Total cost per unit(a+b+c)
164
344
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