At its manufacturing plant in Duluth, Minnesota, EndoElectronics Company manufac

Question

At its manufacturing plant in Duluth, Minnesota, EndoElectronics Company manufactures two products, X21 and Y37. For many years, the company has used a simple plantwidemanufacturing support cost rate based on direct labor hours. A new plant accountant suggested that the company may be able toassign support costs to products more accurately by using anactivity based costing system that relies on a separate rate foreach manufacturing activity that causes support costs. Afterstudying the plant's manufacturing activites and costs, the plantaccountant has collected the fowwlowing data for last year: Item                                                   X21            Y37 Units produced andsold                  50,000          100,000 Direct Labor Hoursused                  100,000        300,000 Direct Laborcost                           1,000,000        4,500,000 Number of timeshandled                  40,000              20,000 Number ofparts                               12,000              8,000 Number of designchanges                   2,000              1,000 Number of productsetups                     8,000            6,000 The accountant has also determined that actual manufacturingsupport costs incurred last year were as follows; CostPool                         Activity Costs Handling                              3,000,000 Number ofparts                   2,400,000 Designchanges                     3,300,000 Setups                                   2,800,000 Total                                     11,500,000 The direct materials cost for product X21 is $120 per unit,while for product Y37 it is $140 per unit. a. Determine the unit cost of each product using directlabor hours to allocate all manufacturing support costs. b. Determine the unit cost of each product usingactivity based costing. c. Which of the two methods produces more accurateestimates of job costs? Explain. d. Suppose Endo has been setting its product prices byadding a 25% markup to its reported product cost. Compute theproduct prices on the basis of the costs computed in parts (a) and(b). What do you recommend to Endo regarding itspricing? e. What product level changes do you suggest on thebasis of the activity based cost analysis? Who would beinvolved in bringing about your suggested changes? At its manufacturing plant in Duluth, Minnesota, EndoElectronics Company manufactures two products, X21 and Y37. For many years, the company has used a simple plantwidemanufacturing support cost rate based on direct labor hours. A new plant accountant suggested that the company may be able toassign support costs to products more accurately by using anactivity based costing system that relies on a separate rate foreach manufacturing activity that causes support costs. Afterstudying the plant's manufacturing activites and costs, the plantaccountant has collected the fowwlowing data for last year: Item                                                   X21            Y37 Units produced andsold                  50,000          100,000 Direct Labor Hoursused                  100,000        300,000 Direct Laborcost                           1,000,000        4,500,000 Number of timeshandled                  40,000              20,000 Number ofparts                               12,000              8,000 Number of designchanges                   2,000              1,000 Number of productsetups                     8,000            6,000 The accountant has also determined that actual manufacturingsupport costs incurred last year were as follows; CostPool                         Activity Costs Handling                              3,000,000 Number ofparts                   2,400,000 Designchanges                     3,300,000 Setups                                   2,800,000 Total                                     11,500,000 The direct materials cost for product X21 is $120 per unit,while for product Y37 it is $140 per unit. a. Determine the unit cost of each product using directlabor hours to allocate all manufacturing support costs. b. Determine the unit cost of each product usingactivity based costing. c. Which of the two methods produces more accurateestimates of job costs? Explain. d. Suppose Endo has been setting its product prices byadding a 25% markup to its reported product cost. Compute theproduct prices on the basis of the costs computed in parts (a) and(b). What do you recommend to Endo regarding itspricing? e. What product level changes do you suggest on thebasis of the activity based cost analysis? Who would beinvolved in bringing about your suggested changes?

Explanation / Answer

x.Xnbsp; Determine the unit cost of each product using direct labor hours to allocate all manufacturing      support costs Manufacturing support cost driver rate

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.