Tent pro produce two lines of tents sold to outdoor. The tents are cut to specif
ID: 2489307 • Letter: T
Question
Tent pro produce two lines of tents sold to outdoor. The tents are cut to specification in department A. In department B the tents are down and folded. The activities, costs, and drivers associated with these two manufacturing processes and the company's production support activities follow. Additional production information on the lines of tents follows. Using a plantwide overhead rate based on direct labor hours, compute the overhead cost that is assigned to each pup tent and each pop-up tent. Using the plantwide overhead rate, determine the total cost per unit for the two products if the direct materials and direct labor cost is $25 per pup tent and $32 per pop-up tent. If the market price of the pup lent is $65 and the market price of the pop-up tent is $200, determine the gross profit per unit for each tent. What might management conclude about the pup tent? Using ABC, compute the total cost per unit for each tent if the direct labor and direct materials cost is $25 per pup tent and $32 per pop-up tent. If the market price is $65 per pup tent and $200 per pop-up tent, determine the gross profit per unit for each tent. Comment on the results. Would your pricing analysis be improved if the company used, instead of ABC, department rates determined using machine hours in department A and direct labor hours in department B? ExplainExplanation / Answer
1
Calculation of Plantwide overhead rate and Allocated overhead:
Total Overhead Costs ($215630+$399480+$515600)
$ 1,130,710
Total Direct Labor Hours (DLH)
4200
Plant wide Overhead Rate = $1130710 / 4200 =
$ 269.2167
Per DLH
Allocation of Overhead :
Pup Tent
Pop Up Tent
Direct Labor Hours (DLH) (A)
2600
1600
Plant wide Overhead Rate (B)
$ 269.2167
$ 269.2167
Allocated Overhead = A*B =
$ 699,963.33
$ 430,746.67
2
Calculation of Total Cost Per unit using plant wide overhead :
Pup Tent
Pop Up Tent
Total Direct Material and Labor Costs
380000
243200
(15200 Units * $25)
(7600 Units * $32)
Ovehead cost allocated
$ 699,963.33
$ 430,746.67
Total costs (A)
$ 1,079,963.33
$ 673,946.67
Total Units Produced (B)
15200
7600
Total cost per unit = A/B =
$ 71.05
$ 88.68
3
Calculation of Gross Profit Per unit:
Pup Tent
Pop Up Tent
Sales Price per unit
65
200
Less: Total cost per unit
$ (71.05)
$ (88.68)
Gross Profit Per unit
$ (6.05)
$ 111.32
4
Decision:
The Gross Profit for Pup Tent is negative as per plantwide overhead cost allocation method.
1
Calculation of Plantwide overhead rate and Allocated overhead:
Total Overhead Costs ($215630+$399480+$515600)
$ 1,130,710
Total Direct Labor Hours (DLH)
4200
Plant wide Overhead Rate = $1130710 / 4200 =
$ 269.2167
Per DLH
Allocation of Overhead :
Pup Tent
Pop Up Tent
Direct Labor Hours (DLH) (A)
2600
1600
Plant wide Overhead Rate (B)
$ 269.2167
$ 269.2167
Allocated Overhead = A*B =
$ 699,963.33
$ 430,746.67
2
Calculation of Total Cost Per unit using plant wide overhead :
Pup Tent
Pop Up Tent
Total Direct Material and Labor Costs
380000
243200
(15200 Units * $25)
(7600 Units * $32)
Ovehead cost allocated
$ 699,963.33
$ 430,746.67
Total costs (A)
$ 1,079,963.33
$ 673,946.67
Total Units Produced (B)
15200
7600
Total cost per unit = A/B =
$ 71.05
$ 88.68
3
Calculation of Gross Profit Per unit:
Pup Tent
Pop Up Tent
Sales Price per unit
65
200
Less: Total cost per unit
$ (71.05)
$ (88.68)
Gross Profit Per unit
$ (6.05)
$ 111.32
4
Decision:
The Gross Profit for Pup Tent is negative as per plantwide overhead cost allocation method.
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