Koontz Company manufactures two models of industrial components-a Basic model an

Question

Koontz Company manufactures two models of industrial components-a Basic model and an Advanced Model. The company conslders all of its manufacturing overhead costs to be fixed and it uses plantwide manufacturing overhead cost allocation based on direct labor-hours. Koontz's controller prepared the segmented income statement that is shown below for the most recent year (he allocated selling and administrative expenses to products based on sales dollars): Basic Advanced Total Number of units produced and sold 20,000 10,000 30,000 Sales Cost of goods sold Gross margin Selling and administrative expenses $3,000,000 2,300,000 700,000 720,000 $2,000,000 $5,000,000 3,650,000 1,350,000 1,200,000 $ (20,000) 170,000 150,000 ,350,000 650,000 480,000 Net operating income (loss) Direct laborers are paid $20 per hour. Direct materlals cost $40 per unit for the Basic model and $60 per unit for the Advanced model. Koontz is considering a change from plantwide overhead allocation to a departmental approach. The overhead costs in the company's Molding Department would be allocated based on machine-hours and the overhead costs in its Assembly and Pack Department would be allocated based on direct labor-hours. To enable further analysis, the controller gathered the following information: Assemble and Pack Molding Total Manufacturing overhead costs Direct labor hours: 787,500 S 562,500 $1,350,000 Basic Advanced 10,000 5,000 20,000 10,000 30,000 15,000 Machine hourst Basic Advanced 12,000 10,000 12,000 10,000

Explanation / Answer

Activity cost pool Activity rate Machining                                          18.98 =417500/22000 Assrmble pack                                            9.42 =282500/30000 Order processing                                        920.00 =230000/250 Setups                                        523.08 =340000/650 Basic Advanced Machining                               227,727.27                           189,772.73 Assrmble pack                               188,333.33                              94,166.67 Order processing                                  46,000.00                           184,000.00 Setups                                  26,153.85                           313,846.15                               488,214.45                           781,785.55 Total traceable selling & Admin cost Basic Advanced Variable 150000 200000 Fixed 150000 200000 300000 400000 Income Statement Total Basic Advanced Sales 5000000 3000000 2000000 Variable Expenses: Direct Material 1400000 800000 =40*20000 600000 =60*10000 Direct Labour 900000 600000 =30000*20 300000 =15000*20 Total Variable Cost 2300000 1400000 900000 Traceable Fixed Cost: Machining                               417,500.00                           227,727.27        189,772.73 Assrmble pack                               282,500.00                           188,333.33          94,166.67 Order processing                               230,000.00                              46,000.00        184,000.00 Setups                               340,000.00                              26,153.85        313,846.15 Selling & Admin                               700,000.00                           300,000.00        400,000.00 Total traceable fixed exp                            1,970,000.00                           788,214.45    1,181,785.55 Sewegment Mrgin                               730,000.00                           811,785.55        (81,785.55) Common:Fixed Expenses: Selling & Admin expenses 500000 =1200000-700000 Others (unused Capacity) 80000 Total common fixed exp 580000 Net profit                               150,000.00

Related Questions

Navigate

• Browse (All)
• Browse K
• Subjects

---

---

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