Johnson Company uses a job-order cost system with overhead allocated to products
ID: 2559095 • Letter: J
Question
Johnson Company uses a job-order cost system with overhead allocated to products on the basis of direct labor hours. The company manufactures two products, for which the following estimated information for next year is available.
Standard
Unique
Selling Price
$125
$195
Number of Units Produced
15,000
5,000
Prime Cost per Unit
$85
$125
DLH per unit
2
1
Machine hours (total)
2,000
2,000
Units per batch
30
10
Hours to setup a batch
4
6
Number of moves per batch
2
3
Engineering Support Hours (total)
1,000
2,000
Total OH for the current year was estimated to be $402,500 from the following activities:
Activity
Annual Cost Activity Driver
Material Handling
$30,000 # moves (per batch)
Machine Set-ups
$100,000 # setup hours (per batch)
Engineering Support
$150,000 engineering support hours
Power for Machines
$80,000 # of machine hours
Providing Space
$42,500 # of different products (standard and unique)
TOTAL
$402,500
If the company adopts an ABC system, they will allocate Providing Space activity costs equally to each product line.
Requirements:
1. Estimate the cost per unit of the two products using the current cost system (e.g., DM+DL+MOH).
2. For each activity, calculate the drivers for each product line and in total (use Table 1 below).
3. For each activity, calculate the consumption ratio (use Table 1 below).
4. For each activity, calculate the activity rate (use Table 1 below).
5. Using activity rates or consumption ratios, calculate the cost per unit of the two products using ABC (that is, DM+DL+MOH).
6. How did the costs of the two products change and why?
7. Discuss how the company would go about improving profitability.
Activity
Total Cost
Activity drivers
Total
drivers
Deluxe
drivers
Regular
drivers
Activity rate
Consumption ratios
Material Handling
$ 30,000
# of moves (per batch)
Machines Set-ups
$ 100,000
# setup hours (per batch)
Engineering support
$ 150,000
Engineering support hours
Power for Machines
$ 80,000
# of machine hours
Providing Space
$ 42,500
# of different products
TOTAL
$402,500
Table 1 (for Parts 2, 3, and 4)
Part 1:
Part 5:
Part 6:
Part 7:
Standard
Unique
Selling Price
$125
$195
Number of Units Produced
15,000
5,000
Prime Cost per Unit
$85
$125
DLH per unit
2
1
Machine hours (total)
2,000
2,000
Units per batch
30
10
Hours to setup a batch
4
6
Number of moves per batch
2
3
Engineering Support Hours (total)
1,000
2,000
Explanation / Answer
As per Chegg solution for 4 part is allowed.
Part-2,3,4 computation of Driver for each product, Activity Rate, Consumption Ratio 1. Computation of Cost /Unit Activity Total Cost (1) Activity drivers Total Deluxe Unique Activity rate(5=1/2) Consumption Ratio for Deluxe (3/2) Consumption Ratio for Deluxe (4/2) Particular Standard Unique drivers (2) drivers (3) drivers (4) Prime Cost/Unit $85.00 $125.00 Material Handling $30,000 # of moves (per batch) 5 2 3 $6,000 0.40 0.60 Overhead (2 Hour*$11.50)(1 Hour*$11.50) $23.00 $11.50 Machines Set-ups $100,000 # setup hours (per batch) 10 4 6 $10,000 0.40 0.60 Total Cost/Unit $108.00 $136.50 Engineering support $150,000 Engineering support hours 3000 1000 2000 $50 0.33 0.67 Power for Machines $80,000 # of machine hours 4000 2000 2000 $20 0.50 0.50 Computation of Overhead Recovery Rate Providing Space $42,500 # of different products 40 30 10 $1,063 0.75 0.25 Detail Amount TOTAL $402,500 Total Overhead $402,500 No of Hour Required for Standard( 15000 unit*2 Hour) 30000 Hour No of Hour Required for Unique (5000 unit*1 Hour) 5000 Hour Total No. of Hour Required for Standard and Unique 35000 Hour Overhead Recovery Rate $11.50
As per Chegg solution for 4 part is allowed.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.