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Chapter 19: Q20E_1 (page 1071)

Eason Company manufactures wheel rims. The controller expects the following ABC allocation rates for 2018:

Activity Allocation Base Predetermined Overhead

Allocation Rate

Materials handling Number of parts $ 4.00 per part

Machine setup Number of setups 400.00 per setup

Insertion of parts Number of parts 26.00 per part

Finishing Number of finishing hours 90.00 per hour

Eason produces two wheel rim models: standard and deluxe. Expected data for 2018 are as follows:

Standard Deluxe

Parts per rim 4.0 7.0

Setups per 500 rims 18.0 18.0

Finishing hours per rim 1.0 5.5

Total direct hours per rim 5.0 6.0

The company expects to produce 500 units of each model during the year.

Requirements

1. Compute the total estimated indirect manufacturing cost for 2018.

Short Answer

Expert verified

Total estimated indirect cost: $463,900

Step by step solution

01

Step-by-Step-SolutionStep 1: Computation for the standard model

TotalMaterialhandlingcost=Predeterminedoverheadallocationrate脳Numberofpartsperunit脳No.ofexpectedunitstoproduced=$4脳4脳500=$8,000

role="math" localid="1653231446438" TotalMachinesetupcost=Predeterminedoverheadallocationrate脳Numberofsetupsper500units=$400脳18=$3,200

TotalInsertionofpartscost=Predeterminedoverheadallocationrate脳Numberofpartsperunit脳No.ofexpectedunitstoproduced=$26脳4脳500=$52,000

TotalFinishingcost=Predeterminedoverheadallocationrate脳Numberfinishinghourperunit脳No.ofexpectedunitstoproduced=$90脳1脳500=$45,000

role="math" localid="1653231799219" Totalindirectcostforstandardmodel=Materialhandlingcost+Machinesetupcost+Insertionofpartscost+Finishingcost=$8,000+$3,200+$52,000+$45,000=$108,200

02

Computation for the Deluxe model

TotalMaterialhandlingcost=Predeterminedoverheadallocationrate脳Numberofpartsperunit脳No.ofexpectedunitstoproduced=$4脳7脳500=$14,000

TotalMachinesetupcost=Predeterminedoverheadallocationrate脳Numberofsetupsper500units=$400脳18=$3,200

TotalInsertionofpartscost=Predeterminedoverheadallocationrate脳Numberofpartsperunit脳No.ofexpectedunitstoproduced=$26脳7脳500=$91,000

role="math" localid="1653232285079" TotalFinishingcost=Predeterminedoverheadallocationrate脳Numberfinishinghourperunit脳No.ofexpectedunitstoproduced=$90脳5.5脳500=$247,500

role="math" localid="1653232414480" Totalindirectcostforstandardmodel=Materialhandlingcost+Machinesteupcost+Insertionofpartscost+Finishingcost=$14,000+$3,200+$91,000+$247,500=$355,700

03

Computation of total indirect cost

Totalestimatedindirectcost=Estimatedindirectcostforstandradmodel+Estimatedindirectcostfordeluxemodel=$108,200+$355,700=$463,900

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Most popular questions from this chapter

Why is JIT costing sometimes called backflush costing?

Clason, Inc. manufactures door panels. Suppose Clason is considering spending the following amounts on a new total quality management (TQM) program:

___________________________________________________________________

Strength-testing one item from each batch of panels \( 68,000

Training employees in TQM 27,000

Training suppliers in TQM 39,000

Identifying suppliers who commit to on-time delivery of

perfect-quality materials 58,000

Clason expects the new program would save costs through the following:

___________________________________________________________________

Avoid lost profits from lost sales due to disappointed customers \) 86,000

Avoid rework and spoilage 63,000

Avoid inspection of raw materials 57,000

Avoid warranty costs 15,000

Requirements

1. Classify each cost as a prevention cost, an appraisal cost, an internal failure cost, or an external failure cost.

2. Should Clason implement the new quality program? Give your reason.

Answer

Martin, Inc. manufactures bookcases and uses an activity-based costing system. Martin鈥檚 activity areas and related data follow:

Activity

Budgeted Cost of Activity

Allocation Base

Predetermined Overhead Allocation Rate

Materials handling

\( 230,000

Number of parts

\)1.50

Assembly

3,200,000

Number of assembling direct labor hours

16.00

Finishing

150,000

Number of finished units*

3.00

*Refers to the number of units receiving the finishing activity, not the number of units transferred to Finished Goods Inventory

Martin produced two styles of bookcases in April: the standard bookcase and an unfinished bookcase, which has fewer parts and requires no finishing. The totals for quantities, direct materials costs, and other data follow:

Product

Total Units Produced

Total Direct materials Costs

Total Direct Labor Costs

Total Number of Parts

Total Assembling Direct Labor Hours

Standard bookcase

3,000

\(54,000

\)67,500

9,000

4,500

Unfinished bookcase

3,500

56,000

52,500

7,000

3,500

Requirements

3. Which product costs are reported in the external financial statements? Which costs are used for management decision making? Explain the difference.

Question:Treat Dog Collars uses activity-based costing. Treat鈥檚 system has the following features:

___________________________________________________________________

Activity Allocation BasePredetermined

Overhead Allocation Rate

Purchasing Number of purchase orders \( 60.00 per purchase order

Assembling Number of parts 0.36 per part

Packaging Number of finished collars 0.19 per collar

___________________________________________________________________

Each collar has three parts, direct materials cost is \)5.00 per collar, and direct laborcost is \(4.00 per collar. Suppose Animal Hut has asked for a bid on 30,000 dog collars.Treat will issue a total of 175 purchase orders if Animal Hut accepts Treat鈥檚 bid.

Requirements

1. Compute the total estimated cost Treat will incur to purchase the needed materialsand then assemble and package 30,000 dog collars. Also compute the cost percollar.

2. For bidding, Treat adds a 40% markup to total cost. What total price will the companybid for the entire Animal Hut order?

3. Suppose that instead of an ABC system, Treat has a traditional product costingsystem that allocates indirect costs at the rate of \)9.50 per direct labor hour. Thedog collar order will require 9,000 direct labor hours. What total price will Treat bidusing this system鈥檚 total cost?

4. Use your answers to Requirements 2 and 3 to explain how ABC can help Treatmake a better decision about the bid price it will offer Animal Hut.

The Oakman Company manufactures products in two departments: Mixing and Packaging. The company allocates manufacturing overhead using a single plantwide rate with direct labor hours as the allocation base. Estimated overhead costs for the year are $810,000, and estimated direct labor hours are 360,000. In October, the company incurred 20,000 direct labor hours.

Requirements

2. Determine the amount of overhead allocated in October.
See all solutions

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