ACC 1110 Lecture Notes - Lecture 5: Cost Driver, Cost Accounting, Earnings Before Interest And Taxes
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Chapter 3: Applying Excel | ||||||||
Data | ||||||||
Allocation base | Machine-hours | |||||||
Estimated manufacturing overhead cost | $300,000 | |||||||
Estimated total amount of the allocationbase | 75,000 | machine-hours | ||||||
Actual manufacturing overhead cost | $290,000 | |||||||
Actual total amount of the allocationbase | 68,000 | machine-hours | ||||||
Enter a formula into each of the cellsmarked with a ? below | ||||||||
Computation of the predeterminedoverhead rate | ||||||||
Estimated manufacturing overhead cost | ? | |||||||
Estimated total amount of the allocationbase | ? | machine-hours | ||||||
Predetermined overhead rate | ? | per machine-hour | ||||||
Computation of underapplied oroverapplied manufacturing overhead | ||||||||
Actual manufacturing overhead cost | ? | |||||||
Manufacturing overhead cost applied toWork in Process during the year: | ||||||||
Predetermined overhead rate | ? | per machine-hour | ||||||
Actual total amount of the allocationbase | ? | machine-hours | ||||||
Manufacturing overhead applied | ? | |||||||
Underapplied (overapplied) manufacturingoverhead | ? |
Looking to achieve the highest grade possible, please see below. Please indicate if this answer is correct. IF I have left a calcuation out, please include.
Thank you,
The Big Bus Company manufactures two products, Product 1 and Product 2. Product 2 was developed as an attempt to enter a market closely related to that of Product 1. Product 2 is the more complex of the two products, requiring three hours of direct labour time per unit to manufacture compared to one and one-half hours of direct labour time for Product 1. Product 2 is produced on an automated production line. Overhead is currently assigned to the products on the basis of direct labour-hours. The company estimated it would incur a total of $396,000 in manufacturing overhead costs and produce 5,500 units of Product 2 and 22,000 units of Product 1 during the current year. Unit costs for materials and direct labour are: | ||||||||||||
Product 1 | Product 2 | |||||||||||
Direct Labour | $7 | $15 | ||||||||||
Direct material | $9 | $20 | ||||||||||
Required: | ||||||||||||
a. Compute the predetermined overhead rate under the current method of allocation and determine the unit product cost of each product for the current year. (5 marks) | ||||||||||||
Product 1 | Product 2 | Total | Allocation | |||||||||
Direct Labour hour / unit | 1.5 | 3 | 396,000 / 49,500 | |||||||||
units produced | 22,000 | 5,500 | 8 | |||||||||
total labour hour | 33,000 | 16,500 | 49,500 | |||||||||
overhead/unit | 12 | 24 | overhead/unit is calculated by direct LH x 8 | |||||||||
Product 1 | Product 2 | |||||||||||
Direct material | 9 | 20 | ||||||||||
Direct labour | 7 | 15 | ||||||||||
overhead/unit | 16 | 35 | ||||||||||
cost/unit | 32 | 70 | ||||||||||
b. The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below: (5 marks) | ||||||||||||
Expected Activity | ||||||||||||
Activity Costs Pools | Estimated Overhead Costs | Product 1 | Product 2 | Total | ||||||||
Machine set-ups required | $170,000 | 700 | 1,000 | 1,700 | ||||||||
Purchase orders issued | 37,000 | 300 | 200 | 500 | ||||||||
Machine-hours required | 91,000 | 4,000 | 9,000 | 13,000 | ||||||||
Maintenance requests issued | 98,000 | 400 | 600 | 1,000 | ||||||||
$396,000 | ||||||||||||
Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year. | ||||||||||||
Total Cost | Product A | Product B | ||||||||||
Machine Setups | 170,000 | 70,000 | 100,000 | |||||||||
purchase order | 37,000 | 22,200 | 14,800 | |||||||||
machine hours | 91,000 | 28,000 | 63,000 | |||||||||
maintenance requests | 98,000 | 39,200 | 58,800 | |||||||||
Total | 396,000 | 159,400 | 236,600 | |||||||||
22,000 | 5,500 | |||||||||||
overhead /cost | 7..25 | 43..02 | ||||||||||
product 1 | product 2 | |||||||||||
Direct Labour | 9 | 20 | ||||||||||
direct material | 7 | 15 | ||||||||||
overhead / unit | 7..25 | 43.02. | ||||||||||
Unit/ cost | 23..25 | 78.020. | ||||||||||
Single Plantwide and Multiple Production Department FactoryOverhead Rate Methods and Product Cost Distortion
Pineapple Motor Company manufactures two types of specialtyelectric motors, a commercial motor and a residential motor,through two production departments, Assembly and Testing.Presently, the company uses a single plantwide factory overheadrate for allocating factory overhead to the two products. However,management is considering using the multiple production departmentfactory overhead rate method. The following factory overhead wasbudgeted for Pineapple:
Assembly Department | $197,800 | ||
Testing Department | 756,800 | ||
Total | $954,600 |
Direct machine hours were estimated as follows:
Assembly Department | 4,300 | hours | |
Testing Department | 8,600 | ||
Total | 12,900 | hours |
In addition, the direct machine hours (dmh) used to produce aunit of each product in each department were determined fromengineering records, as follows:
Commercial | Residential | |||
Assembly Department | 0.50 | dmh | 1.00 | dmh |
Testing Department | 1.00 | 2.00 | ||
Total machine hours per unit | 1.50 | dmh | 3.00 | dmh |
a. Determine the per-unit factory overheadallocated to the Commercial and Residential motors under the singleplantwide factory overhead rate method, using direct machine hoursas the allocation base.
Commercial Motor | $ per unit |
Residential Motor | $ per unit |
b. Determine the per-unit factory overheadallocated to the Commercial and Residential motors under themultiple production department factory overhead rate method, usingdirect machine hours as the allocation base for eachdepartment.
Commercial Motor | $ per unit |
Residential Motor | $ per unit |
c. Recommend to management a product costingapproach, based on your analyses in (a) and (b).
The factory overhead determined under the single plantwidefactory overhead rate and multiple production department factoryoverhead rate methods are . This is because the ratio of directmachine hours used by each product from the two departments is .However, the two production department overhead rates are . Thus,Peach should consider the easier rate method in this situation.