The following data are for the two products produced by Tadros Company.
Product A Product B Direct materials $ 14 per unit $ 24 per unit Direct labor hours 0.6 DLH per unit 1.5 DLH per unit Machine hours 0.5 MH per unit 1.1 MH per unit Batches 125 batches 250 batches Volume 10,000 units 2,000 units Engineering modifications 10 modifications 50 modifications Number of customers 500 customers 400 customers Market price $ 34 per unit $ 95 per unit per unit
The company's direct labor rate is $20 per direct labor hour (DLH). Additional information follows.
Costs Driver Indirect manufacturing Engineering support $ 22,500 Engineering modifications Electricity 28,800 Machine hours Setup costs 41,000 Batches Nonmanufacturing Customer service 74,000 Number of customers
Required:
(Round your per unit cost answers to 2 decimal places and other answers to nearest whole number. Loss amounts should be indicated with minus sign.)
1. Compute the manufacturing cost per unit using the plantwide overhead rate based on direct labor hours. 0 Overhead Assigned Activity Driver Plantwide OH rate Total Overhead Cost Units Produced OH Cost per unit Product A Product B Product A Product B 1.2 What is the gross profit per unit? Product A Product B Market price Gross profit per unit 2.1 How much gross profit is generated by each customer of Product A and Product B using the plantwide overhead rate? Product A Product B Gross profit per unit Units purchased per customer Gross profit per customer 2.2 What is the cost of providing customer service to each customer? 0 Is the gross profit adequate for each customer of Product A and B using the plantwide overhead rate? Product A Product B Gross profit per customer Customer service cost per customer Profit (loss) per customer Is the profit adequate? 3.1 Determine the manufacturing cost per unit of each product line using ABC. Engineering Support 0 Electricity 0 Setup 0 Overhead Assigned Activity Driver Activity rate Total Overhead Cost Product A Engineering support Electricity Setup $0 Product B Engineering support Electricity Setup $0 Total manufacturing costs Product A Product B Direct Materials per unit Direct Labor per unit Overhead per unit Total manufacturing cost per unit 3.2 What is the gross profit per unit? Product A Product B Market price (29.74) (81.44) 4.1 How much gross profit is generated by each customer of Product A and Product B using ABC? Product A Product B 0 Units purchased per customer Gross profit (loss) per customer 4.2 Is the gross profit adequate for each customer of Product A and B using ABC? Product A Product B Gross profit (loss) per customer Customer service cost per customer Profit (loss) per customer Is the profit adequate using ABC?
5. Which method of product costing gives better information to managers of this company?
Departmental overhead rate method
Activity-based costing method
Plantwide overhead rate method
The following data are for the two products produced by Tadros Company.
| Product A | Product B | ||||
| Direct materials | $ | 14 per unit | $ | 24 per unit | |
| Direct labor hours | 0.6 DLH per unit | 1.5 DLH per unit | |||
| Machine hours | 0.5 MH per unit | 1.1 MH per unit | |||
| Batches | 125 batches | 250 batches | |||
| Volume | 10,000 units | 2,000 units | |||
| Engineering modifications | 10 modifications | 50 modifications | |||
| Number of customers | 500 customers | 400 customers | |||
| Market price | $ | 34 per unit | $ | 95 per unit per unit | |
The company's direct labor rate is $20 per direct labor hour (DLH). Additional information follows.
| Costs | Driver | |||
| Indirect manufacturing | ||||
| Engineering support | $ | 22,500 | Engineering modifications | |
| Electricity | 28,800 | Machine hours | ||
| Setup costs | 41,000 | Batches | ||
| Nonmanufacturing | ||||
| Customer service | 74,000 | Number of customers | ||
Required:
(Round your per unit cost answers to 2 decimal places and other answers to nearest whole number. Loss amounts should be indicated with minus sign.)
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5. Which method of product costing gives better information to managers of this company?
Departmental overhead rate method
Activity-based costing method
Plantwide overhead rate method
Related questions
Erte, Inc., manufactures two models of high-pressure steamvalves, the XR7 model and the ZD5 model. Data regarding the twoproducts follow: |
| Product | DirectLabor-Hours | Annual Production | TotalDirect Labor-Hours |
| XR7 | 0.5 DLHs perunit | 24,000 Units | 12,000 DLHs |
| ZD5 | 0.7 DLHs perunit | 39,000 Units | 27,300 DLHs |
| 39,300 DLHs | |||
| Additionalinformation about the company follows: | |
| a. | Product XR7 requires $39 indirect materials per unit, and product ZD5 requires $21. |
| b. | The direct labor rate is $50 perhour. |
| c. | The company has always used direct labor-hours as the base forapplying manufacturing overhead cost to products. Manufacturingoverhead totals $1,621,800 per year. |
| d. | Product XR7 is more complex to manufacture than product ZD5 andrequires the use of a special milling machine. |
| e. | Because of the special work required in (d) above, the companyis considering the use of activity-based costing to apply overheadcost to products. Three activity cost pools have been identifiedand the first-stage allocations have been completed. Dataconcerning these activity cost pools appear below: |
Estimated Total Activity | ||||||
| Activity CostPool | ActivityMeasure | Estimated Total Cost | XR7 | ZD5 | Total | |
| Machine setups | Number ofsetups | $ | 167,200 | 88 | 132 | 220 |
| Special milling | Machine-hours | 275,600 | 1,060 | 0 | 1,060 | |
| General factory | Directlabor-hours | 1,179,000 | 12,000 | 27,300 | 39,300 | |
| $ | 1,621,800 | |||||
| Required: | |
| 1. | Assume that the companycontinues to use direct labor-hours as the base for applyingoverhead cost to products. |
| a. | Compute the predetermined overhead rate. (Round youranswer to the nearest dollar amount. Omit the "$" sign in yourresponse.) |
| Predeterminedoverhead rate | $ per DLH | |
| b. | Determine the unit product cost of each product. (Roundpre-determined overhead rate to nearest dollar amount. Round otherintermediate answers and the final answer to two decimal places.Omit the "$" sign in your response.) |
| Model | ||
| XR7 | ZD5 | |
| Unit productcost | $ | $ |
| 2. | Assume that thecompany decides to use activity-based costing to apply overheadcost to products. | |
| a. | Compute the activity rate for each activity cost pool. Also,compute the amount of overhead cost that would be applied to eachproduct. (Round your overhead cost per unit to 2 decimalplaces. Omit the "$" sign in your response.) |
| Activity costPool | Activity Rate | |
| Machine setups | $ | Per setup |
| Specialprocessing | $ | Per MH |
| General factory | $ | Per DLH |
| Activity CostPool | ModelXR7 | ModelZD5 |
| Total overheadcost | $ | $ |
| Overhead cost perunit | $ | $ |
| b. | Determine the unit product cost of each product. (Roundyour intermediate and final answers to 2 decimal places. Omit the"$" sign in your response.) |
| Unit product cost ofModel XR7 | $ |
| Unit product cost ofModel ZD5 | $ |
| Exhibit 1Wilkerson Company: Operating Results (March 2000) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sales | $2,152,500 | 100% | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Direct Labor Expense | $271,250 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Direct Materials Expense | 498,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Manufacturing Overhead | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Machine-relatedexpenses | $313,600 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Setup labor | 32,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Receiving andproduction control | 192,900 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Engineering | 100,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Packaging andshipping | 150,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Manufacturing Overhead | 788,500 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total cost of goods sold | 1,557,750 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross Margin | $594,750 | 28% | ||||||||||||||||||||||||||||||||||||||||||||||||||
| General, Selling & Admin. Expense | 559,650 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating Income (pre-tax) | $35,100 | 2% | ||||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exhibit 3 Product Data | |||
| Valves | Pumps | Flow Controllers | |
| Materials per unit | |||
| # ofcomponents | 4 | 5 | 10 |
| 3 @ $2 = $6 | 4 @ $2 = $8 | 4 @ $1 = $4 | |
| 2 @ $6 = $12 | 2 @ $7 = $14 | 5 @ $2 = $10 | |
| 1 @ $8 = $8 | |||
| Materials cost per unit | $18.00 | $22.00 | $22.00 |
| Direct labor per unit (in DL hrs) | 0.4 | 0.5 | 0.4 |
| Direct labor $/unit @ $25/DL hr | $10.00 | $12.50 | $10.00 |
| including employeebenefits) | |||
| Machine hours per unit | 0.50 | 0.50 | 0.30 |
| Exhibit 4 MonthlyProduction and Operating Statistics (March 2000) | ||||
| Valves | Pumps | Flow Controllers | Total | |
| Production (units) | 7,500 | 12,500 | 4,000 | 24,000 |
| Machine hours | 3,750 | 6,250 | 1,200 | 11,200 |
| Production runs | 10 | 50 | 100 | 160 |
| Number of shipments | 10 | 70 | 220 | 300 |
| Hours of engineering work | 250 | 375 | 625 | 1,250 |
What is the competitive situation faced by Wilkerson?
Given some apparent problems with Wilkersonâs cost system,should executives abandon overhead assignment to products entirelyby adopting a contribution margin approach in which manufacturingoverhead is treated as a period expense? Why or why not?
Prepare the following calculations. Create a table using Excelto show your answers with details support your answer. Be sure touse $ signs where appropriate. Copy and paste as picture into Worddocument.
Calculate the unit product cost for each product using thedirect-labor-based cost allocation system.
Calculate the unit product cost for each product using activitybased costing to allocate the cost of manufacturing overhead, aswell as profitability for each product line. Overhead cost poolsinclude machine, setup, receiving/scheduling, engineering supportand packing/shipping products.
Compare your work in question 3a. and 3b. above. Why have costshifts occurred?
Comprehensive budgeting problem; activity-based costing,operating and financial budgets. Tyva makes a very popular undyedcloth sandal in one style, but in Regular and Deluxe. The Regularsandals have cloth soles and the Deluxe sandals have cloth-coveredwooden soles. Tyva is preparing its budget for June 2015 and hasestimated sales based on past experience.
Other information for the month of June follows:
Input Prices
Direct materials
Cloth $5.25 per yard
Wood $7.50 per board foot
Direct manufacturing labor $15 per direct manufacturinglabor-hour
Input Quantities per Unit of Output (per pair ofsandals)
Regular | Deluxe | |
Direct materials | ||
Cloth | 1.3 yards | 1.5 yards |
Wood | 0 | 2 b.f. |
Direct manufacturing labor-hours | 5 hours | 7 hours |
Setup hours per batch | 2 hours | 3 hours |
Inventory Information, Direct Materials
| Cloth | Wood |
Beginning inventory | 610 yards | 800 b.f. |
Target ending inventory | 386 yards | 295 b.f. |
Cost of beginning inventory | $3,219 | $6,060 |
Tyva accounts for direct materials using a FIFO cost flowassumption.
Sales and Inventory Information, FinishedGoods
Regular | Deluxe | |
Expected sales in units (pairs of sandals) | 2,000 | 3.000 |
Selling price | $120 | $195 |
Target ending inventory in units | 400 | 600 |
Beginning inventory in units | 250 | 650 |
Beginning inventory in dollars | $23,250 | $92,625 |
Tyva uses a FIFO cost flow assumption for finished goodsinventory.
All the sandals are made in batches of 50 pairs of sandals. Tyvaincurs manufacturing overhead costs, marketing and generaladministration, and shipping costs. Besides materials and labor,manufacturing costs include setup, processing, and inspectioncosts. Tyva ships 40 pairs of sandals per shipment. Tyva usesactivity-based costing and has classified all overhead costs forthe month of June as shown in the following chart:
Cost Type | Denominator Activity | Rate |
Manufacturing | ||
Setup | Setup hours | $18 per setup hour |
Processing | Direct man. Labor-hours | $1.80 per DMLH |
Inspection | Number of pairs of sandals | $1.35 per pair |
Nonmanufacturing | ||
Marketing & general admin | Sales revenue | 8% |
Shipping | Number of shipments | $15 per shipment |
Questions
1.Prepareeach of the following for June:
a.Revenuesbudget
b.Productionbudget in units
c.Directmaterial usage budget and direct material purchases budget in bothunits and dollars, round to dollars
d.Directmanufacturing labor cost budget
e.Manufacturing overhead cost budgets forsetup, processing, and inspection activities
f.Budgetedunit cost of ending finished goods inventory and ending inventoriesbudget
g.Cost ofgoods sold budget
h.Marketingand general administration and shipping costs budget
Tyvaâs balance sheet for May 31 follows.
TYVA BALANCE SHEET AS OF MAY 31
Assets | ||
Cash | 9,435 | |
Accounts Receivable | 324,000 | |
Less: allowance for bad debts | 16,200 | 307,800 |
Inventories | ||
Direct materials | 9,279 | |
Finished goods | 115,875 | |
Fixed assets | 870,000 | |
Less: accumulated depreciation | 136,335 | 733,665 |
Total assets | 1,176,054 |
Liabilities and Equity
Liabilities and Equity | |
Accounts payable | 15,600 |
Taxes payable | 10,800 |
Interest payable | 750 |
Long-term debt | 150,000 |
Common stock | 300,000 |
Retained earnings | 698,904 |
Total liabilities & equity | 1,176,054 |
Use the balance sheet and the following information to prepare acash budget for Tyva for June. Round to dollars.
All sales are on account; 60% are collected in the month of thesale, 38% are collected the following month, and 2% are nevercollected and written off as bad debts.
All purchases of materials are on account. Tyva pays for 80% ofpurchases in the month of purchase and 20% in the followingmonth.
All other costs are paid in the month incurred, including thedeclaration and payment of a $15,000 cash dividend in June.
Tyva is making monthly interest payments of 0.5% (6%per year) ona $150,000 long-term loan.
Tyva plans to pay the $10,800 of taxes owed as of May 31 in themonth of June. Income tax expense for June is zero.
30% of processing, setup, and inspection costs and 10% ofmarketing and general administration and shipping costs aredepreciation.
Prepare a budgeted income statement for June and a budgetedbalance sheet for Tyva as of June 30, 2015.
Listed below are the answers to the first question. Ijust need help with preparing a cash budget for June, and abudgeted income statement and budgeted balance sheet as of June30.
| 1 | |||||||||
| a. | Revenue Budget | ||||||||
| For the Month of June 2015 | |||||||||
| Regular | Deluxe | ||||||||
| Expected sales in units | 2,000 | 3,000 | |||||||
| Selling price | 120 | 195 | |||||||
| Total sales | $240,000 | $585,000 | |||||||
| b. | Production Budget in Units | ||||||||
| For the Month of June 2015 | |||||||||
| Regular | Deluxe | ||||||||
| Budgeted unit sales | 2,000 | 3,000 | |||||||
| Add: target ending finished goods inventory | 400 | 600 | |||||||
| Total required units | 2,400 | 3,600 | |||||||
| Deduct: beginning finished goods inventory | 250 | 650 | |||||||
| Units of finished goods to be produced | 2,150 | 2,950 | |||||||
| c. | Direct Material Usage Budget in Units andDollars | ||||||||
| For the Month of June 2015 | |||||||||
| Direct materials required for | |||||||||
| Cloth | Wood | Cloth | Wood | ||||||
| Units | Yards | B.F. | Total | Total | |||||
| Regular | 2,150 | 1.3 | 0 | 2,795 | 0 | ||||
| Deluxe | 2,950 | 1.5 | 2 | 4,425 | 5,900 | ||||
| 7,220 | 5,900 | ||||||||
| Cost Budget - to be purchased | |||||||||
| Beg. | Need to | Cost to | |||||||
| Inv. | purchase | purchase | |||||||
| Cloth | 7,220 | 610 | 6,610 | 5.25 | 34,703 | ||||
| Wood | 5,900 | 800 | 5,100 | 7.5 | 38,250 | ||||
| 72,953 | |||||||||
| Cost of direct materials to be used thisperiod | |||||||||
| available from beginning inventory | Total | ||||||||
| Cloth | 34,703 | 3,219 | 37,922 | ||||||
| Wood | 38,250 | 6,060 | 44,310 | ||||||
| 82,232 | |||||||||
| Direct Materials Purchases Budget | |||||||||
| For the Month of June 2015 | |||||||||
| Cloth | Wood | Total | |||||||
| Physical units budget | |||||||||
| To be used in production | 7,220 | 5,900 | |||||||
| Add: target ending direct material inventory | 386 | 295 | |||||||
| Total requirements | 7,606 | 6,195 | |||||||
| Deduct: beginning direct material inventory | 610 | 800 | |||||||
| Purchases to be made | 6,996 | 5,395 | |||||||
| Cost of product | 5.25 | 7.5 | |||||||
| Totals | 36,729 | 40,463 | 77,192 | ||||||
| d. | Direct Manufacturing Labor Cost Budget | ||||||||
| For the Month of June 2015 | |||||||||
| Output | Labor hrs | Total | Wage | Total | |||||
| units | per unit | hours | rate | ||||||
| Regular | 2,150 | 5 | 10,750 | 15 | 161,250 | ||||
| Deluxe | 2,950 | 7 | 20,650 | 15 | 309,750 | ||||
| 31,400 | 471,000 | ||||||||
| e. | Manufacturing Overhead Cost Budget for Setup,Processing, and Inspection Activities | ||||||||
| For the Month of June 2015 | |||||||||
| Total production | 2,150 | 2,950 | 5,100 | ||||||
| Total sales | 2,000 | 3,000 | 5,000 | ||||||
| No. of setup hours | 86 | 118 | 204 | ||||||
| No. of shipments | 50 | 75 | 125 | ||||||
| Labor hours | 10,750 | 20,650 | 31,400 | ||||||
| Setup | Processing | Inspection | Total | ||||||
| Allocation | Setup hrs | Labor hrs | No. pairs | ||||||
| Rate | 18 | 1.8 | 1.35 | ||||||
| No. of Activity | 204 | 31,400 | 5,100 | ||||||
| Total | 3,672 | 56,520 | 6,885 | 67,077 | |||||
| f. | Budgeted Unit Cost of Ending Finished GoodsInventory | ||||||||
| For the Month of June 2015 | |||||||||
| Cost per | Regular | Total | Deluxe | Total | |||||
| Unit of | Input per | Input per | |||||||
| Input | Unit | Unit | |||||||
| Output | Output | ||||||||
| Cloth | 5.25 | 1.3 | 6.825 | 1.5 | 7.875 | ||||
| Wood | 7.5 | 0 | 0 | 2 | 15 | ||||
| Direct Manufacturing hours | 15 | 5 | 75 | 7 | 105 | ||||
| Machine setup | 18 | 0.04 | 0.72 | 0.06 | 1.08 | ||||
| Processing | 1.8 | 5 | 9 | 7 | 12.6 | ||||
| Inspection | 1.35 | 1 | 1.35 | 1 | 1.35 | ||||
| Total | 92.895 | 142.905 | |||||||
| Ending Inventories Budget | |||||||||
| For the Month of June 2015 | |||||||||
| Quantity | Cost per | Total | |||||||
| Unit | |||||||||
| Direct materials | |||||||||
| Cloth | 386 | 5.25 | 2026.5 | ||||||
| Wood | 295 | 7.5 | 2212.5 | 4239 | |||||
| Finished goods | |||||||||
| Regular | 400 | 92.895 | 37158 | ||||||
| Deluxe | 600 | 142.905 | 85743 | 122901 | |||||
| Total ending inv. | 127140 | ||||||||
| g. | Cost of Goods Sold Budget | ||||||||
| For the Month of June 2015 | |||||||||
| Regular | Deluxe | ||||||||
| Beginning finished goods inventory, Jun 1 | 23250 | 92625 | 115875 | ||||||
| Direct materials used (c) | 82232 | ||||||||
| Direct manufacturing labor (d) | 471000 | ||||||||
| Manufacturing overhead (e) | 67077 | ||||||||
| Cost of goods manufactured | 620309 | ||||||||
| Cost of goods available for sale | 736184 | ||||||||
| Deduct ending finished goods inventory, June 30(f) | 122901 | ||||||||
| Cost of goods sold | 613283 | ||||||||
| h. | Nonmanufacturing Costs Budget | ||||||||
| For the Month of June 2015 | |||||||||
| Marketing and general administration | 825000 | 0.08 | 66000 | ||||||
| Shipping | |||||||||
| (5,000 pairs / 40 pairs per shipment) | 125 | 15 | 1875 | ||||||
| Total | 67875 | ||||||||
Again, I just need help with the cash budget question, and thebudgeted income statement and budgeted balance sheet as ofJune.
Thank you!
