8) Morgana Avionics makes three types of radios for smallaircraft: Model A, Model B, and Model C. The manufacturingoperations are mechanized and there is no direct labor.Manufacturing overhead costs are significant, and Morgana hasadopted an activity-based costing system. Direct materials costsper unit for each model are as follows:
Model A
$28
Model B
$32
Model C
$40
Morgana has three activities: assembly, materials management,and testing. The cost driver for assembly is machine hours. Thecost driver for materials management is number of parts, and thecost driver for testing is the number of units of product. Totalcosts and production volumes for the year 2015 were estimated asfollows:
Total cost
Total units
Cost Driver
Assembly
$780,000
120,000
Machine hours
Materials management
$120,000
80,000
Parts
Testing
$22,500
5,000
Units
The Model A radio requires 12 parts to construct, and requires16 machine hours of processing. What is the manufacturing cost tomake one unit of Model A?
A) $150.00
B) $132.00
C) $126.50
D) $154.50
Note: Supporting computations are required for thisproblem. Failure to do so will result in loss ofpoints.
8) Morgana Avionics makes three types of radios for smallaircraft: Model A, Model B, and Model C. The manufacturingoperations are mechanized and there is no direct labor.Manufacturing overhead costs are significant, and Morgana hasadopted an activity-based costing system. Direct materials costsper unit for each model are as follows:
Model A | $28 |
Model B | $32 |
Model C | $40 |
Morgana has three activities: assembly, materials management,and testing. The cost driver for assembly is machine hours. Thecost driver for materials management is number of parts, and thecost driver for testing is the number of units of product. Totalcosts and production volumes for the year 2015 were estimated asfollows:
Total cost | Total units | Cost Driver | |
Assembly | $780,000 | 120,000 | Machine hours |
Materials management | $120,000 | 80,000 | Parts |
Testing | $22,500 | 5,000 | Units |
The Model A radio requires 12 parts to construct, and requires16 machine hours of processing. What is the manufacturing cost tomake one unit of Model A?
A) $150.00
B) $132.00
C) $126.50
D) $154.50
Note: Supporting computations are required for thisproblem. Failure to do so will result in loss ofpoints.
Related questions
Lens Care Inc. (LCI) manufactures specialized equipment forpolishing optical lenses. There are two models - one mainly usedfor fine eyewear (F-32) and another for lenses used in binoculars,cameras, and similar equipment (B-13). The manufacturing cost ofeach unit is calculated using activity-based costing; using thefollowing manufacturing cost pools.
| CostPools | AllocationBase | CostingRate |
| 1. Materials handling | Number of parts | $2.40 per part |
| 2. Manufacturingsupervision | Hours of machine time | $14.80 per hour |
| 3. Assembly | Number of parts | $3.30 per part |
| 4. Machine setup | Each setup | $56.50 per setup |
| 5. Inspection and testing | Logged hours | $45.50 per hour |
| 6. Packaging | Logged hours | $19.50 per hour |
LCI currently sells the B-13 model for $1,925 and the F-32 modelfor $982. Manufacturing costs and activity usage for the twoproducts are as follows:
| B-13 | F-32 | |
| Direct materials | $188.50 | $109.90 |
| Number of parts | 195 | 115 |
| Machine Hours | 8.5 | 8.2 |
| Inspection time | 1.75 | 1.25 |
| Packaging time | 0.75 | 0.5 |
| Set-ups | 4 | 1 |
7) The product cost for model B-13 is calculated to be:
Answer: ___________________
8) The product cost for model F-32 is calculated to be:
Answer: ___________________
9) The product margin for model B-13 is calculated to be:
Answer: _____________________
10) The product margin for model F-32 is calculated to be:
Answer: ______________________
Cost Assignment and JIT
Bunker Company produces two types of glucose monitors (basic andadvanced). Both pass through two producing departments: Fabricationand Assembly. Bunker also has an Inspection Department that isresponsible for testing monitors to ensure that they perform withinprespecified tolerance ranges (a sampling procedure is used).Budgeted data for the three departments are as follows:
| Inspection | Fabrication | Assembly | |
| Overhead | $160,000 | $240,000 | $68,000 |
| Number of tests | â | 10,000 | 30,000 |
| Direct labor hours | â | 24,000 | 12,000 |
In the Fabrication Department, the basic model requires 1.1hour(s) of direct labor and the advanced model requires 2.2hour(s). In the Assembly Department, the basic model requires 1.3hour(s) of direct labor and the advanced model requires 2.45 hours.There are 15,000 basic units produced and 8,000 advanced units.
Immediately after preparing the budgeted data, a consultantsuggests that two manufacturing cells be created: one for themanufacture of the basic model and the other for the manufacture ofthe advanced model. Raw materials would be delivered to each cell,and goods would be shipped immediately to customers uponcompletion. Workers within each cell would also be trained toperform monitor testing. The total direct overhead costs estimatedfor each cell would be $76,000 for the basic cell and $240,000 forthe advanced cell.
Required:
1. Allocate the inspection costs to eachdepartment.
| Fabrication | $ |
| Assembly | $ |
Compute the overhead cost per unit for each monitor. Overheadrates use direct labor hours. Round your intermediate calculationsand final answers to the nearest cent.
| Basic | $ per unit |
| Advanced | $ per unit |
2. Compute the overhead cost per unit ifmanufacturing cells are created. If required, round yourintermediate calculations and final answers to the nearestcent.
| Basic | $ per unit |
| Advanced | $ per unit |
Which unit overhead cost do you think is more accurateâthe onecomputed with a departmental structure, or the one computed using acell structure?
Kinnard Electronics manufactures two home theater systems: theElite which sells for $1,400, and a new model, the Preferred, whichsells for $1,100. The production cost computed per unit undertraditional costing for each model in 2012 was as follows.
Traditional Costing | Elite | Preferred |
Direct materials | $600 | $320 |
Direct labor ($20 per hour) | 100 | 80 |
Manufacturing overhead ($35 per DLH) | 175 | 140 |
Total per unit cost | $875 | $540 |
In 2012, Kinnard manufactured 20,000 units of the Elite and10,000 units of the Preferred. The overhead rate of $35 per directlabor hour was determined by dividing total expected manufacturingoverhead of $4,900,000 by the total direct labor hours (140,000)for the two models. Under traditional costing, the gross profit onthe models was: Elite $525 ($1,400 _ $875), and Preferred $560($1,100 _ $540). Because of this difference, management isconsidering phasing out the Elite model and increasing theproduction of the Preferred model. Before finalizing its decision,management asks Kinnard's controller to prepare an analysis usingactivity-based costing (ABC). The controller accumulates thefollowing information about overhead for the year ended December31, 2012.
Expected | Activity- | |||
Use of | Based | |||
Estimated | Cost | Overhead | ||
Activity | Cost Driver | Overhead | Drivers | Rate |
Purchasing | Number of orders | $ 775,000 | 25,000 | $31 |
Machine setups | Number of setups | 580,000 | 20,000 | 29 |
Machining | Machine hours | 3,100,000 | 100,000 | 31 |
Quality control | Number of inspections | 445,000 | 5,000 | 89 |
The cost drivers used for each product were:
Cost Driver | Elite | Preferred | Total |
Purchase orders | 11,250 | 13,750 | 25,000 |
Machine setups | 11,000 | 9,000 | 20,000 |
Machine hours | 40,000 | 60,000 | 100,000 |
Inspections | 2,750 | 2,250 | 5,000 |
Instructions
(a) Assign the total 2012 manufacturing overhead costs to thetwo products using activitybased costing (ABC).
(b) What was the cost per unit and gross profit of each modelusing ABC costing?
(c) Are management's future plans for the two models sound?Explain.
