Marine, Inc., manufactures a product that is available in both a flexible and a rigid model. The
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Overhead is applied to products on the basis of direct labor-hours. At the beginning of the current year, management estimated that $600,000 in overhead costs would be incurred and the company would produce and sell 1,000 units of the flexible model and 10,000 units of the regular model. The flexible model requires 2.0 hours of direct labor time per unit, and the regular model requires 1.0 hours. Direct materials and labor costs per unit are given below:
Flexible..............Rigid
Direct materials cost per unit . . . . . . . . .$110.00 . . . . . . . . $80.00
Direct labor cost per unit . . . . . . . . . . . . $30.00 . . . . . . . . $15.00
Required:
1. Compute the predetermined overhead rate using direct labor-hours as the basis for allocating overhead costs to products. Compute the unit product cost for one unit of each model.
2. An intern suggested that the company use activity-based costing to cost its products. A team was formed to investigate this idea. It came back with the recommendation that four activity cost pools be used. These cost pools and their associated activities are listed as follows:
Compute the activity rate for each of the activity cost pools.
3. Using activity-based costing, do the following:
a. Determine the total amount of overhead that would be assigned to each model for the year.
b. Compute the unit product cost for one unit of each model.
4. Can you identify a possible explanation for the company's declining profits? If so, what is it?
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Related Book For
Introduction to Managerial Accounting
ISBN: 978-0078025792
7th edition
Authors: Peter Brewer, Ray Garrison, Eric Noreen
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