Question
Case 4 Natha Corporation manufacturers two types of travel mugs: Simple, and Sophisticated. The company budgets to produce 20,000 units of the Simple mugs and
Case 4
Natha Corporation manufacturers two types of travel mugs: Simple, and Sophisticated. The company budgets to produce 20,000 units of the Simple mugs and 10,000 units of the Sophisticated mugs. Manufacturing takes place in two production departments: Machining and Assembly. The Simple mugs are produced in batches of 200 units; however, due to the more intricate detail included on the Sophisticated mugs, they are produced in batches of 50 units.
The companys Controller has asked you to compare the plantwide, departmental, and activity- based cost allocation methods. To assist in your analysis, the Controller has provided you with the budgeted cost information for the 2020 fiscal year.
Natha Budgeted Information for the Year Ended December 31, 2020 | |||
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Machining Department | Simple | Sophisticated | Total |
Direct materials cost | $90,000.00 | $52,500.00 | $142,500.00 |
Direct labour cost | 45,000.00 | 30,000.00 | 75,000.00 |
Overhead costs |
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| 120,000.00 |
Machine hours | 12,000 | 18,000 | 30,000 |
Direct labour hours | 4,000 | 1,000 | 5,000 |
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Assembly Department | Simple | Sophisticated | Total |
Direct materials cost | $7,500.00 | $15,000.00 | $22,500.00 |
Direct labour cost | 22,500.00 | 37,500.00 | 60,000.00 |
Overhead costs |
|
| 40,000.00 |
Machine hours | 6,000 | 4,000 | 10,000 |
Direct labour hours | 3,500 | 500 | 4,000 |
Required:
- Assume that management at Natha Corporation has decided to use departmental overhead rates.
- Calculate the departmental overhead rates, based on machine hours in the Machining department and direct labour hours in the Assembly department.
- Calculate the total manufacturing cost for each product line.
- Calculate the total manufacturing cost per unit for each product line.
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