Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Cost Concepts and ABC Instructions: Use the tabs above to navigate back and forth between steps. Objective : Understand how ABC can be used to

Cost Concepts and ABC

Instructions: Use the tabs above to navigate back and forth between steps.

Objective: Understand how ABC can be used to support differing product cost assignments and definitions.

- Click here to refer to the question information.

Introduction:

CableTech Bell Corporation (CTB) operates in the telecommunications industry. CTB has two divisions: the Phone Division and the Cable Service Division. The Phone Division manufactures telephones in two plants located in the Midwest: (1) a conventional phone plant and (2) cellular phone plant. The product lines run from relatively inexpensive touch-tone wall and desk phones to expensive, high quality cellular phones. CTB also operates a cable TV service in Ohio. The Cable Service Division offers three products: a basic package with 25 channels; an enhanced package which is the basic package plus 15 additional channels and two movie channels; and a premium package which is the basic package plus 25 additional channels and three movie channels.

The Cable Service Division reported the following sale and unit cost activity for the month of March:

CableTech Bell Corporation Cable Service Division For the Month Ended March, 20XX
Basic Enhanced Premium
Sales (units) 50,000 500,000 300,000
Price per unit $16 $30 $40
Unit costs:
Directly traced $3 $5 $7
Driver traced $2 $4 $6
Allocated $10 $13 $15

The unit costs are divided as follows: 70 percent production and 30 percent marketing and customer service. Direct labor cost is the only cost driver used for tracing. Typically, the Cable Service Division uses only production costs to define unit costs. The preceding unit product cost information was provided at the request of the marketing manager, Dan Moniker, and was the result of a special study.

Bryce Youngers, the President of CTB, is reasonably satisfied with the March performance of the Cable Service Division. The March numbers were fairly typical of what has been happening over the past two years. The Phone Division, however, is another matter as its overall profit performance has been declining. Two years ago the Phone Division's income before income taxes was about 15 percent of sales. March's dismal performance was typical of the entire calendar year. This performance trend is expected to continue unless management takes actions to reverse it. During March, the Phone Division reported the following results:

CableTech Bell Corporation Phone Division For the Month of March, 20XX
Inventories:
Materials, March 1 $23,000
Materials, March 31 40,000
Work in process, March 1 130,000
Work in process, March 31 45,000
Finished goods, March 1 480,000
Finished goods, March 31 375,000
Costs:
Direct labor $117,000
Plant and equipment depreciation 50,000
Material handling 85,000
Inspections 60,000
Scheduling 30,000
Power 30,000
Plant supervision 12,000
Manufacturing engineering 21,000
Sales commissions 120,000
Salary, sales supervisor 10,000
Supplies 17,000
Warranty work 40,000
Rework 30,000

During March, the Phone Division purchased materials totaling $312,000. There are no significant inventories of supplies (beginning or ending). Supplies are accounted for separately from materials. CTB's Phone Division had sales totaling $1,170,000 for the month of March.

After receiving the internal memo, Kim asked Jacob to use the same plant as a pilot for a preliminary ABC analysis. She instructed him to assign all overhead costs to the plant's two products (Regular and Deluxe phone-models), using only four activities. The four activities were:(1) rework, (2) moving materials, (3) inspecting products, and (4) a general catch-all manufacturing activity labeled "other activities". Based on the special study, Kim knew that material handling and inspecting involved significant cost. In addition, based on data from production reports, the rework activity involved significant cost. If the ABC and unit-based cost assignments did not differ by breaking out these three major activities, then ABC may not matter (currently direct labor cost is used to assign overhead to products).

Pursuant to Kim's request, Jacob produced the following cost and driver information:

Activity Expected Cost Driver Activity Capacity
Reworking $152,000 Rework hours 1,520
Moving Materials 360,000 Number of moves 7,200
Inspecting 288,000 Inspection hours 9,600
Other Activities $800,000 Direct labor dollars $500,000
Total Overhead Cost $1,600,000

Expected activity demands:

Regular Model Deluxe Model
Units completed 40,000 16,000
Direct materials $200,000 $160,000
Direct labor dollars $350,000 $150,000
Number of moves 2,880 4,320
Inspection hours 2,400 7,200
Rework hours 760 760

Required:

1. Calculate the overhead cost per unit for each phone model using direct labor cost to assign all overhead costs to products (round overhead rate to nearest cent).
Regular Model: $ per unit
Deluxe Model: $ per unit
2. Calculate the overhead cost per unit for each phone model using the four activities and drivers identified by Kim (round activity rates and final answers to the nearest cent, use the rounded answers in subsequent requirements, if required.)
Regular Model: $ per unit
Deluxe Model: $ per unit
3. Calculate the conversion cost per unit using activity-based assignments (round activity rates and final answers to the nearest cent, use the rounded answers in subsequent requirements, if required):
Regular Model: $ per unit
Deluxe Model: $ per unit
4. Calculate the prime cost per unit (round prime cost to the nearest cent):
Regular Model: $ per unit
Deluxe Model: $ per unit
5. Calculate the unit manufacturing cost using direct labor dollars to assign overhead (round overhead rate to the nearest cent):
Regular Model: $ per unit
Deluxe Model: $ per unit
6. Calculate the unit manufacturing cost using activity-based assignments (round intermediate and final answers to the nearest cent):
Regular Model (round to the nearest cent): $ per unit
Deluxe Model (round to the nearest cent): $ per unit
Summary Questions:
1. Using the ABC assignments as the benchmark, the unit manufacturing cost for the Regular model is currently - Select your answer -understatedoverstatedItem 13 by $ .
2. If the unit product cost of the Regular model is - Select your answer -understatedoverstatedItem 15 then the selling price could be - Select your answer -increaseddecreasedItem 16 making the company - Select your answer -morelessItem 17 competitive.
3. If Kim wants to know the unit operating product cost, then the costs of the additional activitiesmust also be assigned to the products (Select "Yes" if the activity should be assigned to the products, else please select "No" from the below dropdowns.)
Scheduling - Select your answer -YesNoItem 18
Power - Select your answer -YesNoItem 19
Engineering - Select your answer -YesNoItem 20
Warranty - Select your answer -YesNoItem 21
Sales commissions - Select your answer -YesNoItem 22
Sales supervision - Select your answer -YesNoItem 23
Plant supervision - Select your answer -YesNoItem 24

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Cost Accounting A Managerial Emphasis

Authors: Charles T. Horngren, Srikant M.Dater, George Foster, Madhav

13th Edition

8120335643, 136126634, 978-0136126638

More Books

Students also viewed these Accounting questions

Question

Define what an actor is in a use case diagram.

Answered: 1 week ago

Question

What do you think accounts for the fact that turnover is low?

Answered: 1 week ago