Question
Custom Luxury Yatchs (CLY) makes three different styles of personal yachts: Baja; Saria; and Terra. Given that each yacht is significantly different from the others,
Custom Luxury Yatchs (CLY) makes three different styles of personal yachts: Baja; Saria; and Terra. Given that each yacht is significantly different from the others, the company utilizes a job-order costing system to allocate costs to different jobs. CLYs CEO, Sarah, decided that given the process for making the customized yachts was fairly labour intensive, that they would use direct labour hours as the basis for overhead allocation. In December, 2017, Jessica, the controller, estimated the following amounts for the year 2018:
Direct material | $22,265,000 | |
Direct Labour | $198,000,000 | |
Overhead | $110,000,000 | |
Construction Labour Hours (DL) | 625,000 |
Jessica recorded the following actual direct material and direct labour hours for the only three yachts started and completed during the last quarter of 2016:
Baja | Saria | Terra | |
Direct Material | $12,500,000 | $8,500,000 | $15,000,000 |
Construction Labour Hours | 62,000 | 50,000 | 68,000 |
Required
- Compute the cost of each job using the current system of cost allocation (around to the nearest full dollar).
Answer:
Baja | Saria | Terra | |
Direct Material | $ 12,500,000.00 | $ 8,500,000.00 | $ 15,000,000.00 |
Direct Labor | $ 19,641,600.00 | $ 15,840,000.00 | $ 21,542,400.00 |
Overheads | $ 10,912,000.00 | $ 8,800,000.00 | $ 11,968,000.00 |
Total | $43,053,600.00 | $33,140,000.00 | $48,510,400.00 |
Working note:
Baja | Saria | Terra | |
Direct Material | 12500000 | 8500000 | 15000000 |
Direct Labor | =198000000/625000*62000 | =198000000/625000*50000 | =198000000/625000*68000 |
Overheads | =110000000/625000*62000 | =110000000/625000*50000 | =110000000/625000*68000 |
2. Custom Luxury Yachts Controller, Jessica, recently heard about using an activity-based costing (ABC) system, thus suggested the company use ABC to determine the costs of the three yachts. Jessica was able to break-down the estimated 2018 overhead costs as follows:
Activity | Amount | Activity Measure | Total Activity Level |
Planning & Design | $12,000,000 | Computer Hours | 450,000 Computer Hours |
Fabricating | $32,000,000 | Machine Hours | 505,000 machine hours |
Moulding | $21,000,000 | Construction Labour Hours | 625,000 construction labour hours |
Assembly | $42,000,000 | Set-Ups | 1,540 Set Ups |
Testing | $3,000,000 | Number of tests | 625 tests |
Jessica also documented the following consumption of activity by each of the three jobs/yachts (note these are in addition to the construction labour hours consumed by the three jobs.
| Baja | Saria | Terra |
Planning & Design Hours | 55,000 | 42,000 | 62,000 |
Fabricating Machine Hours | 51,000 | 35,000 | 64,000 |
Assembly Set-Ups | 280 | 220 | 450 |
Tests | 85 | 65 | 92 |
Compute the following
- The activity rates for each of the activities (round to two decimal places)
- Total cost of each job (yachts) using activitybased costing (around to the nearest full dollar amount).
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