Question
Flyer Corporation manufactures two products, Product A and Product B. Product B is of fairly recent origin, having been developed as an attempt to enter
Flyer Corporation manufactures two products, Product A and Product B. Product B is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product A. Product B is the more complex of the two products, requiring three hours of direct labour time per unit to manufacture, compared to one and one-half hours of direct labour time for Product A. Product B is produced on an automated production line.
Overhead is currently assigned to the products on the basis of direct labour hours. The company estimated it would incur $396,000 in manufacturing overhead costs and produce 5,500 units of Product B and 22,000 units of Product A during the current year. Unit costs for materials and direct labour are:
Product A
Product B
Direct Material
$9
$20
Direct Labour
$7
$15
IMPLEMENTING ABC COSTING: The company has decided to implement an ABC system It's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below:
Expected Activity
Activity Cost Pool
Estimated Overhead Cost
Product A
Product B
Total
Machine setups required
$170,000
700
1,000
1,700
Purchase orders issued
37,000
300
200
500
Machine hours required
91,000
4,000
9,00
13,000
Maintenance requests issued
98,000
400
600
1,000
Total
$396,000
a)Using the data above and an activity-based costing approach, compute the activity rate ($ per activity not percentages!) for each activity cost pool. Round to 2 decimal places (4 marks)
ABC PART II continued
b)Compute the total amount of overhead that would be applied to PRODUCT B Round to nearest dollar (5 marks)
c)Determine the total UNIT product cost of each product for the current year. Round to 2 decimal places (6 marks)
Product B
Product H
DM
DL
MOH
Total unit cost
Flyer Corporation manufactures two products, Product A and Product B. Product B is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product A. Product B is the more complex of the two products, requiring three hours of direct labour time per unit to manufacture, compared to one and one-half hours of direct labour time for Product A. Product B is produced on an automated production line.
Overhead is currently assigned to the products on the basis of direct labour hours. The company estimated it would incur $396,000 in manufacturing overhead costs and produce 5,500 units of Product B and 22,000 units of Product A during the current year. Unit costs for materials and direct labour are:
Product A
Product B
Direct Material
$9
$20
Direct Labour
$7
$15
IMPLEMENTING ABC COSTING: The company has decided to implement an ABC system It's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below:
Expected Activity
Activity Cost Pool
Estimated Overhead Cost
Product A
Product B
Total
Machine setups required
$170,000
700
1,000
1,700
Purchase orders issued
37,000
300
200
500
Machine hours required
91,000
4,000
9,00
13,000
Maintenance requests issued
98,000
400
600
1,000
Total
$396,000
a)Using the data above and an activity-based costing approach, compute the activity rate ($ per activity not percentages!) for each activity cost pool. Round to 2 decimal places (4 marks)
ABC PART II continued
b)Compute the total amount of overhead that would be applied to PRODUCT B Round to nearest dollar (5 marks)
c)Determine the total UNIT product cost of each product for the current year. Round to 2 decimal places (6 marks)
Product B
Product H
DM
DL
MOH
Total unit cost
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Financial Accounting
Authors: Robert Kemp, Jeffrey Waybright
5th edition
134727797, 9780134728643 , 978-0134727790
