Guess Klein produces designer clothing such as T-

shirts and jeans from fabric purchased from several nearby factories. The

company's factory has two departments, Cutting and Sewing. The Cutting

department, which cuts the garments from patterns, is a machine-intensive

operation. It takes three times longer to cut and sew jeans compared to T-

shirts. The Sewing department stitches the cut fabric, sews zippers and

buttons and does quality checking. While stitching is highly automated,

sewing zippers and buttons and performing quality checks is manual.

Direct materials are traced to individual products but direct labor is treated

as a single cost pool and averaged across all garments produced. Nearly 80%

of the labor hours in the Sewing department are for manual sewing of

zippers and buttons on jeans. T-shirts typically do not have zippers or

buttons.

The company uses a traditional department based overhead allocation

system. It assigns overhead to departments and charges them to products

using departmental rates. Cutting Department overhead is allocated using

machine hours and Sewing Department overhead is allocated using number

of garments produced. The indirect costs and the bases used for allocating

them to the departments are shown in the Table below. During the current

period, 50,000 jeans and 100,000 T-shirts were produced. A typical shipment

consists of 1,000 jeans and 2,000 T-shirts.

Table 1

Budgeted Cost Data for Guess Klein Garments

Directly Traced Costs:

Cutting

Sewing

Total

Direct Materials

160,000

40,000

200,000

Direct Labor

120,000

75,000

195,000

Indirect Labor

10,000

10,000

20,000

Equipment depreciated & supplies

20,000

60,000

80,000

Indirect Costs allocated:

Repairs & maintenance (Machine hours)

?

?

200,000

Employee support costs (Labor hours)

?

?

120,000

Occupancy costs (Square feet)

?

?

70,000

TOTAL COST

885,000

Overhead Bases:

Machine Hours

3,000

1,000

4,000

Labor Hours

2,000

4,000

6,000

Square Feet

3,000

2,000

5,000

Table 2

Budgeted Product Data for Guess Klein Garments

Product

Jeans

T-shirts

Total

Direct Materials

125,000

75,000

200,000

Direct Labor (Allocated on garments produced)

65,000

130,000

195,000

Machine Hours

3,000

1,000

4,000

Garments produced

50,000

100,000

150,000

Assume that the total Sewing Department budgeted overhead cost (both

direct and indirect) is $240,000. Assume also that 160,000 garments were

actually produced during the year and that actual Sewing Department

overhead was $249,000. During the year, overhead was:

Over applied by

$9,000

Over applied by

$7,000

Over applied by

$16,000

Under applied by

$7,000

QUESTION7

(Not a repeat question.) Robotics Inc. assembles solar cells in a highly

automated environment with a JIT inventory system. The manufacturing

plant occupies 50% of the total buildings and grounds. Robotics has a small

highly skilled and Fexible labor force that has a lifetime employment

guarantees. actory supplies are used in the production of solar cells. About

25% of the plant's utility costs represent connection charges; the rest vary

with production. External vendors provide all of the materials and supplies.

Sales force is paid entirely on commissions. Advertising spending is set by

contract at the beginning of the year. At full capacity, the plant is capable of

producing 100,000 units per year. Last year Robotics manufactured and sold

94,000 units for the costs listed below.

Cost Item

Amount

Direct Materials & Parts

$300,000

Direct Labor

350,000

Production Supervisory Salaries

100,000

actory Supplies

200,000

Plant Utilities

60,000

Sales Commissions

350,000

Building/Grounds Maintenance

40,000

Advertising

100,000

Administrative Salaries

400,000

Total

$190,000

The total variable costs last year were:

$690,0

00

$910,0

00

$895,0

00

$850,0

00

QUESTION8

(Not a repeat question.) Robotics Inc. assembles solar cells in a highly

automated environment with a JIT inventory system. The manufacturing

plant occupies 50% of the total buildings and grounds. Robotics has a small

highly skilled and Fexible labor force that has a lifetime employment

guarantees. actory supplies are used in the production of solar cells. About

25% of the plant's utility costs represent connection charges; the rest vary

with production. External vendors provide all of the materials and supplies.

Sales force is paid entirely on commissions. Advertising spending is set by

contract at the beginning of the year. At full capacity, the plant is capable of

producing 100,000 units per year. Last year Robotics manufactured and sold

94,000 units for the costs listed below.

Cost Item

Amount

Direct Materials & Parts

$300,000

Direct Labor

350,000

Production Supervisory Salaries

100,000

actory Supplies

200,000

Plant Utilities

60,000

Sales Commissions

350,000

Building/Grounds Maintenance

40,000

Advertising

100,000

Administrative Salaries

400,000

Total

$190,000

Assume that the full cost per unit was as follows:

Variable costs

$10.00

ixed costs

11.00

Total cost per unit

$21.00

What is the average full cost per unit if next year the production falls to

86,000 units and there is no change in the unit prices of all cost inputs used

by Robotics?

$22.

02

$21.

00

$20.

21

$22.

95