Investigate Managerial Accounting, Determine Manufacturing Overhead Costs Sporting Goods DivisionManufacturing Overhead Analysis Evan Exert has approached you with the following activity-based costing information and corresponding questions. Read through the information and then respond to the questions below. Acme Sporting Goods Division Budgeted Costs and Activities For the Year Ended December 31, 2015 Direct materialsBasketballs $168,100 Direct materialsHockey Sticks 303,280 Direct materialsBaseball Gloves 505,280 TOTAL $976,660 Direct manufacturing laborBasketballs $111,800 Direct manufacturing laborHockey Sticks 100,820 Direct manufacturing laborBaseball Gloves 150,820 TOTAL $363,440 Other Indirect Fixed Costs Setup $ 257,500 Equipment and maintenance costs 215,200 Factory rent 310,000 Total $ 782,700 Additional Budget Information Copyright 2016 College for America at Southern New Hampshire University. All rights reserved. Investigate Managerial Accounting, Determine Manufacturing Overhead Costs Sporting Goods DivisionManufacturing Overhead Analysis Product quantity Basketballs 58,000 Hockey Sticks 85,000 Baseball Gloves 100,000 Number of batches (cost driver) Basketballs 450 Hockey Sticks 300 Baseball Gloves 600 Machine hours (cost driver) Basketballs 13,500 Hockey Sticks 10,500 Baseball Gloves 15,000 Square footage of production space used (cost driver) Basketballs 3,200 Hockey Sticks 5,000 Baseball Gloves 7,800 Factors to consider: Number of batches is the cost driver for setup costs. Number of machine hours is the cost driver for equipment and maintenance costs. Factory rent is paid per square foot. Total available factory square footage is 20,000 and Acme's Sporting Goods Division is currently using only 80% of this capacity. Acme records the cost of unused capacity as a separate line item and not as a product cost. ------------------------------------------------------------------------------------------------------------------------------Answer the following questions for Evan. Be sure to show your work as well as your answers in the boxes below (the boxes will expand as your enter your work). Where necessary, round your answers to three places after the decimal point. 1. Calculate the budgeted setup cost per unit: Total setup cost/total of cost driver X number of batchers of basketball. Budgeted setup cost per unit (Basketballs): 257500/1350*450 8583.33/58000=1.48 Budgeted setup cost per unit (Hockey Sticks): 257500/1350*300 $57222.22/85000=0.673 Budgeted setup cost per unit (Baseball Gloves): 257500/1350*600 $114444.44/100000=1.144 Copyright 2016 College for America at Southern New Hampshire University. All rights reserved. Investigate Managerial Accounting, Determine Manufacturing Overhead Costs Sporting Goods DivisionManufacturing Overhead Analysis 2. Calculate the budgeted equipment and maintenance cost per unit: Total Equipment Cost / Total of cost drivers X Machine hours of respective cost driver This gives total cost of equipment for respective item Then divide it by total number of quantity (Customer)Budgeted equipment and maintenance cost per unit (Basketballs): 215200/39000*13500=75792/58000=1.28 Budgeted equipment and maintenance cost per unit (Hockey Sticks): 215200/39000*10500=57938.46/85000=0.682 Budgeted equipment and maintenance cost per unit (Baseball Gloves): 215200/39000*15000=82769.23/100000 = 0.827 3. Calculate the budgeted production space cost per unit: Acme records the cost of unused capacity as a separate line item and not as a product cost. Total rent X 80% Rent 20% will be cost of unused square footage capacity 310000 X 80% = 248000 Budgeted production space cost per unit (Basketballs): 248000/16000*3200 = 49600 / 58000 Per unit cost = Total factory rent allocated / Quantity of basketballs 0.855 Budgeted production space cost per unit (Hockey Sticks): 85000= 0.911 248000/16000*5000 = 77500 / Per unit cost = Total factory rent allocated / Quantity of hockey sticks 0.911 Budgeted production space cost per unit (Baseball Gloves): 248000/16000*7800 = 120900 / 100,000 = 1.209 Per unit cost = Total factory rent allocated / Quantity of baseball gloves = 1.209 4. What is the budgeted cost of unused square footage capacity? Copyright 2016 College for America at Southern New Hampshire University. All rights reserved. Investigate Managerial Accounting, Determine Manufacturing Overhead Costs Sporting Goods DivisionManufacturing Overhead Analysis The budgeted cost of unused footage capacity is 310,000-(248,000) 80% = 62,000 5. What is the budgeted total cost and the cost per unit of resources used to produce Basketballs, Hockey Sticks and Baseball Gloves? Complete the following table to show your answers: Direct materials Basketballs Hockey Sticks Baseball Gloves $168,100 303,280 505,280 $976,660 100,820 150,820 $363,440 Direct manufacturing Labor Totals Total direct costs $279,900 $404100 $ 656100 $1340100 Setup $85833.33 $57222.22 $114444.44 $ 257,500 Equip. & maint. $74492.31 $ 57938.46 $ 82769.23 215,200 Factory rent $ 62000 $ 96875 $ 151125 310,000 Total indirect costs $ 222325.64 $ 212035.68 $ 348338.67 $ 782,700 Total costs $ 502225.64 $ 616135.68 $ 1004438.67 $ 2122800 Units 58000 100,000 243000 Total cost/unit $ 8.66 $ 10.04 $ 8.74 85,000 $ 7.25 6. Why might excess square footage capacity be beneficial for Acme's Sporting Goods Division? Copyright 2016 College for America at Southern New Hampshire University. All rights reserved. Investigate Managerial Accounting, Determine Manufacturing Overhead Costs Sporting Goods DivisionManufacturing Overhead Analysis It might be used for increasing production capacity when need arises. More output if business demands increase. 7. A salesman from the Sewn Up Supply Company has proposed that Acme buy its new, more pliable leather stitching for use in manufacturing baseball gloves. This new material will reduce the time required for manually stitching the gloves from one hour to forty minutes per glove, which Evan estimates will decrease the budgeted direct manufacturing labor cost for baseball gloves to $130,000; increase the direct materials cost for baseball gloves to $525,000; and increase equipment & maintenance costs by $11,800 because the new stitching requires a special type of electronic needle that would be leased from and maintained by the Sewn Up Supply Company. All other things being equal, do you recommend that Acme decide to use this new stitching? Why or why not? Complete the following table and then write your response in the box provided. Total Costs Before New Stitching Total Costs After New Stitching Better/(Worse)? (and by how much?) Direct materials Direct materials $505280 Direct mfg. labor Direct mfg. labor $150820 $130000 Total direct costs Total direct costs $656100 $655000 Setup $114444.44 $114444.44 Equip. & maint. $ 82769.23 $94569.23 Factory rent $ 151125 $ 151125 Total indirect costs $ 348338.67 $360138.67 Total costs $ 1004438.67 $1015138.67 Setup Equip. & maint. Factory rent Total indirect costs Total costs $525,000 Written Response: I do not recommend that the new stitching is used because it ends up in Copyright 2016 College for America at Southern New Hampshire University. All rights reserved. Investigate Managerial Accounting, Determine Manufacturing Overhead Costs Sporting Goods DivisionManufacturing Overhead Analysis an increase in manufacturing costs which will translate to a lower profits. 8. Acme is considering sending its supervisors and staff to a regional seminar series that shares industry best practices about manufacturing process innovations. The cost of participation (an indirect fixed cost that Acme would allocate equally among its three product lines) is $30,000 but a colleague of one of the Acme executives told him that he had attended the same seminar series and learned about efficiencies that enabled him to increase his company's production (i.e. number of units produced) by 5% without incurring any additional direct costs. If Acme experienced the same 5% increase in product quantity, what would be its new budgeted total cost and cost per unit of resources used to produce: a. Basketballs b. Hockey Sticks c. Baseball Gloves Do you recommend that Acme decide to pay to send its supervisors and staff to this seminar? Why or why not? Complete the below tables and write your response in the box provided. Before the seminar: Basketballs Hockey Sticks Baseball Gloves Direct materials Direct mfg. labor Total direct costs Setup Equip. & maint. Space rental Total indirect costs Total costs Units Copyright 2016 College for America at Southern New Hampshire University. All rights reserved. Total Investigate Managerial Accounting, Determine Manufacturing Overhead Costs Sporting Goods DivisionManufacturing Overhead Analysis Total cost/unit After the seminar: Basketballs Hockey Sticks Baseball Gloves Direct materials Direct mfg. labor Total direct costs Setup Equip. & maint. Space rental Seminar Total indirect costs Total costs Units Total cost/unit Written Response: Copyright 2016 College for America at Southern New Hampshire University. All rights reserved. Total