IVC Electronics IVC Electronics is a manufacturer of electronic drones sold in hobby markets. The company makes two types. The Sports Model is a basic drone with a simple camera and a few high-end features. IVC sells this model in large quantities to discount stores, sporting goods stores, and other outlets that appeal to budget buyers. The Pro Model is a higher-end drone with a better camera and more sophisticated navigational capabilities. IVC sells this model primarily online and at some hobby stores. Production takes place in two buildings: Assembly and Packaging. The drone production process consists of receiving materials (plastic parts, rotors, cameras, etc.) in the assembly building, assembling droves by employees working in production groups, and then transferring drones to the Packaging building. Drones are produced in batches (batches of Sports or Pro), such that machines have to be recalibrated and tested before beginning production of another model. The Packaging Department tests the drones, packages the units for shipping, and ships the packages to customers (stores or individual buyers). IVC has two supporting departments: Administration and Technology Services. Direct Materials include a variety of items, such as fiberglass, electric motors, batteries, electronic controllers and chips (including GPS sensors), cameras, etc. Direct labor costs include wages paid to employees assigned to setting up production machinery, handling material during production runs, and packaging drones for shipping. IVS indirect costs includes both fixed and variable costs. Examples of fixed manufacturing costs include depreciation on machinery, rent of robotic equipment, depreciation on buildings, and salary of production supervisors; examples of variable manufacturing costs include electricity, indirect materials (such as screws and glue), cleaning supplies, and indirect labor (such as janitorial services). Most costs in supporting departments are fixed (salaries, depreciation on office equipment, rental of office equipment, etc). IVC uses a job costing system that assigns costs to batches: each batch is for a specific type of drone and the quantity produced per batch can vary from 20 to 80 units. In other words, a batch of drones is the cost object. Each batch is assigned indirect costs, which include both manufacturing fixed and variable costs, as well as service department costs related to manufacturing (but NOT period expenses, such as selling and administrative). IVC Electronics (Job-Costing) Currently, production costs are calculated on a per unit basis (ignoring "batches"). Below is budgeted data from the third quarter. Assume that there are no beginning or ending inventories for Work-in-Process. Budgeted Data for Third Quarter Units Produced & Sold Selling Price per unit Sport Model Pro Model 3,400 750 $2,000 $6,000 Estimated direct materials per unit $475.00 $1,800.00 Assembly Estimated fixed overhead cost $826,200 $388,800 Estimated variable overhead cost $275,400 $129,600 Estimated machine hours 21,600 Estimated labor costs $1,080,000 14,400 $270,000 Estimated labor cost per unit $317.647100 $360.000000 Packaging Estimated fixed overhead cost $455,625 Estimated variable overhead cost $151,875 Estimated machine hours Estimated labor costs 11,200 $945,000 $151,875 $50,625 2,800 $405,000 Estimated labor cost per unit $277.941200 $540.000000 Budgeted Machine Hours Assembly Packaging Sport Model 21,600 Pro Model 11,200 14,400 2,800 Budgeted Labor Hours Assembly Sport Model 27,000 Pro Model 6,750 Packaging 31,500 13,500 Compute the following and round to two decimal places. 1. Compute the predetermined rate (the budgeted rate) used to allocate overhead to units produced, based on total direct labor costs, assuming IVC uses a single rate (plant wide rate). 2. Compute the predetermined rate (the budgeted rate) used to allocate overhead to units produced assuming IVC uses departmental rates: (a) budgeted machine hours for Assembly and (b) budgeted labor costs for Packaging. Units Produced & Sold Selling Price per unit Third Quarter Cost Actual Performance Sport Model 3,200 Pro Model 700 $1,800 $5,500 Total 3,900 Machine Hours in Assembly 18,000 16,000 34,000 Direct Materials $1,344,000 $1,008,000 $2,352,000 Direct Labor - Assembly $800,000 $210,000 $1,010,000 Direct Labor - Packaging $1,280,000 $490,000 $1,770,000 Direct Labor - Total $2,080,000 $700,000 $2,780,000 Total direct costs $3,424,000 $1,708,000 $5,132,000 Overhead costs Assembly Packaging Total Overhead costs Total Costs Cost per unit Actual Machine Hours Assembly Packaging Actual Labor Hours Assembly Packaging Sport Model Pro Model 18,000 9,000 16,000 4,000 Sport Model 16,000 Pro Model 4,200 51,200 19,600 Compute the amount of overhead applied in Assembly and Packaging, using the single rate (plant-wide rate). 3. Enter total overhead costs allocated to the Sport Model. 4. Enter the cost per unit for the Sport Model. 5. Enter total overhead costs allocated to the Pro Model. 6. Enter the cost per unit for the Pro Model. 3 Actual Total Overhead Applied Total Overhead Over/Under Applied Analysis of Overhead Costs Assembly Packaging Total $1,150,000 $1,400,000 Complete the Analysis of Overhead Costs 7. Enter the amount of over-applied / under-applied overhead for Assembly. 8. Enter the amount of over-applied / under-applied overhead for Packaging. Enter favorable variance (over-applying overhead) as a positive number because it decreases reported costs and increases reported operating income. Enter unfavorable variance (under-applying overhead) as a negative number because it increases reported costs and decreases reported operating income. Units Produced & Sold Third Quarter Cost Actual Performance Sport Model 3,200 Pro Model 700 Total 3,900 Selling Price per unit Machine Hours in Assembly $1,800 $5,500 18,000 16,000 34,000 Direct Materials $1,344,000 $1,008,000 $2,352,000 Direct Labor-Assembly $800,000 $210,000 $1,010,000 Direct Labor Packaging $1,280,000 $490,000 $1,770,000 Direct Labor - Total $2,080,000 $700,000 $2,780,000 Total direct costs $3,424,000 $1,708,000 $5,132,000 Overhead costs Assembly Packaging Total Overhead costs Total Costs Cost per unit Actual Machine Hours Assembly Packaging Sport Model 18,000 9,000 Pro Model 16,000 4,000 Actual Labor Hours Assembly Packaging Sport Model Pro Model 16,000 4,200 51,200 19,600 Compute the amount of overhead applied in Assembly and Packaging, using separate department rates. 9. Enter total overhead costs allocated to the Sport Model. 10. Enter the cost per unit for the Sport Model. 11. Enter total overhead costs allocated to the Pro Model. 12. Enter the cost per unit for the Pro Model. Actual Total Overhead Applied Total Overhead Over/Under Applied Analysis of Overhead Costs Assembly Packaging Total $1,150,000 $1,400,000 Complete the Analysis of Overhead Costs 13. Enter the amount of over-applied / under-applied overhead for Assembly. 14. Enter the amount of over-applied / under-applied overhead for Packaging. Enter favorable variance (over-applying overhead) as a positive number because it decreases reported costs and increases reported operating income. Enter unfavorable variance (under-applying overhead) as a negative number because it increases reported costs and decreases reported operating income