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Koontz Company manufactures two models of industrial components a Basic model and an Advanced model. The company considers all of its manufacturing overhead costs to
Koontz Company manufactures two models of industrial components
a Basic model and an Advanced model. The company considers all of its manufacturing overhead costs to be fixed and uses plantwide manufacturing overhead cost allocation based on direct labor
hours. Koontz
s controller prepared the segmented income statement shown below for the most recent year
he allocated selling and administrative expenses to products based on sales dollars
:
Basic Advanced Total
Number of units produced and sold
Sales $
$
$
Cost of goods sold
Gross margin
Selling and administrative expenses
Net operating income
loss
$
$
$
Direct laborers are paid $
per hour. Direct materials cost $
per unit for the Basic model and $
per unit for the Advanced model. Koontz is considering a change from plantwide overhead allocation to a departmental approach. The overhead costs in the company
s Molding Department would be allocated based on machine
hours and the overhead costs in its Assemble and Pack Department would be allocated based on direct labor
hours. To enable further analysis, the controller gathered the following information:
Molding Assemble and Pack Total
Manufacturing overhead costs $
$
$
Direct labor hours:
Basic
Advanced
Machine hours:
Basic
Advanced
Required:
Using the plantwide approach:
Calculate the plantwide overhead rate.
Calculate the amount of overhead assigned to each product.
Using a departmental approach:
Calculate the departmental overhead rates.
Calculate the total amount of overhead assigned to each product.
Using your departmental overhead cost allocations, redo the controller
s segmented income statement
continue to allocate selling and administrative expenses based on sales dollars
Koontz
s production manager suggested using activity
based costing instead of either the plantwide or departmental approaches. To facilitate the necessary calculations, she assigned the company
s total manufacturing overhead cost to five activity cost pools as follows:
Activity Cost Pool Activity Measure Manufacturing Overhead
Machining Machine
hours in Molding $
Assemble and pack Direct labor
hours in Assemble and Pack
Order processing Number of customer orders
Setups Setup hours
Other
unused capacity
$
She also determined the average order size for the Basic and Advanced models is
units and
units respectively. The molding machines require a setup for each order. One setup hour is required for each customer order of the Basic model and three hours are required to setup for an order of the Advanced model.
The company pays a sales commissions of
for the Basic model and
for the Advanced model. Its traceable fixed advertising costs include $
for the Basic model and $
for the Advanced model. The remainder of the company
s selling and administrative costs are organization
sustaining in nature.
Using the additional information provided by the production manager, calculate:
An activity rate for each activity cost pool.
The total manufacturing overhead cost allocated to the Basic model and the Advanced model using the activity
based approach.
The total selling and administrative cost traced to the Basic model and the Advanced model using the activity
based approach.
Using your activity
based cost assignments from requirement
prepare a contribution format segmented income statement adapted from Exhibit
Hint: Organize all of the company
s costs into three categories: variable expenses, traceable fixed expenses, and common fixed expenses.
Using your contribution format segmented income statement from requirement
calculate the break
even point in dollar sales for the Advanced model.Complete this question by entering your answers in the tabs below.
Using the plantwide approach, calculate the plantwide overhead rate.
Plantwide overhead rate
pefollows:
She also determined the average order size for the Basic and Advanced models is units and units, respectively. The
molding machines require a setup for each order. One setup hour is required for each customer order of the Basic model and three
hours are required to setup for an order of the Advanced model.
The company pays a sales commissions of for the Basic model and
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