Koontz Company manufactures two models of industrial componentsa Basic model and an Advanced Model. The company considers all of its manufacturing overhead costs to be fixed and it uses plantwide manufacturing overhead cost allocation based on direct labor-hours. Koontzs controller prepared the segmented income statement that is 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		20,000			10,000		30,000
Sales	$	3,000,000		$	2,000,000	$	5,000,000
Cost of goods sold		2,300,000			1,350,000		3,650,000
Gross margin		700,000			650,000		1,350,000
Selling and administrative expenses		720,000			480,000		1,200,000
Net operating income (loss)	$	(20,000	)	$	170,000	$	150,000

Direct laborers are paid $20 per hour. Direct materials cost $40 per unit for the Basic model and $60 per unit for the Advanced model. Koontz is considering a change from plantwide overhead allocation to a departmental approach. The overhead costs in the companys Molding Department would be allocated based on machine-hours and the overhead costs in its Assembly 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	$	787,500		$	562,500	$	1,350,000
Direct labor hours:
Basic		10,000			20,000		30,000
Advanced		5,000			10,000		15,000
Machine hours:
Basic		12,000			-		12,000
Advanced		10,000			-		10,000

Required:

1. Using the plantwide approach:

a. Calculate the plantwide overhead rate.

b. Calculate the amount of overhead that would be assigned to each product.

2. Using a departmental approach:

a. Calculate the departmental overhead rates.

b. Calculate the total amount of overhead that would be assigned to each product.

c. Using your departmental overhead cost allocations, redo the controllers segmented income statement (continue to allocate selling and administrative expenses based on sales dollars).

3. Koontzs production manager has suggested using activity-based costing instead of either the plantwide or departmental approaches. To facilitate the necessary calculations, she assigned the companys total manufacturing overhead cost to five activity cost pools as follows:

Activity Cost Pool	Activity Measure	Manufacturing Overhead
Machining	Machine-hours in Molding	$	417,500
Assemble and pack	Direct labor hours in Assemble and Pack		282,500
Order processing	Number of customer orders		230,000
Setups	Setup hours		340,000
Other (unused capacity)			80,000
		$	1,350,000

She also determined that the average order size for the Basic and Advanced models is 400 units and 50 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 5% for the Basic model and 10% for the Advanced model. Its traceable fixed advertising costs include $150,000 for the Basic model and $200,000 for the Advanced model. The remainder of the companys selling and administrative costs are organization-sustaining in nature.

Using the additional information provided by the production manager, calculate:

a. An activity rate for each activity cost pool.

b. The total manufacturing overhead cost allocated to the Basic model and the Advanced model using the activity-based approach.

c. The total selling and administrative cost traced to the Basic model and the Advanced model using the activity-based approach.

4. Using your activity-based cost assignments from requirement 3, prepare a contribution format segmented income statement that is adapted from Exhibit 7-8. (Hint: Organize all of the companys costs into three categories: variable expenses, traceable fixed expenses, and common fixed expenses.)

5. Using your contribution format segmented income statement from requirement 4, calculate the break-even point in dollar sales for the Advanced model.

Req 1A Reg 1B Reg 2A Reg 2B Req 2c Req 3A Reg 3B Req 30 Reg 4 Reg 5 Calculate the plantwide overhead rate. Plantwide overhead rate $ 30 per DLH Req 1A Req 1B > Req 1A Reg 1B Req 2A Reg 2B Reg 20 Req 3A Req 3B Req 3C Req 4 Reg 5 Calculate the amount of overhead that would be assigned to each product. Basic Advanced Amount of overhead $ 900,000 $ 450,000 Reg 1A Reg 1B Req 2A Req 2B Req 2c Req Req 3B Req 3C Req 4 Req 5 Calculate the departmental overhead rates. (Round your answers to 2 decimal places.) Molding Department 35.80 per MH Assemble and Pack Department $ 18.75 per DLH Manufacturing overhead rate $ Req 1A Reg 1B Reg 2A Req 2B Reg 20 Req 3A Reg 3B Req 3C Req 4 Reg 5 Calculate the total amount of overhead that would be assigned to each product. (Round your intermediate calculations to 2 decimal places.) Basic $ Molding Department Assemble and Pack Department Total manufacturing overhead assigned 429,546 375,000 804,546 Advanced $ 357,955 187,500 $ 545,455 $ Req 1A Reg 1B Req 2A Reg 2B Reg 20 Req Req 3B Req 30 Req 4 Reg 5 Using your departmental overhead cost allocations, redo the controller's segmented income statement (continue to allocate selling and administrative expenses based on sales dollars). (Round your intermediate calculations to 2 decimal places.) Basic Advanced Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income $ 3,000,000 $ 2,000,000 2,204,600 1,445,500 795,455 554,546 720,000 480,000 $ 75,400 $ 74,500 Req 1A Req 1B Reg 2A Req 2B Req 20 Req Req 3B Req 30 Reg 4 Req 5 Calculate an activity rate for each activity cost pool. (Round your answers to 2 decimal places.) $ Activity Cost Pool Machining Assemble and pack Order processing Setups Activity Rate 18.98 per MH 9.42 per DLH $ $ 920.00 per order 523.08 per hour $ Calculate the total manufacturing overhead cost allocated to the Basic model and the Advanced model using the activity- based approach. (Round your intermediate calculations to 2 decimal places.) Basic Advanced $ $ 227,760 188,400 Machining Assemble and pack Order processing Setups Total overhead cost assigned 46,000 26,154 488,314 $ 189,800 94,200 184,000 313,848 781,848 $ Req 1A Reg 1B Req 2A Reg 2B Req 2c Req Reg 3B Reg 3C Req 4 Req 5 Calculate the total selling and administrative cost traced to the Basic model and the Advanced model using the activity-based approach. Basic Advanced Total traceable selling and administrative cost $ 300,000 $ 400,000 Koontz Company Income statement Total Basic Advanced Variable expenses: Total variable expenses 0 0 0 0 Traceable fixed expenses: Total traceable fixed expenses 0 0 $ 0 $ 0 Segment margin Common fixed expenses: Total common fixed expenses 0 $ 0 Using your contribution format segmented income statement from requirement 4, calculate the break-even point in dollar sales for the Advanced model. (Round your intermediate calculations to 2 decimal places. Round your final answer to the nearest whole dollar.) Break-even point in dollar sales