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Part #433 Part # 582 Production 480,000 units 90,000 units Selling Price $ 32.45 $ 28.00 Overhead per unit* $ 13.96 $ 6.28 Prime cost
Part #433 Part # 582 Production 480,000 units 90,000 units Selling Price $ 32.45 $ 28.00 Overhead per unit* $ 13.96 $ 6.28 Prime cost per unit $ 8.62 $ 6.38 Number of production runs 105 runs 210 runs Receiving orders 600 orders 1,000 orders Machine hours 130,000 machine hours 70,000 machine hours Direct labor hours 240,000 direct labor hour 20,250 direct labor hours Engineering hours 5,000 engineering hours 5,000 engineering hours Material moves 500 moves 400 moves * Calculated using a plantwide rate based on direct labor hours. This is the current way of assigning the plant's overhead to its products. The consulting firm recommended switching the overhead assignment to an activity-based approach. It maintained that activity-based cost assignment is more accurate and will provide better information for decision making. To facilitate this recommendation, it grouped the plant's activities into homogeneous sets with the following costs: Overhead Setup costs Machine costs Receiving costs Engineering costs Materials-handling costs Total $ 275,000.00 $ 2,005,000.00 $2,035,000.00 $ 2,050,000.00 $ 900,000.00 $ 7,265,000.00 Overhead Assignment DLH per unit X Rate Part #433 Part # 582 Part #433 Part #582 Prime Cost + Overhead Gross Margin Selling price Less unit cost: Part #433 Part # 582 Unit gross margin 2. Activity Cost Activity Capacity Activity Rate Activity Setup Machine Receiving Engineering Materials handling Activity Driver Production runs Machine hours Receiving orders Engineering hours Material moves Activity Cost Activity Capacity_ Activity Rate Activity Setup Machine Receiving Engineering Materials handling Activity Driver Production runs Machine hours Receiving orders Engineering hours Material moves Part #433 Part #582 runs x runs x mh x mh x orders x orders x ABC Costing Overhead costs Setup: Part #433 Part #582 Machine: Part #433 Part #582 Receiving: Part #433 Part #582 Engineering: Part #433 Part #582 Materials handling: Part #433 Part #582 Total cost Divided by units produced Overhead cost per unit Prime cost per unit Unit cost eng. hrs. x eng. hrs. x min. x min. x Part #433 Part #582 Gross Margin Selling price Less:Unit cost Gross margin (loss)
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