Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Product Costing: Plantwide Overhead versus Activity-Based Costing Sterling Industries produces machine parts as a contract provider for a large manufacturing company. Sterling produces two particular

Product Costing: Plantwide Overhead versus Activity-Based Costing Sterling Industries produces machine parts as a contract provider for a large manufacturing company. Sterling produces two particular parts, shafts and gears. The competition is keen among contract producers, and Sterling's top management realizes how vulnerable its market is to cost-cutting competitors. Hence, having a very accurate understanding of costs is important to Sterling's survival. Sterling's president, Sheila Hudson, has observed that the company's current cost to produce shafts is $46.70, and the current cost to produce gears is $28.60. She indicated to the controller that she suspects some problems with the cost system because Sterling is suddenly experiencing extraordinary competition on shafts, but it seems to have a virtual corner on the gears market. She is even considering dropping the shaft line and converting the company to a one-product manufacturer of gears. She asked the controller, George Coleman, to conduct a thorough cost study and to consider whether changes in the cost system are necessary. The controller collected the following data about the company's costs and various manufacturing activities for the most recent month:

Shafts Gears
Production units 50,000 18,000
Selling price $69.90 $51.00
Overhead per unit (based on direct labor hours) $25.00 $12.50
Materials and direct labor cost per unit $21.70 $16.10
Number of production runs 20 30
Number of purchasing and receiving orders processed 50 98
Number of machine hours 43,000 6,500
Number of direct labor hours 25,000 4,500
Number of engineering hours 2,500 2,500
Number of material moves 62 33

The controller was able to summarize the company's total manufacturing overhead into the following pools:

Setup costs $80,000
Machine costs 396,000
Purchasing and receiving costs 436,600
Engineering costs 418,000
Materials handling costs 144,400
Total $1,475,000

Required a. Calculate Sterling's current plantwide overhead rate based on direct labor hours. $Answer per direct labor hour b. Verify Sterling's calculation of overhead cost per unit of $25.00 for shafts and $12.50 for gears. Shafts: $Answer / Answer units = $25.00 per unit Gears: $Answer / Answer units = $12.50 per unit c. Calculate the manufacturing overhead cost in total and per unit for shafts and gears using activity-based costing, assuming each of the five cost pools represents a separate activity pool. Use the most appropriate activity driver for assigning activity costs to the two products. Note: Round your answers to two decimal places.

Shafts Gears
Costs in total Answer Answer
Costs per unit Answer Answer

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting Plus

Authors: Robert Libby, Patricia Libby, Daniel Short

8th Edition

1259116832, 9781259116834

More Books

Students also viewed these Accounting questions

Question

What are the causes of Children and youth homelessness?

Answered: 1 week ago

Question

Speak clearly and distinctly with moderate energy

Answered: 1 week ago

Question

Get married, do not wait for me

Answered: 1 week ago

Question

Do not pay him, wait until I come

Answered: 1 week ago