Question
QuAppelle Industries Ltd. has been using a single manufacturing overhead cost pool to allocate its manufacturing overhead, with direct labour hours as the allocation base.
QuAppelle Industries Ltd. has been using a single manufacturing overhead cost pool to allocate its manufacturing overhead, with direct labour hours as the allocation base. For 2022, QuAppelle estimated its total manufacturing overhead would be $650,000, and 20,000 direct labour hours would be worked. QuAppelle has decided to adopt activity-based costing, and has identified three major activities.
The overhead costs for 2022 have been assigned to these activities as follows: Overhead Total expected Cost allocated volume of activity Transfers between processes $ 9,600 1,200 transfers Machine setups required $246,000 3,000 machine setups Machining $382,500 22,500 machine hours Total allocated to activity pools To determine the impact of the change to activity-based costing, Job 430 has been selected, and the following information gathered from the job card: Direct materials used $6,900 Direct labour cost per hour $28 Direct labour hours used 10 Number of transfers 4 Machine setups required 5 Machine hours used 60 Number of units produced 45 Required: 4 a) Compute the predetermined overhead rate under the existing costing system at QuAppelle, and then compute the total cost and cost per unit of Job 430. 8 b) Compute both the total cost and cost per unit for Job 430 using activity-based costing. 2 c) Note that the total manufacturing costs allocated to the three activity pools is less than the total manufacturing overhead costs incurred. Explain why some manufacturing overhead costs have not been allocated, and provide an example. 2 d) Explain why QuAppelle may choose to allocate non-manufacturing costs to Job 430. Provide an example of a cost that should be allocated as part of your explanation. 5. Lillitbet Enterprises Ltd. currently manufactures and sells large mailboxes that are used instead of delivering door-to-door in residential areas. Demand for these units, known as community mailboxes, is increasing as new subdivisions are added, and Canada Post negotiates to reduce the areas served by door-to-door delivery. At the present time, a standard size community mailbox sells for $4,000. The variable manufacturing cost per unit is currently $2,600 and variable selling costs total $74 per unit. Fixed manufacturing costs incurred by this product line total $150,000 per year, and fixed selling costs specific to this product amount to $25,000 per year. Required: 6.5 a) Calculate the breakeven point for the community mailboxes, in units sold and sales dollars. 3.5 b) How many units will need to be sold to generate a before-tax profit of $300,000? What is the total sales revenue that will be generated at this sales volume? 1 c) Lillibet pays income tax at 25%. If its target after-tax profit is $500,000, what is the before tax profit it must generate? 4 d) Lillibet is considering increasing the size of the community mailbox. A larger size is preferred by Canada Post. It expects to be able to double the size with an increase in the variable manufacturing cost per unit of $1,200. Lillibet expects to be able to increase the selling price to $7,800, with an increase to variable selling costs of $50 per unit. Neither fixed manufacturing nor fixed selling costs are not expected to change. What is the expected profit
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