Review the ABC analysis regarding the $4.2M of overhead costs and offer your recommendations as to how the cost data can be used to improve operating efficiencies. For the six activities, where and how might the company reduce costs? Be specific, and creative, in your response.
Grading based on thoroughness and thoughtfulness of responses and the quality of the writing (complete sentences; good structure and flow).
Make bullet points of facts or arguements. Use simple words that I can understand because I will be using this inofrmation to make my own paragraph.
Chapter 13 Cost Accounting and Reporting Systems 467 EXHIBIT 13-5 Product Costing llustration I. Calculation of predetermined overhead application rate: Cruisers, Inc, incurs overhead costs in proportion to the number of direct labor hours worked; therefore, the overhead application rate is based on direct labor hours. The estimated annual production level is 1,250 sailboats, and each sailboat should require 240 direct labor hours to complete Estimated total overhead cost to be incurred for the year: $4,200,000. Estimated total direct labor hours to be worked in the year: 300,000. Overhead applicaiontEstimated total Estimated total overhead cost direct labor hours -$4,200,0001300,000 hours $14/direct labor hour Il. Calculation of product cost: Assumptions: Cruisers, Inc, produced 86 SeaCruiser sailboats during April a total of 20,640 labor hours were worked, and the following costs were incurred Raw materials Direct labor $368510 The cost of each boat is determined by dividing the total manufacturing costs incurred by the number of boats produced Raw materials Overhead (20,640 direct labor hours X the overhead application rate of $14/hour) Total manufacturing cost incurred $987 Cost per boat ($987,710/86 boats) Chapter 13 Cost Accounting and Reporting Systems 467 EXHIBIT 13-5 Product Costing llustration I. Calculation of predetermined overhead application rate: Cruisers, Inc, incurs overhead costs in proportion to the number of direct labor hours worked; therefore, the overhead application rate is based on direct labor hours. The estimated annual production level is 1,250 sailboats, and each sailboat should require 240 direct labor hours to complete Estimated total overhead cost to be incurred for the year: $4,200,000. Estimated total direct labor hours to be worked in the year: 300,000. Overhead applicaiontEstimated total Estimated total overhead cost direct labor hours -$4,200,0001300,000 hours $14/direct labor hour Il. Calculation of product cost: Assumptions: Cruisers, Inc, produced 86 SeaCruiser sailboats during April a total of 20,640 labor hours were worked, and the following costs were incurred Raw materials Direct labor $368510 The cost of each boat is determined by dividing the total manufacturing costs incurred by the number of boats produced Raw materials Overhead (20,640 direct labor hours X the overhead application rate of $14/hour) Total manufacturing cost incurred $987 Cost per boat ($987,710/86 boats)
