Question
Rodent Corporation produces two types of computer mice, wired and wireless. The wired mice are designed as low-cost, reliable input devices. The company only recently
Rodent Corporation produces two types of computer mice, wired and wireless. The wired mice are designed as low-cost, reliable input devices. The company only recently began producing the higher-quality wireless model. Since the introduction of the new product, profits have been steadily declining. Management believes that the accounting system is not accurately allocating costs to products, particularly because sales of the new product have been increasing.
Management has asked you to investigate the cost allocation problem. You find that manufacturing overhead is currently assigned to products based on their direct labor costs. For your investigation, you have data from last year. Manufacturing overhead was $360,000 based on production of 140,000 wired mice and 50,000 wireless mice. Direct labor and direct materials costs were as follows:
Wired | Wireless | Total | |||||||
Direct labor | $ | 290,100 | $ | 109,900 | $ | 400,000 | |||
Materials | 187,500 | 171,000 | 358,500 |
Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows:
Activity Level | ||||||
Cost Driver | Costs Assigned | Wired | Wireless | Total | ||
Number of production runs | $ | 165,000 | 20 | 5 | 25 | |
Quality tests performed | 148,500 | 6 | 9 | 15 | ||
Shipping orders processed | 46,500 | 50 | 25 | 75 | ||
Total overhead | $ | 360,000 | ||||
Required: | |
(a) | How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? (Round "Total Cost Per Unit" to 2 decimal places.) |
Overhead Total Cost Per Unit
Wired $______________ $__________________
Wireless $______________ $__________________
(b) How much overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? (Round "Total Cost Per Unit" to 2 decimal places.)
Overhead Total Cost Per Unit
Wired $_____________ $________________
Wireless $_____________ $________________
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started