Question
Stuck on this question! Please help. With the cooperation of the cost accounting manager for the mill and each plants controller, she gathered the following
Stuck on this question! Please help.
With the cooperation of the cost accounting manager for the mill and each plants controller, she gathered the following data for last year:
Sawmill:
Joint manufacturing costs: $900,000
Quantity Produced Price at Split-Off
Grade (Board Feet) (per 1,000 Board Ft.)
Firsts and seconds 1,500,000 $300
No. 1 common 3,000,000 225
No. 2 common 1,875,000 140
No. 3 common 1,125,000 100
Total 7,500,000
Fabric Plant:
Budgeted overhead: $1,200,000 (50% fixed)
Practical volume (direct labor hours): 120,000 hours
Actual overhead: $1,150,000 (50% fixed)
Actual hours worked:
Weaving and Pattern Coloring and Bolting Total
Fabric FB60 20,000 12,000 32,000
Fabric FB70 28,000 14,000 42,000
Fabric FB80 26,000 18,000 44,000
Total 74,000 44,000 118,000
Departmental data on Fabric FB70 (actual costs and actual outcomes):
Weaving and Pattern Coloring and Bolting
Beginning inventories:
Units* 20,000 400
Costs:
Transferred in $0 $100,000
Materials $80,000 $8,000
Labor $18,000 $6,600
Overhead $22,000 $9,000
Current production:
Units started 80,000 ?
Units transferred out 80,000 3,200
Costs:
Transferred in $0 ?
Materials $320,000 $82,000
Labor $208,000 $99,400
Overhead ? ?
Percentage completion:
Beginning inventory 30% 40%
Ending inventory 40% 50%
*Units are measured in yards for the Weaving and Pattern Department and in bolts for the Coloring and Bolting Department._Note: With the exception of the cardboard bolt rods, materials are added at the beginning of each process. The cost of the rods is relatively insignificant and is included in overhead.
Proposed standard cost sheet for Fabric FB70 (for the Coloring and Bolting Department only):
Transferred in materials (25 yards @ $10) $250.00
Other materials (100 ounces @ $0.20) 20.00
Labor (3.1 hours @ $8) 24.80
Fixed overhead (3.1 hours @ $5) 15.50
Variable overhead (3.1 hours @ $5) 15.50
Standard cost per unit $325.80
Furniture Plant:
Departmental data (budgeted):
Producing
Service Departments Departments
General
Receiving Power Maintenance Factory Cutting Assembly
Overhead $450,000 $600,000 $300,000 $525,000 $750,000 $375,000
Machine hours 60,000 15,000
Receiving orders 13,500 9,000
Square feet 1,000 5,000 4,000 15,000 10,000
Direct labor hours 50,000 200,000
After some discussion with the furniture plant controller, Debbie decided to use machine hours to calculate the overhead rate for the Cutting Department and direct labor hours for the Assembly Department rate (the Cutting Department was more automated than the Assembly Department). As part of her report, she wanted to compare the effects of plantwide rates and departmental rates on the cost of jobs. She wanted to know if overhead costing could be the source of the pricing problems the company was experiencing.
To assess the effect of the different overhead assignment procedures, Debbie decided to examine two prospective jobs. One job, Job A500, could produce 500 sofas, using a frequently requested style and fabric FB70. Bids on this type of job were being lost more frequently to competitors. The second job, Job B75, would produce 75 specially designed recliners. This job involved a new design and was more difficult for the workers to build. It involved some special cutting requirements and an unfamiliar assembly. Recently, the company seemed to be winning more bids on jobs of this type. To compute the costs of the two jobs, Debbie assembled the following information on the two jobs:
Job A500:
Direct materials:
Fabric FB70 180 bolts @ $350
Lumber (No. 1 common) 20,000 board feet @ $0.12
Other components $26,600
Direct labor:
Cutting Department 400 hours @ $10
Assembly Department 1,600 hours @ $8.75
Machine time:
Cutting Department 350 machine hours
Assembly Department 50 machine hours
Job B75:
Direct materials:
Fabric FB70 26 yards @ $350
Lumber (first and seconds) 2,200 board feet @ $0.12
Other components $3,236
Direct labor:
Cutting Department 70 hours @ $10
Assembly Department 240 hours @ $8.75
Machine time:
Cutting Department 90 machine hours
Assembly Department 15 machine hours
11. Suppose that the fabric plant is set up as a profit center. Bolts of fabric FB70 sell for $400 (or can be bought for $400 from outside suppliers). The fabric plant and the furniture plant both have excess capacity. Assume that job A500 is a special order. The fabric and furniture plants have sufficient excess capacity to satisfy the demands of job A500. What is the minimum transfer price for a bolt of FB70? If the maximum transfer price is $400, by how much do the fabric plants profits increase if the two profit centers negotiate a transfer price that splits the joint benefit?
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