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Mid-term (Chapters 3-4) 1. During the month of April, direct labor cost totaled $15,000 and direct labor cost was 30% of prime cost. If total manufacturing costs during April were $79,000, the manufacturing overhead was: a) $35,000 b) $29,000 c) $50, 2. A manufacturing company prepays its insurance coverage for a three-year period. The premium for the three years is $2,400 and is paid at the beginning of the first year. Seventy percent of the premium applies to manufacturing operations and thirty percent applies to selling and administrative activities. What amounts should be considered product and period costs respectively for the first year of coverage? Option A) B) C) D) a) b) c) d) Product Period $800 $0 $560 $240 $0 $800 $240 $560 Option A Option B Option C Option D 3. Brees Inc., a company that produces and sells a single product, has provided its contribution format income statement for April. Sales (6,200 units) $136,400 Variable expenses 80,600 Contribution margin 55,800 Fixed expenses 48,700 Net operating $7,100 income If the company sells 5,800 units, its total contribution margin should be closest to: a) $55,000 b) $52,000 c) $6,642 d) $47,000 4. Florek Inc. produces and sells a single product. The company has provided its contribution format income statement for March. Sales (5,700 units) $228,000 Variable expenses 131,100 Contribution margin 96,900 Fixed expenses 86,300 Net operating $10,600 income If the company sells 5,900 units, its net operating income should be closest to: a) b) c) d) $14,000 $10,000 $18,000 $10,972 5. Solen Corporation's break-even-point in sales is $900,000, and its variable expenses are 75% of sales. If the company lost $32,000 last year, sales must have amounted to: a) b) c) d) $868,000 $804,000 $772,000 $628,000 6. Last year Easton Corporation reported sales of $720,000, a contribution margin ratio of 30% and a net loss of $24,000. Based on this information, the break-even point was: a) b) c) d) $640,000 $880,000 $744,000 $800,000 7. Mcadams Inc. uses a job-order costing system in which any underapplied or overapplied overhead is closed to cost of goods sold at the end of the month. In April the company completed job C21F that consisted of 18,000 units of one of the company's standard products. No other jobs were in process during the month. The total manufacturing cost on job C21F's job cost sheet was $702,000. The manufacturing overhead for the month was underapplied by $10,080. During the month, 13,000 completed units from job C21F were sold. No other products were sold during the month. The unit product cost for job C21F is closest to: a) b) c) d) $29.00 $39.00 $54.78 $54.00 8. Clear Colors Company uses a predetermined overhead rate based on direct labor costs to apply manufacturing overhead to jobs. At the beginning of the year the company estimated its total manufacturing overhead cost at $350,000 and its direct labor costs at $200,000. The actual overhead cost incurred during the year was $362,000 and the actual direct labor costs incurred on jobs during the year was $208,000. The manufacturing overhead for the year would be: $12,000 underapplied $12,000 overapplied $2,000 underapplied $2,000 overapplied 9. Overapplied manufacturing overhead means that: the applied manufacturing overhead cost was less than the actual manufacturing overhead cost the applied manufacturing overhead cost was greater than the actual manufacturing overhead cost the estimated manufacturing overhead cost was less than the actual manufacturing overhead cost the estimated manufacturing overhead cost was less than the applied manufacturing overhead cost 10.When closing overapplied manufacturing overhead to cost of goods sold, which of the following would be true? Work in process will be decreased Cost of goods sold will be increased Net income will be decreased Gross margin will be increased 11.Caber Corporation applies manufacturing overhead on the basis of machinehours. At the beginning of the most recent year, the company based its predetermined overhead rate on total estimated overhead of $60,600. Actual manufacturing overhead for the year amounted to $59,000 and actual machine-hours were 5,900. The company's predetermined overhead rate for the year was $10.10 per machine-hour. The applied manufacturing overhead for the year was closest to: $58,017 $59,590 $60,600 $58,597 12. Baker Corporation applies manufacturing overhead on the basis of direct labor-hours. At the beginning of the most recent year, the company based its predetermined overhead rate on total estimated overhead of $210,600 and 6,000 estimated direct labor-hours. Actual manufacturing overhead for the year amounted to $209,000 and actual direct labor-hours were 5,980. The overhead for the year was: $702 underapplied $898 underapplied $702 overapplied $898 overapplied 13.Kapanga Manufacturing Corporation uses a job-order costing system and started the month of October with a zero balance in its work in process and finished goods inventory accounts. During October, Kapanga worked on three jobs and incurred the following direct costs on those jobs: Direct Job B18 Job B19 Job C11 $12,000 $25,000 $18,000 materials Direct labor $8,000 $10,000 $5,000 Kapanga applies manufacturing overhead at a rate of 150% of direct labor cost. During October, Kapanga completed Jobs B18 and B19 and sold Job B19. What is Kapanga's work in process inventory balance at the end of October? $23,000 $30,500 $32,000 $43,000 14.The principal difference between variable costing and absorption costing centers on: whether variable manufacturing costs should be included in product costs whether fixed manufacturing costs should be included in product costs whether fixed manufacturing costs and fixed selling and administrative costs should be included in product costs whether selling and administrative costs should be included in product costs 15.Under variable costing, which of the following is not expensed in its entirety in the period in which it is incurred? fixed manufacturing overhead cost fixed selling and administrative expense variable selling and administrative expense variable manufacturing overhead cost 16.If a cost is a common cost of the segments on a segmented income statement, the cost should: be allocated to the segments on the basis of segment sales not be allocated to the segments excluded from the income statement treated as a product cost rather than as a period cost 17.Bartelt Inc., which produces a single product, has provided the following data for its most recent month of operations: Number of units produced 8,000 Variable costs per unit: Direct materials $40 Direct labor $77 Variable manufacturing overhead $8 Variable selling and administrative expense $7 Fixed costs: Fixed manufacturing overhead $464,000 Fixed selling and administrative expense $448,000 There were no beginning or ending inventories. The absorption costing unit product cost was: $125 per unit $246 per unit $117 per unit $183 per unit 18.DC Construction has two divisions: Remodeling and New Home Construction. Each division has an on-site supervisor who is paid a salary of $62,000 annually and one salaried estimator who is paid $36,000 annually. The corporate office has two office administrative assistants who are paid salaries of $40,000 and $32,000 annually. The president's salary is $138,000. How much of these salaries are common fixed expenses? $138,000 $210,000 $72,000 $258,000 19.Waltz Corporation has two divisions: Xi and Sigma. Data from the most recent month appear below: Xi Sigma Sales $286,000 $148,000 Variable expenses $157,300 $62,160 Traceable fixed expenses $84,000 $56,000 The company's common fixed expenses total $65,100. The break-even in sales dollars for Sigma Division is closest to: $283,218 $379,037 $414,904 $131,685 20.Bateman Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $117 Units in beginning inventory 0 Units produced 4,700 Units sold 4,400 Units in ending inventory 300 Variable costs per unit: Direct materials $36 Direct labor $38 Variable manufacturing overhead $4 Variable selling and administrative $11 Fixed costs: Fixed manufacturing overhead $89,300 Fixed selling and administrative $26,400 What is the unit product cost for the month under variable costing? $89 per unit $97 per unit $108 per unit $78 per unit 21.At an activity level of 8,800 units, Pember Corporation's total variable cost is $146,520 and its total fixed cost is $219,296. Required: For the activity level of 8,900 units, compute: (a) the total variable cost; (b) the total fixed cost; (c) the total cost; (d) the average variable cost per unit; (e) the average fixed cost per unit; and (f) the average total cost per unit. Assume that this activity level is within the relevant range. 22.Marano Corporation produces and sells a single product. In October, the company sold 6,200 units. Its total sales were $223,200, its total variable expenses were $105,400, and its total fixed expenses were $100,400. Required: a. Construct the company's contribution format income statement for October. b. Redo the company's contribution format income statement assuming that the company sells 6,400 units. Submit your answer in a table format for each prompt. 23.Mat Corporation's actual manufacturing overhead cost for the month ended March 31 was $78,000. The company's predetermined overhead rate was 50% of direct labor cost. Other information pertaining to Mat Corporation's inventories and production for the month of March is as follows: Beginning inventories, March 1: Work in process Finished goods Direct materials cost Direct labor cost Ending inventories, March 31: Work in process Finished goods $40,000 $102,000 $104,000 $160,000 $36,000 $105,000 Required: a. Determine the underapplied or overapplied overhead for the month. b. Determine the Cost of Goods Manufactured for the month. Submit your answer in a table format. 24.Sproull Inc., which produces a single product, has provided the following data for its most recent month of operation: Number of units produced 2,000 Variable costs per unit: Direct materials $21 Direct labor $75 Variable manufacturing overhead $7 Variable selling and administrative expenses $6 Fixed costs: Fixed manufacturing overhead $116,000 Fixed selling and administrative expenses $40,000 The company had no beginning or ending inventories. Required: a. Compute the unit product cost under absorption costing. b. Compute the unit product cost under variable costing. Submit your answer in table format box. 25.Data for March concerning Mauger Corporation's two major business segments-Fibers and Feedstocks-appear below: Sales revenues, Fibers Sales revenues, Feedstocks $560,000 $810,000 Variable expenses, Fibers $235,000 Variable expenses, Feedstocks $348,000 Traceable fixed expenses, Fibers $90,000 Traceable fixed expenses, Feedstocks $113,000 Common fixed expenses totaled $461,000 and were allocated as follows: $249,000 to the Fibers business segment and $212,000 to the Feedstocks business segment. Required: Prepare a segmented income statement in the contribution format for the company. Omit percentages; show only dollar amounts. Please submit in a table format. Midterm Chapter 4 Exercise 4A-2 Activity-Based Absorption Costing as an Alternative to Traditional Product Costing Harrison Company makes two products and uses a traditional costing system in which a single plantwide predetermined overhead rate is computed based on direct labor-hours. Data for the two products for the upcoming year follow: Direct materials cost per unit Direct labor cost per unit Direct labor-hours per unit Number of unites produced Rascon $13.00 $6.00 0.40 20,000 Parcel $22.00 $3.00 0.20 80,000 Required: 1. The company's manufacturing overhead costs for the year we are expected to be $576,000. Using the company's traditional costing system, compute the unit product costs for the two products. 2. Management is considering an activity-based absorption costing system in which half of the overhead would continue to be allocated on the basis of direct-labor hours and half would be allocated on the basis of engineering design time. This time is expected to be distributed as follows during the upcoming year: Rascon Parcel Total Engineering design time (in hours).......... 3,000 3,000 6,000 Compute the unit product costs for the two products using the proposed activity-based absorption costing system. 3. Explain why the product costs differ between the two systems. Exercise 4A-3 Activity-Based Absorption Costing as an Alternative to Traditional Product Costing Stillicum Corporation makes ultra light-weight backpacking tents. Data concerning the company's two product lines appear below: Direct materials cost per unit Direct labor per unit Direct labor-hours per unit Estimated annual production.. Deluxe $72.00 $12.00 1.0 DLH's 10,000 units Standard $53.00 $9.60 0.8 DLHs 50,000 The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and directlabor hours for the upcoming year appear below: Estimated total manufacturing overhead Estimated total direct labor-hours $325,000 50,000 DLHs Required: 1. Determine the unit product costs of the Deluxe and Standard products under the company's traditional costing system. 2. The company is considering replacing its traditional costing system with an with an activity-based absorption costing system that would have the following three activity cost pools: Activity Cost Pools and Activity Measures Supporting direct labor (direct labor-hours) Batch setups (setups) Safety testing (tests) Total manufacturing overhead cost Estimated Overhead Cost $200,000 75,000 50,000 $325,000 Expected Activity Deluxe Standard Total 10,000 40,000 50,000 200 30 100 70 300 100 Determine the unit product costs of the Deluxe and Standard products under the activity-based absorption costing system. Exercise 4A-4 Activity-Based Absorption Costing as an Alternative to Traditional Product Exercise 4A-5 Activity-Based Absorption Costing as an Alternative to Traditional Product Costing CASE 4A-6 ACTIVITY-BASED ABSORPTION COSTING AND PRICING Mid-term (Chapters 3-4) 1. During the month of April, direct labor cost totaled $15,000 and direct labor cost was 30% of prime cost. If total manufacturing costs during April were $79,000, the manufacturing overhead was: a) $35,000 b) $29,000 c) $50, 2. A manufacturing company prepays its insurance coverage for a three-year period. The premium for the three years is $2,400 and is paid at the beginning of the first year. Seventy percent of the premium applies to manufacturing operations and thirty percent applies to selling and administrative activities. What amounts should be considered product and period costs respectively for the first year of coverage? Option A) B) C) D) a) b) c) d) Product Period $800 $0 $560 $240 $0 $800 $240 $560 Option A Option B Option C Option D 3. Brees Inc., a company that produces and sells a single product, has provided its contribution format income statement for April. Sales (6,200 units) $136,400 Variable expenses 80,600 Contribution margin 55,800 Fixed expenses 48,700 Net operating $7,100 income If the company sells 5,800 units, its total contribution margin should be closest to: a) $55,000 b) $52,000 c) $6,642 d) $47,000 4. Florek Inc. produces and sells a single product. The company has provided its contribution format income statement for March. Sales (5,700 units) $228,000 Variable expenses 131,100 Contribution margin 96,900 Fixed expenses 86,300 Net operating $10,600 income If the company sells 5,900 units, its net operating income should be closest to: a) b) c) d) $14,000 $10,000 $18,000 $10,972 5. Solen Corporation's break-even-point in sales is $900,000, and its variable expenses are 75% of sales. If the company lost $32,000 last year, sales must have amounted to: a) b) c) d) $868,000 $804,000 $772,000 $628,000 6. Last year Easton Corporation reported sales of $720,000, a contribution margin ratio of 30% and a net loss of $24,000. Based on this information, the break-even point was: a) b) c) d) $640,000 $880,000 $744,000 $800,000 7. Mcadams Inc. uses a job-order costing system in which any underapplied or overapplied overhead is closed to cost of goods sold at the end of the month. In April the company completed job C21F that consisted of 18,000 units of one of the company's standard products. No other jobs were in process during the month. The total manufacturing cost on job C21F's job cost sheet was $702,000. The manufacturing overhead for the month was underapplied by $10,080. During the month, 13,000 completed units from job C21F were sold. No other products were sold during the month. The unit product cost for job C21F is closest to: a) b) c) d) $29.00 $39.00 $54.78 $54.00 8. Clear Colors Company uses a predetermined overhead rate based on direct labor costs to apply manufacturing overhead to jobs. At the beginning of the year the company estimated its total manufacturing overhead cost at $350,000 and its direct labor costs at $200,000. The actual overhead cost incurred during the year was $362,000 and the actual direct labor costs incurred on jobs during the year was $208,000. The manufacturing overhead for the year would be: $12,000 underapplied $12,000 overapplied $2,000 underapplied $2,000 overapplied 9. Overapplied manufacturing overhead means that: the applied manufacturing overhead cost was less than the actual manufacturing overhead cost the applied manufacturing overhead cost was greater than the actual manufacturing overhead cost the estimated manufacturing overhead cost was less than the actual manufacturing overhead cost the estimated manufacturing overhead cost was less than the applied manufacturing overhead cost 10.When closing overapplied manufacturing overhead to cost of goods sold, which of the following would be true? Work in process will be decreased Cost of goods sold will be increased Net income will be decreased Gross margin will be increased 11.Caber Corporation applies manufacturing overhead on the basis of machinehours. At the beginning of the most recent year, the company based its predetermined overhead rate on total estimated overhead of $60,600. Actual manufacturing overhead for the year amounted to $59,000 and actual machine-hours were 5,900. The company's predetermined overhead rate for the year was $10.10 per machine-hour. The applied manufacturing overhead for the year was closest to: $58,017 $59,590 $60,600 $58,597 12. Baker Corporation applies manufacturing overhead on the basis of direct labor-hours. At the beginning of the most recent year, the company based its predetermined overhead rate on total estimated overhead of $210,600 and 6,000 estimated direct labor-hours. Actual manufacturing overhead for the year amounted to $209,000 and actual direct labor-hours were 5,980. The overhead for the year was: $702 underapplied $898 underapplied $702 overapplied $898 overapplied 13.Kapanga Manufacturing Corporation uses a job-order costing system and started the month of October with a zero balance in its work in process and finished goods inventory accounts. During October, Kapanga worked on three jobs and incurred the following direct costs on those jobs: Direct Job B18 Job B19 Job C11 $12,000 $25,000 $18,000 materials Direct labor $8,000 $10,000 $5,000 Kapanga applies manufacturing overhead at a rate of 150% of direct labor cost. During October, Kapanga completed Jobs B18 and B19 and sold Job B19. What is Kapanga's work in process inventory balance at the end of October? $23,000 $30,500 $32,000 $43,000 14.The principal difference between variable costing and absorption costing centers on: whether variable manufacturing costs should be included in product costs whether fixed manufacturing costs should be included in product costs whether fixed manufacturing costs and fixed selling and administrative costs should be included in product costs whether selling and administrative costs should be included in product costs 15.Under variable costing, which of the following is not expensed in its entirety in the period in which it is incurred? fixed manufacturing overhead cost fixed selling and administrative expense variable selling and administrative expense variable manufacturing overhead cost 16.If a cost is a common cost of the segments on a segmented income statement, the cost should: be allocated to the segments on the basis of segment sales not be allocated to the segments excluded from the income statement treated as a product cost rather than as a period cost 17.Bartelt Inc., which produces a single product, has provided the following data for its most recent month of operations: Number of units produced 8,000 Variable costs per unit: Direct materials $40 Direct labor $77 Variable manufacturing overhead $8 Variable selling and administrative expense $7 Fixed costs: Fixed manufacturing overhead $464,000 Fixed selling and administrative expense $448,000 There were no beginning or ending inventories. The absorption costing unit product cost was: $125 per unit $246 per unit $117 per unit $183 per unit 18.DC Construction has two divisions: Remodeling and New Home Construction. Each division has an on-site supervisor who is paid a salary of $62,000 annually and one salaried estimator who is paid $36,000 annually. The corporate office has two office administrative assistants who are paid salaries of $40,000 and $32,000 annually. The president's salary is $138,000. How much of these salaries are common fixed expenses? $138,000 $210,000 $72,000 $258,000 19.Waltz Corporation has two divisions: Xi and Sigma. Data from the most recent month appear below: Xi Sigma Sales $286,000 $148,000 Variable expenses $157,300 $62,160 Traceable fixed expenses $84,000 $56,000 The company's common fixed expenses total $65,100. The break-even in sales dollars for Sigma Division is closest to: $283,218 $379,037 $414,904 $131,685 20.Bateman Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $117 Units in beginning inventory 0 Units produced 4,700 Units sold 4,400 Units in ending inventory 300 Variable costs per unit: Direct materials $36 Direct labor $38 Variable manufacturing overhead $4 Variable selling and administrative $11 Fixed costs: Fixed manufacturing overhead $89,300 Fixed selling and administrative $26,400 What is the unit product cost for the month under variable costing? $89 per unit $97 per unit $108 per unit $78 per unit 21.At an activity level of 8,800 units, Pember Corporation's total variable cost is $146,520 and its total fixed cost is $219,296. Required: For the activity level of 8,900 units, compute: (a) the total variable cost; (b) the total fixed cost; (c) the total cost; (d) the average variable cost per unit; (e) the average fixed cost per unit; and (f) the average total cost per unit. Assume that this activity level is within the relevant range. 22.Marano Corporation produces and sells a single product. In October, the company sold 6,200 units. Its total sales were $223,200, its total variable expenses were $105,400, and its total fixed expenses were $100,400. Required: a. Construct the company's contribution format income statement for October. b. Redo the company's contribution format income statement assuming that the company sells 6,400 units. Submit your answer in a table format for each prompt. 23.Mat Corporation's actual manufacturing overhead cost for the month ended March 31 was $78,000. The company's predetermined overhead rate was 50% of direct labor cost. Other information pertaining to Mat Corporation's inventories and production for the month of March is as follows: Beginning inventories, March 1: Work in process Finished goods Direct materials cost Direct labor cost Ending inventories, March 31: Work in process Finished goods $40,000 $102,000 $104,000 $160,000 $36,000 $105,000 Required: a. Determine the underapplied or overapplied overhead for the month. b. Determine the Cost of Goods Manufactured for the month. Submit your answer in a table format. 24.Sproull Inc., which produces a single product, has provided the following data for its most recent month of operation: Number of units produced 2,000 Variable costs per unit: Direct materials $21 Direct labor $75 Variable manufacturing overhead $7 Variable selling and administrative expenses $6 Fixed costs: Fixed manufacturing overhead $116,000 Fixed selling and administrative expenses $40,000 The company had no beginning or ending inventories. Required: a. Compute the unit product cost under absorption costing. b. Compute the unit product cost under variable costing. Submit your answer in table format box. 25.Data for March concerning Mauger Corporation's two major business segments-Fibers and Feedstocks-appear below: Sales revenues, Fibers Sales revenues, Feedstocks $560,000 $810,000 Variable expenses, Fibers $235,000 Variable expenses, Feedstocks $348,000 Traceable fixed expenses, Fibers $90,000 Traceable fixed expenses, Feedstocks $113,000 Common fixed expenses totaled $461,000 and were allocated as follows: $249,000 to the Fibers business segment and $212,000 to the Feedstocks business segment. Required: Prepare a segmented income statement in the contribution format for the company. Omit percentages; show only dollar amounts. Please submit in a table format. Exercise 4 Exercise 5 CASE 6 Exercise 4A-4 Exercise 4A-4 (cont') Exercise 4A-5 Exercise 4A-5(cont') Case 4A-6 CASE 4A-6 (cont') 4A-4 Part 1 a) Pre-determined overhead rate= Total manufacturing overhead cost / Total direct labor hours $ b) 50 per hour Unit product cost for each model Cost components Direct Material Direct labor Manufacturing overhead Unit product cost X200 $ $ $ $ 72 18 90 180 X99 $ $ $ $ 50 9 45 104 Part 2 a) Activity cost pool Activity Measure Estimated total Estimated cost total activity Machine Setups No. of setups $ 360,000 $ 150 $ 2,400 Special processing Machine-Hours $ 180,000 $ 12,000 $ 15 $ $ 1,260,000 $ 1,800,000 36,000 $ 35 Direct LaborGeneral factor hours Total Cost b) Part 3 Unit product cost for each model Cost components Direct Material Direct labor Manufacturing overhead Unit product cost X200 $ $ $ $ 72.00 18.00 123.00 213.00 X99 $ $ $ $ Activity Rate 50.00 9.00 39.50 98.50 Special processing cost specific to X200 was charged to X99 as well using direct labor hour as base. Th rectified under activity based absorption costing. otal direct labor hours X200 X99 $ 120,000 $ 240,000 $ 180,000 $ $ 315,000 $ 945,000 615,000 $ 1,185,000 ng direct labor hour as base. This got 4A-5 Part 1 a) Pre-determined overhead rate= Total manufacturing overhead cost / Total direct labor hours $ b) 18 per hour Unit product cost for each model Cost components Direct Material Direct labor Manufacturing overhead Unit product cost Deluxe $ $ $ $ 40 14 36 90 Regular $ $ $ $ 25 7 18 50 Part 2 & Part 3 a) Activity cost pool Activity Measure Part 3 Deluxe Regular Purchasing Processing Purchase order issued Machine-Hours $ $ 204,000 $ 182,000 $ 2,000 20,000 400 15000 Scrap/ Rework Scrap/ rework order issued $ 379,000 $ 1,000 1000 no. of shipments $ Total Cost $ 135,000 $ 900,000 250 650 Shipping b) Estimated total cost Unit product cost for each model Cost components Direct Material Direct labor Manufacturing overhead Unit product cost Deluxe $ $ $ $ 40.00 14.00 100.20 154.20 Regular $ 25.00 $ 7.00 $ 9.98 $ 41.98 The reason for declining profit of the company resulted from increase ing sales of deluxe model which is costly product to manufacture. Unit product cost of deluxe model, under labor hours based model, is $ 90 per unit which increases to $ 154.20 based on activity based absorption costing. otal direct labor hours Direct labor hours Product Deluxe Regular Estimated total activity Activity Rate Units Total labor hours 2 10,000 1 40,000 50,000 Hours 5,000 40,000 Total labor hours Deluxe Regular $ $ 2,400 $ 35,000 $ 85 $ 170,000 $ 5 $ 104,000 $ 34,000 78,000 $ 2,000 $ 190 $ 189,500 $ 189,500 $ 900 $ 150 $ 37,500 $ $ 501,000 $ 97,500 399,000 ng sales of deluxe model odel, under labor hours tivity based absorption 4A-6 Part 1 a) Pre-determined overhead rate= Total manufacturing overhead cost / Total direct labor hours $ b) 44 per hour Unit product cost for each model Cost components Direct Material Direct labor Manufacturing overhead Unit product cost Kenya Dark $ $ $ $ 4.50 0.24 0.88 5.62 Viet Select $ 2.90 ### $ 0.88 $ 4.02 Part 2 a) Activity cost pool Activity Measure Estimated total Estimated cost total activity Purchasing Purchase orders $ Material Handling Quality Control Roasting Blending no. of setups no. of batches Roasting hours Blending hours $ $ $ $ 193,000 90,000 1,045,000 192,000 $ $ $ $ 1,000 500 95,000 32,000 $ $ 120,000 $ 2,200,000 24,000 Packaging b) Packaging hours Total Cost 560,000 $ Activity cost pool Activity Measure Activity Rate 2,000 Kenya Dark Purchasing Purchase orders $ 280.0 4 Material Handling Quality Control Roasting Blending no. of setups no. of batches Roasting hours Blending hours $ $ $ $ 193.0 180.0 11.0 6.0 32 16 1,200 400 $ 5.0 240 Packaging Packaging hours Total Cost Total units Per unit manufacturing cost c) Part 3 Unit product cost for each model Cost components Direct Material Direct labor Manufacturing overhead Unit product cost Kenya Dark $ $ $ $ Viet Select 4.50 $ 2.90 0.24 ### 0.34 $ 5.89 5.08 $ 9.03 President, JSI Dear Sir, JSI is currently using labor hours basis for absorbing manufacturing overhead being incurred by the co method gives incorrect result especially when direct labor base is small and large part of activities is i data provided for analysis, unit product cost of Viet Select is $ 4.02 per unit under labor hour based a Whereas, if you calculate the same using absorption costing, it goes up to $ 9.03 per unit. In this scen decision taken by management will be incorrect. I therefore recommend the company to adopt activ absorption method to allocate manufacturing overhead to product. This will result in most informed the management on the profitability of the product. head cost / Total direct labor hours Activity Rate $ 280 $ $ $ $ 193 180 11 6 $ 5 Total Cost Viet Select Total Cost $ 1,120.00 $ $ $ $ 6,176.00 2,880.00 13,200.00 2,400.00 $ $ 1,200.00 26,976.00 80,000 0.34 $ 8 $ 16 8 1,200 400 2,240.00 $ $ $ $ 3,088.00 1,440.00 13,200.00 2,400.00 240 $ $ 1,200.00 23,568.00 4,000 5.89 $ ufacturing overhead being incurred by the company. This r base is small and large part of activities is indirect. Based on is $ 4.02 per unit under labor hour based absorption. ng, it goes up to $ 9.03 per unit. In this scenario, All the ore recommend the company to adopt activity based o product. This will result in most informed decision taken by Exercise 4A-4 Exercise 4A-4 (cont') Exercise 4A-5 Exercise 4A-5(cont') Case 4A-6 CASE 4A-6 (cont') 4A-4 Part 1 a) Pre-determined overhead rate= Total manufacturing overhead cost / Total direct labor hours $ b) 50 per hour Unit product cost for each model Cost components Direct Material Direct labor Manufacturing overhead Unit product cost X200 $ $ $ $ 72 18 90 180 X99 $ $ $ $ 50 9 45 104 Part 2 a) Activity cost pool Activity Measure Estimated total Estimated cost total activity Machine Setups No. of setups $ 360,000 $ 150 $ 2,400 Special processing Machine-Hours $ 180,000 $ 12,000 $ 15 $ $ 1,260,000 $ 1,800,000 36,000 $ 35 Direct LaborGeneral factor hours Total Cost b) Part 3 Unit product cost for each model Cost components Direct Material Direct labor Manufacturing overhead Unit product cost X200 $ $ $ $ 72.00 18.00 123.00 213.00 X99 $ $ $ $ Activity Rate 50.00 9.00 39.50 98.50 Special processing cost specific to X200 was charged to X99 as well using direct labor hour as base. Th rectified under activity based absorption costing. otal direct labor hours X200 X99 $ 120,000 $ 240,000 $ 180,000 $ $ 315,000 $ 945,000 615,000 $ 1,185,000 ng direct labor hour as base. This got 4A-5 Part 1 a) Pre-determined overhead rate= Total manufacturing overhead cost / Total direct labor hours $ b) 18 per hour Unit product cost for each model Cost components Direct Material Direct labor Manufacturing overhead Unit product cost Deluxe $ $ $ $ 40 14 36 90 Regular $ $ $ $ 25 7 18 50 Part 2 & Part 3 a) Activity cost pool Activity Measure Part 3 Deluxe Regular Purchasing Processing Purchase order issued Machine-Hours $ $ 204,000 $ 182,000 $ 2,000 20,000 400 15000 Scrap/ Rework Scrap/ rework order issued $ 379,000 $ 1,000 1000 no. of shipments $ Total Cost $ 135,000 $ 900,000 250 650 Shipping b) Estimated total cost Unit product cost for each model Cost components Direct Material Direct labor Manufacturing overhead Unit product cost Deluxe $ $ $ $ 40.00 14.00 100.20 154.20 Regular $ 25.00 $ 7.00 $ 9.98 $ 41.98 The reason for declining profit of the company resulted from increase ing sales of deluxe model which is costly product to manufacture. Unit product cost of deluxe model, under labor hours based model, is $ 90 per unit which increases to $ 154.20 based on activity based absorption costing. otal direct labor hours Direct labor hours Product Deluxe Regular Estimated total activity Activity Rate Units Total labor hours 2 10,000 1 40,000 50,000 Hours 5,000 40,000 Total labor hours Deluxe Regular $ $ 2,400 $ 35,000 $ 85 $ 170,000 $ 5 $ 104,000 $ 34,000 78,000 $ 2,000 $ 190 $ 189,500 $ 189,500 $ 900 $ 150 $ 37,500 $ $ 501,000 $ 97,500 399,000 ng sales of deluxe model odel, under labor hours tivity based absorption 4A-6 Part 1 a) Pre-determined overhead rate= Total manufacturing overhead cost / Total direct labor hours $ b) 44 per hour Unit product cost for each model Cost components Direct Material Direct labor Manufacturing overhead Unit product cost Kenya Dark $ $ $ $ 4.50 0.24 0.88 5.62 Viet Select $ 2.90 ### $ 0.88 $ 4.02 Part 2 a) Activity cost pool Activity Measure Estimated total Estimated cost total activity Purchasing Purchase orders $ Material Handling Quality Control Roasting Blending no. of setups no. of batches Roasting hours Blending hours $ $ $ $ 193,000 90,000 1,045,000 192,000 $ $ $ $ 1,000 500 95,000 32,000 $ $ 120,000 $ 2,200,000 24,000 Packaging b) Packaging hours Total Cost 560,000 $ Activity cost pool Activity Measure Activity Rate 2,000 Kenya Dark Purchasing Purchase orders $ 280.0 4 Material Handling Quality Control Roasting Blending no. of setups no. of batches Roasting hours Blending hours $ $ $ $ 193.0 180.0 11.0 6.0 32 16 1,200 400 $ 5.0 240 Packaging Packaging hours Total Cost Total units Per unit manufacturing cost c) Part 3 Unit product cost for each model Cost components Direct Material Direct labor Manufacturing overhead Unit product cost Kenya Dark $ $ $ $ Viet Select 4.50 $ 2.90 0.24 ### 0.34 $ 5.89 5.08 $ 9.03 President, JSI Dear Sir, JSI is currently using labor hours basis for absorbing manufacturing overhead being incurred by the co method gives incorrect result especially when direct labor base is small and large part of activities is i data provided for analysis, unit product cost of Viet Select is $ 4.02 per unit under labor hour based a Whereas, if you calculate the same using absorption costing, it goes up to $ 9.03 per unit. In this scen decision taken by management will be incorrect. I therefore recommend the company to adopt activ absorption method to allocate manufacturing overhead to product. This will result in most informed the management on the profitability of the product. head cost / Total direct labor hours Activity Rate $ 280 $ $ $ $ 193 180 11 6 $ 5 Total Cost Viet Select Total Cost $ 1,120.00 $ $ $ $ 6,176.00 2,880.00 13,200.00 2,400.00 $ $ 1,200.00 26,976.00 80,000 0.34 $ 8 $ 16 8 1,200 400 2,240.00 $ $ $ $ 3,088.00 1,440.00 13,200.00 2,400.00 240 $ $ 1,200.00 23,568.00 4,000 5.89 $ ufacturing overhead being incurred by the company. This r base is small and large part of activities is indirect. Based on is $ 4.02 per unit under labor hour based absorption. ng, it goes up to $ 9.03 per unit. In this scenario, All the ore recommend the company to adopt activity based o product. This will result in most informed decision taken by