Question
The ABC Assembling Department has the following production and manufacturing cost data for January. Materials are entered at the beginning of the process. Production: Beginning
The ABC Assembling Department has the following production and manufacturing cost data for January. Materials are entered at the beginning of the process. | |||||||||||||
Production: Beginning inventory | 1,000 | units that are | 100% | complete as to materials and | |||||||||
50% | complete as to conversion costs; units started during the period are | 25,400 | |||||||||||
ending inventory of | 3,000 | units | 20% | complete as to conversion costs. | |||||||||
Manufacturing costs: Beginning inventory costs, comprised of | $30,000 | of materials and | $31,980 | ||||||||||
of conversion costs; materials costs added in Assembling during the month, | $25,500 | labor | |||||||||||
and overhead applied in Assembling during the month, | $55,850 | and | $155,140 | ||||||||||
respectively. | |||||||||||||
Instructions: | |||||||||||||
(a) Compute the equivalent units of production for materials and conversion costs for the month. | |||||||||||||
Step 1: | |||||||||||||
Physical Units | |||||||||||||
Work in process, Beg. Invent. |
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Units started during the period |
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Total units |
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Units transferred out | 23,400 | ||||||||||||
WIP Ending inventory | 3,000 | ||||||||||||
Total units | 26,400 | ||||||||||||
Step 2 | Equivalent Units | ||||||||||||
Materials 100% | Conversion 20% Costs | ||||||||||||
Units transferred out | 23,400 | 23,400 | |||||||||||
Work in process |
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WIP ending Inventory * % complete |
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WIP ending Inventory * % complete |
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Total Units |
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(b) Compute the units costs for materials and conversion costs for the month. | |||||||||||||
Step 3 | |||||||||||||
Unit Costs for Materials | Materials | ||||||||||||
Work in process, Beg. Invent. | |||||||||||||
Direct Materials |
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Costs added to production during the month |
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Total materials cost |
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Material cost per unit (Total material cost / units) |
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Unit Conversion Costs | |||||||||||||
Work in process, Beg. Invent. | |||||||||||||
Conversion Costs |
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Total Costs added to production during the month | |||||||||||||
Conversion Costs |
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Total conversion costs |
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Conversion cost per unit (Total conversion cost / units) |
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Total Material costs per unit and Conversion cost per unit _______________ | |||||||||||||
(c) Determine the costs to be assigned to the units transferred out and in process. | |||||||||||||
Step 4 Costs accounted for | |||||||||||||
Transferred out # units * total unit cost |
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Work in process, Ending Inventory | |||||||||||||
Materials Costs |
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Conversion Costs |
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Total costs |
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Assign overhead using traditional costing and ABC | |||||||||||||||||||||
Laura Inc. manufactures two products: Hair Ties and Bracelet Ties. To determine the amount of overhead to assign to each product line, the controller, Corey, has developed the following information. | |||||||||||||||||||||
Hair Ties | Bracelet Ties | ||||||||||||||||||||
Estimated ties produced | 30,000 | 15,000 | |||||||||||||||||||
Direct labor hours per tie | 2 | 3 | |||||||||||||||||||
Total estimated overhead costs for the two product lines are | $550,000 | ||||||||||||||||||||
Instructions: | |||||||||||||||||||||
(a) Compute the overhead cost assigned to the hair ties and bracelet ties, assuming that direct labor hours is used to allocate overhead costs. | |||||||||||||||||||||
DL Hours for Hair Ties |
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DL Hours for Bracelets Ties |
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Total DL hours |
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Total estimated overhead |
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| Dollars per direct labor hour | ||||||||||||||||||
Total direct labor hours |
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Overhead assigned | |||||||||||||||||||||
Hair Ties |
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Bracelet Ties |
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Total overhead |
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(b) Corey is not satisfied with the traditional method of allocating overhead because she believes that most of the overhead costs relate to the hair ties product line because of its complexity. She therefore develops the following three activity cost pools and related cost drivers to better understand these costs. | |||||||||||||||||||||
Activity Cost Pool | Costs for Pools | Estimated Overhead | ABC Overhead Rate | ||||||||||||||||||
Setting up machines | $110,000.00 | 500 setups |
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Assembling | $310,000.00 | 40,000 labor hours |
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Inspection | $130,000.00 | 700 inspections |
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Compute the activity-based overhead rates for these three cost pools put your answer in the 4th. Column above. | |||||||||||||||||||||
(c) Compute the cost that is assigned to the hair ties and bracelet ties product lines using an activity-based costing system, given the following information. | |||||||||||||||||||||
Setting up machines | $110,000.00 | 500 setups |
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Assembling | $310,000.00 | 40,000 labor hours |
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Inspection | $130,000.00 | 700 inspections |
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Hair Ties | |||||||||||||||||||||
Activity Cost Pool | Expected Use of Cost Drivers per Product | Activity Based Overhead Rates and the total cost assigned | Cost Assigned | ||||||||||||||||||
Setting up machines | 100 |
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Assembling | 25,000 |
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Inspection | 200 |
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Total cost |
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Bracelet Ties | |||||||||||||||||||||
Activity Cost Pool | Expected Use of Cost Drivers per Product | Activity Based Overhead Rates and the total cost assigned | Cost Assigned | ||||||||||||||||||
Setting up machines | 400 |
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Assembling | 15,000 |
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Inspection | 500 |
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Total cost assigned |
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(d) What do you believe Corey should do? (Enter your text answer in the block below.) | |||||||||||||||||||||
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