Question
The Messenger Fones Company designs and manufactures cell phones. The company currently offers two models; the T328 and the SS356. The company has three operating
The Messenger Fones Company designs and manufactures cell phones. The company currently offers two models; the T328 and the SS356. The company has three operating departments: design, engineering and production. In the past, the company has been allocating the manufacturing overhead based on machine hours. However, Kayla Rined, the product manager of T328, has a hunch that their current method of using only machine hours as a cost allocation base is resulting in the allocation of too much overhead costs to her product. She has proposed that the company use the ABC system to cost products.
In 2010, the actual manufacturing overhead was $211,000. The following indicates the total amount of machine hours used for the production of each cell phone model in 2010.
Machine Hours | |
T328 | 2,400 hours |
SS356 | 2,500 hours |
Total Machine Hours | 4,900 hours |
Do not enter dollar signs or commas in the input boxes. a) Calculate the manufacturing overhead cost allocation rate using machine hours. Round your answers to 2 decimal places. Manufacturing overhead cost allocation rate: $Answer b) Determine the manufacturing overhead allocated to each model using the manufacturing overhead cost allocation rate determined in part (a). Round your answers to the nearest whole number. T328: $Answer SS356: $Answer c) The Messenger Fones Company is considering changing their costing system by tracing manufacturing overhead costs to the three operating activities. The following is the amount of manufacturing overhead costs traceable to the designing, engineering and production activities.
Operating Areas | Cost Drivers | Total Costs |
Designing | Number of design hours | $73,000 |
Engineering | Number of engineering hours | $51,000 |
Production | Number of machine hours | $61,000 |
Total | $185,000 |
The total cost allocation units used for each product line are:
Cost Allocation Base | T328 | SS356 | Total |
Design hours | 1,400 | 1,900 | 3,300 |
Engineering hours | 1,700 | 2,100 | 3,800 |
Machine hours | 2,400 | 2,500 | 4,900 |
Determine the manufacturing overhead rate for each activity. In addition, use the manufacturing overhead rates to calculate the allocated overhead for each model. Round your answers to 2 decimal places.
Manufacturing overhead rates | |
Designing | $Answer |
Engineering | $Answer |
Production | $Answer |
Round your answers to the nearest whole number.
Manufacturing Overhead | |
T328 | $Answer |
SS356 | $Answer |
d) Was Kayla Rined's hunch about the allocation of too much overhead costs to her product right? AnswerNoYes Round your answers to the nearest whole number. Under-allocation / Over-allocation: $Answer
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