The new president of the Blake Company was stumped Why had profits gone down He had directed the sales department to push the product with the highest contribution margin, and the sales department had come through with flying colors The percent of flops sold had increased from 25 of units sold to 37 5 of units sold So what happened Flops Chops Sales Price per Unit $200 $600 Direct Materials per Unit $100 $300 Direct Labor Cost per Hour $30 $50 Direct Labor Hours per Unit 2 hours per unit 6 hours per unit Number of Units Produced 30,000 20,000 The variable overhead for the coming year is estimated to be $ 4,900,000 Answer the following questions Calculate the Blake Company's estimated direct labor hours to produce flops and chops Calculate the predetermined variable overhead rate that will be used in the coming year using a traditional costing system based upon direct labor hours Using a traditional costing system based upon direct labor hours, compute the using product costs for flops and chops as well as contribution margin per unit It has been suggested to the president to consider the use of an ABC costing system to allocate manufacturing overhead Engineering studies have revealed the following information about estimated manufacturing activities for the coming year Activity Cost Pool Estimated Overhead Cost Expected Activity Level Setups $860,000 200 setups Scrap $400,000 500 units Testing $300,000 5,000 tests Machine Related $2,400,000 100,000 machine related Total $4,000,000 Calculate the separate predetermined overhead rates for each of the activities listed above The following data are available about the activity levels needed to produce the projected 30,000 units of flops Activity Cost Pool Estimated Activity Level for Flops Setups 50 setups Scrap 200 units Testing 2,000 tests Machine Related 12,500 machine related Calculate the expected variable overhead to be applied to flops The following data are available about the activity levels needed to produce the projected 20,000 units of chops Activity Cost Pool Estimated Activity Level for Gadgets Setups 150 setups Scrap 300 units Testing 3,000 tests Machine Related 87,500 machine related Calculate the expected variable overhead to be applied to chops Calculate the total overhead (total for company) that is expected to be applied to flops and chops Calculate the projected unit costs and unit contribution margins for flops and chops using ABC costing What conclusions can you draw about the use of traditional costing versus ABC costing for the Blake Company What recommendations do you have for the president

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jul 03, 2024

The new president of the Blake Company was stumped. Why had profits gone down? He had directed the sales department to push the product with

The new president of the Blake Company was stumped. Why had profits gone down? He had directed the sales department to push the product with the highest contribution margin, and the sales department had come through with flying colors. The percent of flops sold had increased from 25% of units sold to 37.5% of units sold. So what happened?

	Flops	Chops
Sales Price per Unit	$200	$600
Direct Materials per Unit	$100	$300
Direct Labor Cost per Hour	$30	$50
Direct Labor Hours per Unit	2 hours per unit	6 hours per unit
Number of Units Produced	30,000	20,000

The variable overhead for the coming year is estimated to be $ 4,900,000.

Answer the following questions.

Calculate the Blake Company's estimated direct labor hours to produce flops and chops.
Calculate the predetermined variable overhead rate that will be used in the coming year using a traditional costing system based upon direct labor hours.
Using a traditional costing system based upon direct labor hours, compute the using product costs for flops and chops as well as contribution margin per unit.

It has been suggested to the president to consider the use of an ABC costing system to allocate manufacturing overhead. Engineering studies have revealed the following information about estimated manufacturing activities for the coming year.

Activity Cost Pool	Estimated Overhead Cost	Expected Activity Level
Setups	$860,000	200 setups
Scrap	$400,000	500 units
Testing	$300,000	5,000 tests
Machine Related	$2,400,000	100,000 machine related
Total	$4,000,000

Calculate the separate predetermined overhead rates for each of the activities listed above.

The following data are available about the activity levels needed to produce the projected 30,000 units of flops.

Activity Cost Pool Estimated Activity Level for Flops

Setups 50 setups

Scrap 200 units

Testing 2,000 tests

Machine Related 12,500 machine related

Calculate the expected variable overhead to be applied to flops.
The following data are available about the activity levels needed to produce the projected 20,000 units of chops.

Activity Cost Pool Estimated Activity Level for Gadgets

Setups 150 setups

Scrap 300 units

Testing 3,000 tests

Machine Related 87,500 machine related

Calculate the expected variable overhead to be applied to chops.
Calculate the total overhead (total for company) that is expected to be applied to flops and chops.
Calculate the projected unit costs and unit contribution margins for flops and chops using ABC costing.
What conclusions can you draw about the use of traditional costing versus ABC costing for the Blake Company? What recommendations do you have for the president?