Was previously answered on course hero from tutor. But I'm still confused. In addition, the decimals were not correct on original paper. I am confused on how to get the number due to having so much information. Please help me. There are four requirements to the question. However, I;m not sure I received all of the completed work last time. nd then after the four requirements it is a question as to which is better. Thank you.

Pilgrims Manufacturing, Inc.: Activity-Based Costing versus Volume-Based Costing Pilgrim's Manufacturing, Inc. manufactures cooling and heating coils for several different industries. It has two plants. Jewett City Plant (JCP) is an older, labor-intensive machine shop where skilled workers use tools to perform most of the work. Greenwich Plant (GP) is highly automated and uses computer numerically controlled (CNC) machines with a small number of highly paid workers. JCP manufactures a high tolerance coil (Pa) and finishes a second one (Pb). GP mass produces two standard coils, Pc and Pd, and performs basic operations on Pb before transferring it to JCP for finishing. Production takes place in batches. Each batch is made up of one product. The products are sold directly to manufacturers by a technical sales force. Product Pa is a customized product manufactured to order, and requires a lot of specifications and negotiation with customers. Product Pb is a modification of the standardized products Pc and Pd. It is finished to meet each customer's specifications, and as a result has more exacting technical specifications than Pc and Pd, and hence is finished in JCP. Products Pc and Pd are standardized products produced for stock and sold off the shelf and do not require much sales effort in writing up orders. Each plant has six production and service departments: receiving, cutting and assembly, heat treatment, testing, packing and shipping, and repairs and maintenance (Charts 2 and 3). Exhibit 1 includes descriptions of activities in each of these departments. In addition, there are three departments marketing, design and engineering support, and administrationat the corporate level (Chart 4). The present accounting system is a traditional financial-reporting-driven system. Manufacturing costs are classified as material, labor, and overhead. Overhead is charged to products based on labor hours with the two plants treated as one cost center. Marketing, design and engineering support, and administration are considered period costs and not charged to products. The President of the Company held a meeting with senior executives including VP-Finance, VP- Manufacturing, and VP-Marketing (Chart 1) to discuss the 2006 budget (Schedules 1, 2, and 3). She was unhappy with the fact that Pa's budgeted price of $45 is below its standard cost of $48.29. However, she was not sure if the costing system, which treats both plants as one cost center, accurately determines the costs of the different products. She pointed out that GP is a machine-intensive plant while JCP is more labor-intensive. Furthermore, the products are produced in different numbers of batches (Schedule 6), and affect batch-related costs (e.g., testing and heat treatment) differently. She told VP-Finance that she has heard of an alternative costing method that uses multiple cost centers/pools and different cost bases to charge indirect costs to products. She also questioned the treatment of engineering support costs and marketing expenses as period costs. VP-Finance promised to investigate the President's points and report back to the group. Required The VP-Finance appointed you to a team to investigate the President's concerns. He suggested that you develop and compare several volume-based costing and activity-based costing (ABC) systems to identify and recommend the system that you deem to give the most accurate product costs. For the traditional volume-based systems use the Overhead Allocation Menu (Exhibit 4) shown at the bottom of the case to perform the following tasks: 1 1. Use machine hours, instead of direct labor hours, to allocate manufacturing overhead to the four products and restate the Products Budget (Schedule 1). 2. Repeat requirement 1 for each plant separately assuming direct labor hours are used to allocate manufacturing overhead in both plants. Schedule 4 reports the labor hours per unit for each product. 3. Repeat requirement 2, assuming that labor hours are used to allocate manufacturing overhead in JCP and machine hours in GP. Schedule 5 reports the machine hours per unit for each product in the two plants. 4. Use an activity-based costing system to calculate new costs and profitability of each of the four products (Schedule 1) under the system. To design the ABC systems, you have visited the two plants where you interviewed plant managers, department supervisors, and accountants. You also analyzed expense accounts and operations data. Based on the interviews and analyses, your team prepared descriptions of activities within each of the departments in each plant (Exhibit 1). You also decided to create plant-sustaining cost pool to which you allocated factory costs that you decided could not accurately be allocated to the other departments. Finally, you prepared an analysis and description of the costs in each cost pool (Exhibit 2) and allocated the costs of the eight cost pools as shown in Schedule 9 to the different departments and to the plantsustaining cost pool. To complete the design of the ABC system you have to make decisions on the following: a. Which cost driver should be used for allocating the costs of each activity to each of the products? Schedules 4 & 5 present labor hours and machine hours per unit for each product. Schedule 6 lists the number of batches for each product. Schedule 1 lists the number of units for each product. b. Should you charge the design and engineering support and marketing expenses to products or treat them as firm-wide costs? Schedules 7 & 8 present sales personnel time distribution, and design and engineering support time distribution. If you decide to treat design and engineering and marketing as product costs, use the Allocation Menu to select the cost drivers and charge the cost to the products. 5. Write a report to the President that includes your analysis in Requirements 1-4, and state which of the four you recommend and why. CHART 1 2 3 4 Schedule 4 are missing decimals, they are supposed to be pb/GP .0025, and both pc, pd for GP at .0065. 5 6 6 9 8 13 10 SCHEDULE 1 2004 Products Budget Product Pa 70,000 45 $ 15.37 $ 3,150,000 $ Units Price $ Standard costs $ Revenue $ Manufacturing costs: Direct materials $ 84,000 Direct labor $ 840,000 Manufacturing overhead $ 152,111 Total manufacturing cos $ 1,076,111 Gross margin $ 2,073,889 Less common costs Design and engineering costs Mareting and sales expenses G and A Total costs Net profit $ $ $ $ $ Pb 100,000 30 $ 8.40 $ 3,000,000 $ 120,000 458,750 260,762 839,512 2,160,488 Reallocation Ovearhead rate= Manufacturing overhead Machine hours Manufacturing overhead rate based on machine hours Product Pa Pb Pc Pd JCP Pa Pb GP Pb Pc Pc 500,000 4 $ 5.31 $ 2,000,000 $ Pd 1,000,000 5 4.40 5,000,000 $ 600,000 $ $ 243,750 $ $ 1,810,850 $ $ 2,654,600 $ $ (654,600) $ 1,200,000 487,500 2,716,276 4,403,776 596,224 $ $ Machine hours per unit 4,940,000 136,400 36.22 Production 0.060 70,000 0.072 100,000 0.100 500,000 0.075 1,000,000 Manufacturing overhead allocated Cutting and Testing Assembly 4,098 1,502 20,000 40,000 Pack and Shipping 585 215 4,440 8,890 4,440 8,890 Manufactuting overhead allocated $ 152,111.44 $ 260,762.46 $ 1,810,850.44 $ 2,716,275.66 $ 4,940,000.00 Total 4,683 1,717 28,880 57,780 Pd Total machine hours per product 30,000 6,670 6,670 Pa Pb Pc Pd Total machine hours 4,683 30,597 57,780 43,340 136,400 43,340 Total $ 13,150,000 $ $ $ $ $ 2,004,000 2,030,000 4,940,000 8,974,000 4,176,000 $ 500,000 $ 960,000 $ 650,000 $ 2,110,000 $ 2,066,000 Schedule 3 Unit Standard Cost Duret materials Direct labor Ovearhead Total Pa $ 1.200 $ 12.000 $ 2.173 $ 15.373 Machine hours Overhead rate Overhead rate per 0.060 0.072 0.100 0.075 $ 36.22 $ 36.22 $ 36.22 $ 36.22 $ 2.17 $ 2.61 $ 3.62 $ 2.72 $ $ $ $ Pb 1.200 4.588 2.608 8.395 $ $ $ $ Pc 1.200 0.488 3.622 5.310 $ $ $ $ Pd 1.200 0.488 2.716 4.404 SCHEDULE 1 2004 Products Budget Product Units Price Standard costs Revenue Manufacturing costs: Direct materials Direct labor Manufacturing overhead Total manufacturing costs Gross margin Less common costs Design and engineering costs Mareting and sales expenses G and A Total costs Net profit SCHEDULE 4 Labor hours per unit pf product Plant JCP GP $ $ $ Pa 70,000 45 $ 29.09 $ 3,150,000 $ Pb 100,000 30 $ 12.43 $ 3,000,000 $ Pc 500,000 4 3.80 2,000,000 $ $ $ $ $ 84,000 840,000 1,112,344 2,036,344 1,113,656 120,000 458,750 663,781 1,242,531 1,757,469 600,000 243,750 1,054,625 1,898,375 101,625 $ $ $ $ $ Pa 0.3000 Production 70,000 Manufacturing overhead Total JCP $1,695,000 GP $3,245,000 Total direct labors hours JCP 32,000 GP 10,000 Manufacturing overhead rate per direct labor hour JCP $ 52.9688 GP $ 324.5000 Manufacturing overhead rate per product Pa JCP $ 1,112,343.75 $ GP $ - $ Manufacturing overhead rate per direct labor ho $ 1,112,343.75 $ Pb 0.1100 0.0025 100,000 $ $ $ $ $ Pc 0.0065 500,000 Pb Pc 582,656.25 81,125.00 $ 1,054,625.00 663,781.25 $ 1,054,625.00 Schedule 3 Unit Standard Cost Pa Duret materials Direct labor Overhead Total $ $ $ $ 1.200 12.000 15.891 29.091 Pb $ $ $ $ 1.200 4.588 6.638 12.425 Pc $ $ $ $ 1.200 0.488 2.109 3.797 $ $ $ Pd Total 1,000,000 5 3.80 5,000,000 $ 13,150,000 $ $ $ $ $ 1,200,000 487,500 2,109,250 3,796,750 1,203,250 $ $ $ $ $ 2,004,000 2,030,000 4,940,000 8,974,000 4,176,000 $ 500,000 $ 960,000 $ 650,000 $ 2,110,000 $ 2,066,000 Pd 0.0065 1,000,000 Pd $ 2,109,250.00 $ 2,109,250.00 Pd $ $ $ $ 1.200 0.488 2.109 3.797 ALLOCATE COSTS OF JCP BASED ON DIRECT LABOR HOURS SCHEDULE 9 Allocation of costs to deparments and activities JCP Expenses Power Repairs Factroy expenses Factory support Inspection Chemicals and fuel Depreciation-Equipment Depreciation-Building Total Overhead Allocation of labor hours Pa Pb Overhead rate per direct labor hour Allocation of overhead per product Pa Pb Total $ 160,000 $ 150,000 $ 75,000 $ 400,000 $ 110,000 $ 450,000 $ 200,000 $ 150,000 $ 1,695,000 $ $ $ 20,000 $ $ 50,000 $ $ 45,000 $ 165,000 $ 548,000 $ 1,463 537 2,000 22.50 $ 13,171 4,829 18,000 9.17 $ 2,195 805 3,000 182.67 671,672 $ 246,328 $ 918,000 $ 32,918 $ 12,083 $ 45,000 $ 120,734 $ 44,266 $ 165,000 $ 400,953 147,047 548,000 23,414 8,586 32,000 $ $ $ Cutting and Heat Treat. Assembly 10,000 $ 60,000 $ 20,000 15,000 $ 55,000 $ 18,000 Receiving 450,000 60,000 GP Expenses Power Repairs Factroy expenses Factory support Inspection Chemicals and fuel Depreciation-Equipment Depreciation-Building Total Overhead Allocation of machine hours/labor hours Pb Pc Pd Total Receiving $ 270,000 $ $ 300,000 $ $ 125,000 $ 350,000 $ 150,000 $ 1,200,000 $ 600,000 $ $ 250,000 $ 3,245,000 $ Overhead rate per machine or direct labor hour $ Cutting, Machining Heat Treat. and Assembly 25,000 $ 30,000 $ 120,000 $ 160,000 $ 35,000 $ $ 1,200,000 250,000 $ 80,000 90,000 $ 530,000 $ 1,315,000 484 1,258 1,258 3,000 30.00 $ 20,000 40,000 30,000 90,000 5.89 $ 15,000 20,000 162 419 419 1,000 1,315.00 Allocation of overhead per product Pb Pc Pd $ 430,798 $ 995,413 $ 893,789 $ 2,320,000 $ $ $ $ 14,520 37,740 37,740 90,000 $ $ $ $ 117,778 235,556 176,667 530,000 $ 213,030 $ 550,985 $ 550,985 $ 1,315,000 SUMMARY OF ALLOCATION JCP Pa Pb GP Pb Pc Pd Total $ $ $ Cutting and Heat Treat. Assembly 32,918 $ 120,734 $ 400,953 12,083 $ 44,266 $ 147,047 45,000 $ 165,000 $ 548,000 Receiving 671,672 $ 246,328 $ 918,000 $ $ 430,798 $ 995,413 $ 893,789 $ 2,320,000 $ $ $ $ 14,520 37,740 37,740 90,000 $ $ $ $ 117,778 235,556 176,667 530,000 $ 213,030 $ 550,985 $ 550,985 $ 1,315,000 Pb 100,000 Pc 500,000 Pd 1,000,000 457,059 57,813 $ 514,871 $ 5.15 $ 289,063 $ 289,063 $ 0.58 $ 578,125 578,125 0.58 ALLOCATION OF PLANT SUSTAINING JCP GP Production Allocation of plant sustaining costs: JCP GP Plant sustaining cost per unit Plant Sustaining $ 777,000 $ 925,000 Pa 70,000 $ $ $ 319,941 $ $ 319,941 $ 4.57 $ ALLOCATION OF MARKETING AND SALES EXPENSES Marketing and sales time distribution Marketing and sales expenses distributio $ Marketing and sales expenses per unit $ Pa Pb Pc Pd 35% 336,000 $ 4.80 $ 20% 192,000 $ 1.92 $ 15% 144,000 $ 0.29 $ 15% 144,000 0.14 Pc Pd ALLOCATION OF ENGINEERING AND DESIGN COSTS Design amd engineering time distributio Design and engineering costs distributio $ Design and engineering cost per unit $ Pa Pb 35% 175,000 $ 2.50 $ 20% 100,000 $ 1.00 $ 10% 50,000 $ 0.10 $ 10% 50,000 0.05 SUMMARY OF MANUFACTURING OVERHEAD ALLOCATION Pa Pb Pc Pd From JCP (excpet plant sustaining costs) $ 671,672 $ 246,328 From GP (excpet plant sustaining costs) $ 430,798 $ 995,413 $ 893,789 Plant sustaining costs $ 319,941 $ 514,871 $ 289,063 $ 578,125 Total manufacturing overhead allocation $ 991,613 $ 1,191,997 $ 1,284,476 $ 1,471,914 Activity based costing schedule Pa Units Price Revenue Manufacturing costs: Direct materials Direct labor Total direct costs Gross margin Manufacturing overhead Design and engineering costs Marketing and sales expenses G and A Total costs Operating costs 70,000 $45 $3,150,000 Pb 100,000 $30 $3,000,000 Pc 500,000 $4 $2,000,000 $ 84,000 $ 120,000 $ 600,000 $ $ 840,000 $ 458,750 $ 243,750 $ $ 924,000 $ 578,750 $ 843,750 $ $ 2,226,000 $ 2,421,250 $ 1,156,250 $ $ 991,613 $ 1,191,997 $ 1,284,476 $ $ 175,000 $ 100,000 $ 50,000 $ $ 336,000 $ 192,000 $ 144,000 $ Pd 1,000,000 $5 $5,000,000 1,200,000 487,500 1,687,500 3,312,500 1,471,914 50,000 144,000 $ 1,502,613 $ 1,483,997 $ 1,478,476 $ 1,665,914 $ 723,387 $ 937,253 $ (322,226) $ 1,646,586 Testing Plant Sustaining 15,000 $ 20,000 10,000 $ 12,000 $ 75,000 $ 400,000 $ 110,000 Pack and Ship $ $ 35,000 $ 40,000 $ $ 50,000 $ 10,000 $ 35,000 $ $ 125,000 $ $ 2,195 805 3,000 41.67 $ 4,390 1,610 6,000 5.83 $ $ $ 91,458 $ 33,542 $ 125,000 $ 25,608 9,392 35,000 Testing $ $ Pack and Ship 70,000 $ 50,000 $ $ 200,000 $ $ 320,000 $ ### 150,000 777,000 - Facility Sustaining 20,000 20,000 $ $ $ ### ### 125,000 350,000 150,000 25,000 $ $ 65,000 $ 10,000 250,000 925,000 Note: I highlighted the labor hours cells in YELLOW $ 4,440 8,890 6,670 20,000 16.00 $ 4,440 8,890 6,670 20,000 3.25 $ $ $ $ 71,040 142,240 106,720 320,000 Testing $ $ $ $ 14,430 28,893 21,678 65,000 Pack and Ship $ $ $ 91,458 $ 33,542 $ 125,000 $ 25,608 9,392 35,000 $ $ $ $ 71,040 142,240 106,720 320,000 14,430 28,893 21,678 65,000 $ $ $ $ Total $ 777,000 $ 925,000 $ 1,702,000 General Marketing and Sales $ 15% 144,000 $ General Marketing and Sales $ 25% 125,000 $ Total 100% 960,000 Total 100% 500,000 $ $ $ $ Total 918,000 2,320,000 1,702,000 4,940,000 Common Costs Total $13,150,000 $ $ $ $ $ 125,000 144,000 650,000 919,000 (919,000) $2,004,000 $2,030,000 $ 4,034,000 $ 9,116,000 $4,940,000 $ 500,000 $ 960,000 $ 650,000 $ 7,050,000 $ 2,066,000 Gross margin Machine hours Direct labor hours Machine and direct labor hours Activity-based costing $ $ $ $ Pa 2,073,889 1,113,656 113,656 2,226,000 $ $ $ $ Pb 2,160,488 1,757,469 1,713,786 2,421,250 $ $ $ $ Pc (654,600) 101,625 (91,827) 1,156,250 $ $ $ $ Pd 596,224 1,203,250 1,440,385 3,312,500 Pilgrims Manufacturing, Inc.: Activity-Based Costing versus Volume-Based Costing Requirement 1 Note: Refer to Excel file Schedule 1 and Schedule 3 for the computations Requirement 2 Note: Refer to Excel file Requirement 2 for the computations Requirement 3 Requirement 4 Note: Refer to Excel file Requirement 4 for the computations Question a For JCP, the costs for receiving, cutting and assembly, heat treatment, testing, and packing and shipping are allocated based on direct labor hours to Products Pa and Pb. While for GP, the costs for cutting and assembly, and packing and shipping are allocated based machine hours for Pb, Pc and Pd; receiving and heat treatments, on the other hand are allocated to Pb, Pc, and Pd based on direct labor hours. Below are the allocations per department and per product: The plant sustaining costs per department is charged to the products based on the output. Below is the summary of the manufacturing overhead allocation: Question b The design and engineering support and marketing expense should be allocated as follows: 1. Marketing and sales expenses by time spent on each product 2. Design and engineering costs on each product and basic R&D Requirement 5 The gross margins for each product differ based on the allocation criteria used. The choice of these allocation criteria is crucial if Pilgrims Manufacturing, Inc. has to make accurate decisions for each of the product. For example, if we use machine hours to allocate the overhead costs to each of the products, then we know that the gross margin for Pc is negative $654,600. We will probably decide to discontinue the product. But based on activity-base costing this product line contribute $1,156,250 to the recovery of the company's indirect costs. I therefore suggest that the company use activity based costing in allocating its costs to each of its products. SCHEDULE 1 2004 Products Budget Product Pa 70,000 45 $ 15.37 $ 3,150,000 $ Units Price $ Standard costs $ Revenue $ Manufacturing costs: Direct materials $ 84,000 Direct labor $ 840,000 Manufacturing overhead $ 152,111 Total manufacturing cos $ 1,076,111 Gross margin $ 2,073,889 Less common costs Design and engineering costs Mareting and sales expenses G and A Total costs Net profit $ $ $ $ $ Pb 100,000 30 $ 8.40 $ 3,000,000 $ 120,000 458,750 260,762 839,512 2,160,488 Reallocation Ovearhead rate= Manufacturing overhead Machine hours Manufacturing overhead rate based on machine hours Product Pa Pb Pc Pd JCP Pa Pb GP Pb Pc Pc 500,000 4 $ 5.31 $ 2,000,000 $ Pd 1,000,000 5 4.40 5,000,000 $ 600,000 $ $ 243,750 $ $ 1,810,850 $ $ 2,654,600 $ $ (654,600) $ 1,200,000 487,500 2,716,276 4,403,776 596,224 $ $ Machine hours per unit 4,940,000 136,400 36.22 Production 0.060 70,000 0.072 100,000 0.100 500,000 0.075 1,000,000 Manufacturing overhead allocated Cutting and Testing Assembly 4,098 1,502 20,000 40,000 Pack and Shipping 585 215 4,440 8,890 4,440 8,890 Manufactuting overhead allocated $ 152,111.44 $ 260,762.46 $ 1,810,850.44 $ 2,716,275.66 $ 4,940,000.00 Total 4,683 1,717 28,880 57,780 Pd Total machine hours per product 30,000 6,670 6,670 Pa Pb Pc Pd Total machine hours 4,683 30,597 57,780 43,340 136,400 43,340 Total $ 13,150,000 $ $ $ $ $ 2,004,000 2,030,000 4,940,000 8,974,000 4,176,000 $ 500,000 $ 960,000 $ 650,000 $ 2,110,000 $ 2,066,000 Schedule 3 Unit Standard Cost Duret materials Direct labor Ovearhead Total Pa $ 1.200 $ 12.000 $ 2.173 $ 15.373 Machine hours Overhead rate Overhead rate per 0.060 0.072 0.100 0.075 $ 36.22 $ 36.22 $ 36.22 $ 36.22 $ 2.17 $ 2.61 $ 3.62 $ 2.72 $ $ $ $ Pb 1.200 4.588 2.608 8.395 $ $ $ $ Pc 1.200 0.488 3.622 5.310 $ $ $ $ Pd 1.200 0.488 2.716 4.404 SCHEDULE 1 2004 Products Budget Product Units Price Standard costs Revenue Manufacturing costs: Direct materials Direct labor Manufacturing overhead Total manufacturing costs Gross margin Less common costs Design and engineering costs Mareting and sales expenses G and A Total costs Net profit SCHEDULE 4 Labor hours per unit pf product Plant JCP GP $ $ $ Pa 70,000 45 $ 29.09 $ 3,150,000 $ Pb 100,000 30 $ 12.43 $ 3,000,000 $ Pc 500,000 4 3.80 2,000,000 $ $ $ $ $ 84,000 840,000 1,112,344 2,036,344 1,113,656 120,000 458,750 663,781 1,242,531 1,757,469 600,000 243,750 1,054,625 1,898,375 101,625 $ $ $ $ $ Pa 0.3000 Production 70,000 Manufacturing overhead Total JCP $1,695,000 GP $3,245,000 Total direct labors hours JCP 32,000 GP 10,000 Manufacturing overhead rate per direct labor hour JCP $ 52.9688 GP $ 324.5000 Manufacturing overhead rate per product Pa JCP $ 1,112,343.75 $ GP $ - $ Manufacturing overhead rate per direct labor ho $ 1,112,343.75 $ Pb 0.1100 0.0025 100,000 $ $ $ $ $ Pc 0.0065 500,000 Pb Pc 582,656.25 81,125.00 $ 1,054,625.00 663,781.25 $ 1,054,625.00 Schedule 3 Unit Standard Cost Pa Duret materials Direct labor Overhead Total $ $ $ $ 1.200 12.000 15.891 29.091 Pb $ $ $ $ 1.200 4.588 6.638 12.425 Pc $ $ $ $ 1.200 0.488 2.109 3.797 $ $ $ Pd Total 1,000,000 5 3.80 5,000,000 $ 13,150,000 $ $ $ $ $ 1,200,000 487,500 2,109,250 3,796,750 1,203,250 $ $ $ $ $ 2,004,000 2,030,000 4,940,000 8,974,000 4,176,000 $ 500,000 $ 960,000 $ 650,000 $ 2,110,000 $ 2,066,000 Pd 0.0065 1,000,000 Pd $ 2,109,250.00 $ 2,109,250.00 Pd $ $ $ $ 1.200 0.488 2.109 3.797 ALLOCATE COSTS OF JCP BASED ON DIRECT LABOR HOURS SCHEDULE 9 Allocation of costs to deparments and activities JCP Expenses Power Repairs Factroy expenses Factory support Inspection Chemicals and fuel Depreciation-Equipment Depreciation-Building Total Overhead Allocation of labor hours Pa Pb Overhead rate per direct labor hour Allocation of overhead per product Pa Pb Total $ 160,000 $ 150,000 $ 75,000 $ 400,000 $ 110,000 $ 450,000 $ 200,000 $ 150,000 $ 1,695,000 $ $ $ 20,000 $ $ 50,000 $ $ 45,000 $ 165,000 $ 548,000 $ 1,463 537 2,000 22.50 $ 13,171 4,829 18,000 9.17 $ 2,195 805 3,000 182.67 671,672 $ 246,328 $ 918,000 $ 32,918 $ 12,083 $ 45,000 $ 120,734 $ 44,266 $ 165,000 $ 400,953 147,047 548,000 23,414 8,586 32,000 $ $ $ Cutting and Heat Treat. Assembly 10,000 $ 60,000 $ 20,000 15,000 $ 55,000 $ 18,000 Receiving 450,000 60,000 GP Expenses Power Repairs Factroy expenses Factory support Inspection Chemicals and fuel Depreciation-Equipment Depreciation-Building Total Overhead Allocation of machine hours/labor hours Pb Pc Pd Total Receiving $ 270,000 $ $ 300,000 $ $ 125,000 $ 350,000 $ 150,000 $ 1,200,000 $ 600,000 $ $ 250,000 $ 3,245,000 $ Overhead rate per machine or direct labor hour $ Cutting, Machining Heat Treat. and Assembly 25,000 $ 30,000 $ 120,000 $ 160,000 $ 35,000 $ $ 1,200,000 250,000 $ 80,000 90,000 $ 530,000 $ 1,315,000 484 1,258 1,258 3,000 30.00 $ 20,000 40,000 30,000 90,000 5.89 $ 15,000 20,000 162 419 419 1,000 1,315.00 Allocation of overhead per product Pb Pc Pd $ 430,798 $ 995,413 $ 893,789 $ 2,320,000 $ $ $ $ 14,520 37,740 37,740 90,000 $ $ $ $ 117,778 235,556 176,667 530,000 $ 213,030 $ 550,985 $ 550,985 $ 1,315,000 SUMMARY OF ALLOCATION JCP Pa Pb GP Pb Pc Pd Total $ $ $ Cutting and Heat Treat. Assembly 32,918 $ 120,734 $ 400,953 12,083 $ 44,266 $ 147,047 45,000 $ 165,000 $ 548,000 Receiving 671,672 $ 246,328 $ 918,000 $ $ 430,798 $ 995,413 $ 893,789 $ 2,320,000 $ $ $ $ 14,520 37,740 37,740 90,000 $ $ $ $ 117,778 235,556 176,667 530,000 $ 213,030 $ 550,985 $ 550,985 $ 1,315,000 Pb 100,000 Pc 500,000 Pd 1,000,000 457,059 57,813 $ 514,871 $ 5.15 $ 289,063 $ 289,063 $ 0.58 $ 578,125 578,125 0.58 ALLOCATION OF PLANT SUSTAINING JCP GP Production Allocation of plant sustaining costs: JCP GP Plant sustaining cost per unit Plant Sustaining $ 777,000 $ 925,000 Pa 70,000 $ $ $ 319,941 $ $ 319,941 $ 4.57 $ ALLOCATION OF MARKETING AND SALES EXPENSES Marketing and sales time distribution Marketing and sales expenses distributio $ Marketing and sales expenses per unit $ Pa Pb Pc Pd 35% 336,000 $ 4.80 $ 20% 192,000 $ 1.92 $ 15% 144,000 $ 0.29 $ 15% 144,000 0.14 Pc Pd ALLOCATION OF ENGINEERING AND DESIGN COSTS Design amd engineering time distributio Design and engineering costs distributio $ Design and engineering cost per unit $ Pa Pb 35% 175,000 $ 2.50 $ 20% 100,000 $ 1.00 $ 10% 50,000 $ 0.10 $ 10% 50,000 0.05 SUMMARY OF MANUFACTURING OVERHEAD ALLOCATION Pa Pb Pc Pd From JCP (excpet plant sustaining costs) $ 671,672 $ 246,328 From GP (excpet plant sustaining costs) $ 430,798 $ 995,413 $ 893,789 Plant sustaining costs $ 319,941 $ 514,871 $ 289,063 $ 578,125 Total manufacturing overhead allocation $ 991,613 $ 1,191,997 $ 1,284,476 $ 1,471,914 Activity based costing schedule Pa Units Price Revenue Manufacturing costs: Direct materials Direct labor Total direct costs Gross margin Manufacturing overhead Design and engineering costs Marketing and sales expenses G and A Total costs Operating costs 70,000 $45 $3,150,000 Pb 100,000 $30 $3,000,000 Pc 500,000 $4 $2,000,000 $ 84,000 $ 120,000 $ 600,000 $ $ 840,000 $ 458,750 $ 243,750 $ $ 924,000 $ 578,750 $ 843,750 $ $ 2,226,000 $ 2,421,250 $ 1,156,250 $ $ 991,613 $ 1,191,997 $ 1,284,476 $ $ 175,000 $ 100,000 $ 50,000 $ $ 336,000 $ 192,000 $ 144,000 $ Pd 1,000,000 $5 $5,000,000 1,200,000 487,500 1,687,500 3,312,500 1,471,914 50,000 144,000 $ 1,502,613 $ 1,483,997 $ 1,478,476 $ 1,665,914 $ 723,387 $ 937,253 $ (322,226) $ 1,646,586 Testing Plant Sustaining 15,000 $ 20,000 10,000 $ 12,000 $ 75,000 $ 400,000 $ 110,000 Pack and Ship $ $ 35,000 $ 40,000 $ $ 50,000 $ 10,000 $ 35,000 $ $ 125,000 $ $ 2,195 805 3,000 41.67 $ 4,390 1,610 6,000 5.83 $ $ $ 91,458 $ 33,542 $ 125,000 $ 25,608 9,392 35,000 Testing $ $ Pack and Ship 70,000 $ 50,000 $ $ 200,000 $ $ 320,000 $ ### 150,000 777,000 - Facility Sustaining 20,000 20,000 $ $ $ ### ### 125,000 350,000 150,000 25,000 $ $ 65,000 $ 10,000 250,000 925,000 Note: I highlighted the labor hours cells in YELLOW $ 4,440 8,890 6,670 20,000 16.00 $ 4,440 8,890 6,670 20,000 3.25 $ $ $ $ 71,040 142,240 106,720 320,000 Testing $ $ $ $ 14,430 28,893 21,678 65,000 Pack and Ship $ $ $ 91,458 $ 33,542 $ 125,000 $ 25,608 9,392 35,000 $ $ $ $ 71,040 142,240 106,720 320,000 14,430 28,893 21,678 65,000 $ $ $ $ Total $ 777,000 $ 925,000 $ 1,702,000 General Marketing and Sales $ 15% 144,000 $ General Marketing and Sales $ 25% 125,000 $ Total 100% 960,000 Total 100% 500,000 $ $ $ $ Total 918,000 2,320,000 1,702,000 4,940,000 Common Costs Total $13,150,000 $ $ $ $ $ 125,000 144,000 650,000 919,000 (919,000) $2,004,000 $2,030,000 $ 4,034,000 $ 9,116,000 $4,940,000 $ 500,000 $ 960,000 $ 650,000 $ 7,050,000 $ 2,066,000 Gross margin Machine hours Direct labor hours Machine and direct labor hours Activity-based costing $ $ $ $ Pa 2,073,889 1,113,656 113,656 2,226,000 $ $ $ $ Pb 2,160,488 1,757,469 1,713,786 2,421,250 $ $ $ $ Pc (654,600) 101,625 (91,827) 1,156,250 $ $ $ $ Pd 596,224 1,203,250 1,440,385 3,312,500 Pilgrims Manufacturing, Inc.: Activity-Based Costing versus Volume-Based Costing Requirement 1 Note: Refer to Excel file Schedule 1 and Schedule 3 for the computations Requirement 2 Note: Refer to Excel file Requirement 2 for the computations Requirement 3 Requirement 4 Note: Refer to Excel file Requirement 4 for the computations Question a For JCP, the costs for receiving, cutting and assembly, heat treatment, testing, and packing and shipping are allocated based on direct labor hours to Products Pa and Pb. While for GP, the costs for cutting and assembly, and packing and shipping are allocated based machine hours for Pb, Pc and Pd; receiving and heat treatments, on the other hand are allocated to Pb, Pc, and Pd based on direct labor hours. Below are the allocations per department and per product: The plant sustaining costs per department is charged to the products based on the output. Below is the summary of the manufacturing overhead allocation: Question b The design and engineering support and marketing expense should be allocated as follows: 1. Marketing and sales expenses by time spent on each product 2. Design and engineering costs on each product and basic R&D Requirement 5 The gross margins for each product differ based on the allocation criteria used. The choice of these allocation criteria is crucial if Pilgrims Manufacturing, Inc. has to make accurate decisions for each of the product. For example, if we use machine hours to allocate the overhead costs to each of the products, then we know that the gross margin for Pc is negative $654,600. We will probably decide to discontinue the product. But based on activity-base costing this product line contribute $1,156,250 to the recovery of the company's indirect costs. I therefore suggest that the company use activity based costing in allocating its costs to each of its products