acc503-chapter-9-pre-built-assignment

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Munoz Sporting Equipment manufactures baseball bats and tennis rackets. Department B produces the baseball bats, and Department T produces the tennis rackets. Munoz currently uses plantwide allocation to allocate its overhead to all products. Direct labor cost is the allocation base. The rate used is 200 percent of direct labor cost. Last year, revenue, materials, and direct labor were as follows:

Baseball Bats

Tennis Rackets

Sales revenue

$

1,640,000

$

900,000

Direct labor

360,000

180,000

Direct materials

550,000

284,000


Required:

(a)

Compute the profit for each product using plantwide allocation.

(b)

Maria, the manager of Department T, was convinced that tennis rackets were really more profitable than baseball bats. She asked her colleague in accounting to break down the overhead costs for the two departments. She discovered that had department rates been used, Department B would have had a rate of 150 percent of direct labor cost and Department T would have had a rate of 200 percent of direct labor cost. Recompute the profits for each product using each department’s allocation rate (based on direct labor cost).

2.

value:
10.00 points

Rodent Corporation produces two types of computer mice, wired and wireless. The wired mice are designed as low-cost, reliable input devices. The company only recently began producing the higher-quality wireless model. Since the introduction of the new product, profits have been steadily declining. Management believes that the accounting system is not accurately allocating costs to products, particularly because sales of the new product have been increasing.

Management has asked you to investigate the cost allocation problem. You find that manufacturing overhead is currently assigned to products based on their direct labor costs. For your investigation, you have data from last year. Manufacturing overhead was $1,337,000 based on production of 290,000 wired mice and 87,000 wireless mice. Direct labor and direct materials costs were as follows:

Wired

Wireless

Total

Direct labor

$

1,029,000

$

406,000

$

1,435,000

Materials

730,000

701,000

1,431,000


Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows:

Activity Level


Cost Driver

Costs Assigned

Wired

Wireless

Total

Number of production runs

$

605,000

40

15

55

Quality tests performed

600,000

13

17

30

Shipping orders processed

132,000

80

40

120




Total overhead

$

1,337,000








Required:

(a)

How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? (Round “Total Cost Per Unit” to 2 decimal places.)

(b)

How much overhead will be assigned to each product if direct labor cost is used to allocate overhead?What is the total cost per unit produced for each product? (Do not round intermediate calculations. Round “Overhead” to the nearest whole dollar and “Total Cost Per Unit” to 2 decimal places.)

3.

value:
10.00 points

We-Clean, Inc., is a home-cleaning service. It originally specialized in serving small residential clients but recently started contracting for work in large apartment and office buildings. Julie Lodge, the owner, believes that the commercial sector has more growth opportunities and is considering dropping the residential service.

Twenty cleaning employees worked a total of 34,000 hours last year, 23,000 on residential jobs and 11,000 on commercial jobs. Wages were $15 per hour for all work done. Any materials used are included in overhead as supplies. All overhead is allocated on the basis of labor-hours worked, which is also the basis for customer charges. Because of increased competition for commercial accounts, Julie can charge $34 per hour for residential work, but only $28 per hour for commercial work.

Required:

(a)

If overhead for the year was $121,540, what were the profits of the commercial and the residential services using labor-hours as the allocation base? (Do not round intermediate calculations. Round “Profit” to the nearest whole dollar.)

(b)

Overhead consists of costs of traveling, using equipment, and using supplies, which can be traced as follows:

Cost Driver Volume

Activity

Cost Driver

Cost

Commercial

Residential

Traveling

Number of clients served

$

14,740

13

42

Using equipment

Equipment hours

40,800

3,900

2,100

Using supplies

Area serviced in square yards

66,000

120,000

80,000




Total overhead

$

121,540








Recalculate profits for commercial and residential services based on these activity bases.(Do not round intermediate calculations. Round “Profit” to the nearest whole dollar.)

Bob’s Baskets, Inc., manufactures and sells two types of baskets, deluxe and standard. Last year, Bob’s Baskets had the following costs and revenues:

BOB’S BASKETS, INC.
Income Statement

Deluxe

Standard

Total

Revenue

$

147,000

$

163,000

$

310,000

Direct materials

22,000

20,000

42,000

Direct labor

74,000

46,000

120,000

Overhead costs

Administration

18,000

Production setup

40,920

Quality control

18,870

Distribution

14,420




Operating profit

$

55,790








Bob’s Baskets currently uses labor costs to allocate all overhead but is considering implementing an activity-based costing system. After interviewing the sales and production staff, management decides to allocate administrative costs on the basis of direct labor costs but to use the following bases to allocate the remaining overhead:

Activity Level


Activity

Cost Driver

Deluxe

Standard

Setting up

Number of production runs

9

22

Performing quality control

Number of inspections

37

37

Distribution

Number of units shipped

80,000

126,000


Required:

(a)

Complete the income statement using the preceding activity bases.(Do not round intermediate calculations.)

(c)

Restate the income statement for Bob’s Baskets using direct labor costs as the only overhead allocation base.(Do not round intermediate calculations. Round “Overhead costs” to the nearest dollar.)

5.

value:
10.00 points

MTI makes three types of lawn tractors: M3100, M4100, and M6100. In the past, it allocated overhead to products using machine-hours. Last year, the company produced 9,000 units of M3100, 15,500 units of M4100, and 9,000 units of M6100 and had the following revenues and costs:

MTI
Income Statement

M3100

M4100

M6100

Total

Sales revenue

$

9,300,000

$

15,200,000

$

12,900,000

$

37,400,000

Direct costs

Direct materials

3,100,000

4,900,000

3,200,000

11,200,000

Direct labor

600,000

950,000

1,810,000

3,360,000

Variable overhead

Setting up machines

2,303,000

Processing sales orders

1,848,000

Warehousing

2,223,000

Operating machines

1,275,000

Shipping

804,000



Contribution margin

$

14,387,000

Plant administration

5,500,000



Gross profit

$

8,887,000






MTI’s controller has heard about activity-based costing and puts to gether an employee team to recommend cost allocation bases. The employee team recommends the following:

Activity

Cost Driver

M3100

M4100

M6100

Setting up machines

Production runs

12

19

18

Processing sales orders

Sales orders received

190

380

200

Warehousing

Units held in inventory

120

190

80

Operating machines

Machine-hours

6,500

9,800

8,700

Shipping

Units shipped

9,000

15,500

9,000


The employee team recommends that plant administration costs not be allocated to products.

Required:

(a)

Using machine-hours to allocate overhead, complete the income statement for MTI. Do not allocate plant administrative costs to products. (Do not round intermediate computations.)

(b)

Complete the income statement using the activity-based costing method suggested by the employee team.

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