Chapter 17: Q1DQ (page 787)
Why are overhead costs allocated to products and not traced to products as direct materials and direct labor are?
The allocated overhead cost of items is not accounted for as direct materials.
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Following are activities in providing medical services at Healthsmart Clinic.
A. Registering patients E. Ordering medical equipment
B. Cleaning beds F. Heating the clinic
C. Stocking examination rooms G. Providing security services
D. Washing linens H. Filling prescriptions
Required
1. Classify each activity as unit level (U), batch level (B), product level (P), or facility level (F).
2. Identify an activity driver that might be used to measure these activities at the clinic.
Toyota embraces lean techniques, including lean accounting. What are the key components of lean accounting?
What is an activity cost driver?
Way Cool produces two different models of air conditioners. The company produces the mechanical systems in their components department. The mechanical systems are combined with the housing assembly in its finishing department. The activities, costs, and drivers associated with these two manufacturing processes and the production support process follow.
Process Activity Overhead Cost Driver Quantity
Components Changeover \( 500,000 Number of batches 800
Machining 279,000 Machine hours 6,000
Setups 225,000 Number of setups 120
\)1,004,000
Finishing Welding \( 180,300 Welding hours 3,000
Inspecting 210,000 Number of inspections 700
Rework 75,000 Rework orders 300
\) 465,300
Support Purchasing \( 135,000 Purchase orders 450
Providing space 32,000 Number of units 5,000
Providing utilities 65,000 Number of units 5,000
\) 232,000
Additional production information concerning its two product lines follows.
Model 145 Model 212
Units produced …………………………… 1,500 3,500
Welding hours …………………………….. 800 2,200
Batches …………………………………….. 400 400
Number of inspections ………………….. 400 300
Machine hours ……………………………. 1,800 4,200
Setups ……………………………………… 60 60
Rework orders ……………………………. 160 140
Purchase orders ………………………….. 300 150
Required
1. Using a plantwide overhead rate based on machine hours, compute the overhead cost per unit for each product line.
2. Determine the total cost per unit for each product line if the direct labor and direct materials costs per unit are \(250 for Model 145 and \)180 for Model 212.
3. If the market price for Model 145 is \(820 and the market price for Model 212 is \)480, determine the profit or loss per unit for each model. Comment on the results.
A manufacturer uses machine hours to assign overhead costs to products. Budgeted information for the next year follows. Compute the plantwide overhead rate for the next year based on machine hours.
Budgeted factory overhead costs | $544,000 |
Budgeted machine hours. | 6,400 |
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