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Chapter 19: Q-35PGA-1 (page 1077)

Question:Oscar, Inc. manufactures bookcases and uses an activity-based costing system. Oscar’s activity areas and related data follow:

Activity

Budgeted Cost of Activity

Allocation Base

Predetermined Overhead Allocation Rate

Materials handling

\( 240,000

Number of parts

\)1.00

Assembly

3,500,000

Number of assembling direct labor hours

17.00

Finishing

190,000

Number of finished units*

4.50

*Refers to number of units receiving the finishing activity, not the number of units transferred to Finished Goods Inventory

Oscar produced two styles of bookcases in October: the standard bookcase and an unfinished bookcase, which has fewer parts and requires no finishing. The totals for quantities, direct materials costs, and other data follow:

Product

Total Units Produced

Total Direct materials Costs

Total Direct Labor Costs

Total Number of Parts

Total Assembling Direct Labor Hours

Standard bookcase

7,000

\(91,000

\)105,000

28,000

10,500

Unfinished bookcase

7,500

82,500

75,000

22,500

7,500

Requirements

1. Compute the manufacturing product cost per unit of each type of bookcase.

Short Answer

Expert verified

Answer

Manufacturing cost per unit:

For Standard bookcase: $62

For Unfinished bookcase: $40.93

Step by step solution

01

Computation of manufacturing product cost for standard  bookcase

Totalmaterialhandlingcost=Predeterminedallocationoverheadrate×no.ofpartsusedforstandaredbookcase=$1×$28000=$28,000Totalassemblingcost=Predeterminedallocationoverheadrate×no.ofassemblingdirecthoursforstandaredbookcase=$17×$10,500=$178,500Totalfishingcost=Predeterminedallocationoverheadrate×no.offishedunitsforstandaredbookcase=$4.5×$7000=$31,500TotalOverheadcost=Totalmaterialcost×Totalassemblingcost×Totalfinishedcost=$28,000+178500+$31,500=$238,000Totalmanufacturingcostforstandaredbookcase=Directmeterialcost+Directlabourcost+Overheadcost=$91000+$105,000+$238,000=$434,000Manufacturingcostperunit=TotalmanufacturingcostNo.0funitsproduced=$434,0007000=$62

02

Computation of manufacturing product cost for unfinished  bookcase

Totalmaterialhandlingcost=Predeterminedallocationoverheadrate×no.ofpartsusedforunfinishedbookcase=$1×$22000=$22,000Totalassemblingcost=Predeterminedallocationoverheadrate×no.ofassemblingdirectlabourhoursforstandaredbookcase=$17×$7,500=$178,500Totaloverheadcost=Totalmaterialcost+Totalassemblingcost=$22,500+127,500=$150,500Totalmanufacturingcostforstandaredbookcase=Directmeterialcost+Directlabourcost+Overheadcost=$82000+$75,000+$150,000=$307,000Manufacturingcostperunit=TotalmanufacturingcostNo.0funitsproduced=$307,0007500=$40.93

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Most popular questions from this chapter

Willitte Pharmaceuticals manufactures an over-the-counter allergy medication. The company sells both large commercial containers of 1,000 capsules to health care facilities and travel packs of 20 capsules to shops in airports, train stations, and hotels. The following information has been developed to determine if an activity-based costing system would be beneficial:

Activity Estimated Estimated Quantity

Indirect Cost Allocation Base of Allocation Base

Materials handling \( 95,000 Number of kilos 19,000 kilos

Packaging 200,000 Number of machine hours 5,000 hours

Quality assurance 112,500 Number of samples 1,875 samples

Total indirect costs \) 407,500

Actual production information includes the following:

Commercial Containers Travel Packs

Units produced 2,400 containers 50,000 packs

Weight in kilos 9,600 5,000

Machine hours 1,680 500

Number of samples 240 750

Requirements

3. Use the predetermined overhead allocation rates to compute the activity-based costs per unit of the commercial containers and the travel packs. Round to two decimal places. (Hint: First compute the total activity-based costs allocated to each product line, and then compute the cost per unit.)

The Alright Manufacturing Company in Rochester, Minnesota, assembles and tests electronic components used in smartphones. Consider the following data regarding component T24 (amounts are per unit):

Direct materials cost \( 80.00

Direct labor cost 20.00

Activity-based costs allocated ?

Total manufacturing product cost ?

The activities required to build the component follow:

Activity Allocation Base Cost Allocated to

Each Unit

Start station Number of raw component chassis 4 * \) 1.50 = \( 6.00

Dip insertion Number of dip insertions ? * 0.30 = 9.60

Manual insertion Number of manual insertions 10 * 0.50 = ?

Wave solder Number of components soldered 4 * 1.90 = 7.60

Backload Number of backload insertions 7 * ? = 4.20

Test Number of testing hours 0.43 * 90.00 = ?

Defect analysis Number of defect analysis hours 0.15 * ?= 12.00

Total activity-based costs \) ?

Requirements

1. Complete the missing items for the two tables.

Martin, Inc. manufactures bookcases and uses an activity-based costing system. Martin’s activity areas and related data follow:

Activity

Budgeted Cost of Activity

Allocation Base

Predetermined Overhead Allocation Rate

Materials handling

\( 230,000

Number of parts

\)1.50

Assembly

3,200,000

Number of assembling direct labor hours

16.00

Finishing

150,000

Number of finished units*

3.00

*Refers to the number of units receiving the finishing activity, not the number of units transferred to Finished Goods Inventory

Martin produced two styles of bookcases in April: the standard bookcase and an unfinished bookcase, which has fewer parts and requires no finishing. The totals for quantities, direct materials costs, and other data follow:

Product

Total Units Produced

Total Direct materials Costs

Total Direct Labor Costs

Total Number of Parts

Total Assembling Direct Labor Hours

Standard bookcase

3,000

\(54,000

\)67,500

9,000

4,500

Unfinished bookcase

3,500

56,000

52,500

7,000

3,500

Requirements

2. Suppose that pre-manufacturing activities, such as product design, were assigned to the standard bookcases at \(5 each and to the unfinished bookcases at \)3 each. Similar analyses were conducted of post-manufacturing activities such as distribution, marketing, and customer service. The post-manufacturing costs were \(24 per standard bookcase and \)18 per unfinished bookcase. Compute the full product costs per unit.

Franklin, Inc. uses activity-based costing to account for its chrome bumper manufacturing process. Company managers have identified four manufacturing activities:

materials handling, machine setup, insertion of parts, and finishing. The budgeted activity costs for 2018 and their allocation bases are as follows:

Activity Total Budgeted Cost Allocation Base

Materials handling \( 12,000 Number of parts

Machine setup 3,100 Number of setups

Insertion of parts 42,000 Number of parts

Finishing 86,000 Finishing direct labor hours

Total \) 143,100

Franklin expects to produce 500 chrome bumpers during the year. The bumpers are expected to use 4,000 parts, require 10 setups, and consume 1,000 hours of finishing time.

Requirements

1. Compute the predetermined overhead allocation rate for each activity.

Darby Corp. is considering the use of activity-based costing. The following information is provided for the production of two product lines:

Activity Cost Allocation Base

Setup \( 105,000 Number of setups

Machine maintenance 60,000 Number of machine hours

Total indirect manufacturing costs \) 165,000

Product A Product B Total

Direct labor hours 7,000 5,000 12,000

Number of setups 30 170 200

Number of machine hours 1,600 2,400 4,000

Darby plans to produce 375 units of Product A and 250 units of Product B. Compute the ABC indirect manufacturing cost per unit for each product.
See all solutions

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