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Chapter 19: 19-3TI (page 1036)
Goodwin, Inc. manufactures children’s sandals. Similar sandals manufactured by competitors sell for $12.50 per pair. Goodwin desires a 20% net profit margin. What is Goodwin’s target cost?
Target Cost: $10
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The Alexander 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 \( 81.00
Direct labor cost 21.00
Activity-based costs allocated ?
Total manufacturing product cost ?
The activities required to build the component follow:
Activity | Allocation Base | Cost Allocated to Each Unit |
Start Station | Number of raw component chassis | 3 X \)1.50 = \(4.50 |
Dip Insertion | Number of dip insertions | ? X 0.50 = 14.50 |
Manual Insertion | Number of manual insertions | 13 X 0.40 = ? |
Wave solder | Number of components solders | 3 X 1.50 = 4.50 |
Backload | Number of backload insertions | 7 X ? = 2.80 |
Test | Number of testing hours | 0.39 60.0 = ? |
Defect analysis | Number of defect analysis hours | 0.10 X ? = 4.00 |
Total activity-based costs | \) ? |
Requirements
1. Complete the missing items for the two tables.
Koehler (see Exercise E19-15) makes handheld calculators in two models—basic and professional—and wants to refine its costing system by allocating overhead using departmental rates. The estimated \(721,000 of manufacturing overhead has been divided into two cost pools: Assembly Department and Packaging Department. The following data have been compiled:
Assembly Packaging
Department Department Total
Overhead costs \) 456,500 \( 264,500 \) 721,000
Machine hours:
Basic Model 185,000 MHr 45,000 MHr 230,000 MHr
Professional Model 230,000 MHr 55,000 MHr 285,000 MHr
Total 415,000 MH 100,000 MHr 515,000 MHr
Direct labor hours:
Basic Model 20,000 DLHr 50,000 DLHr 70,000 DLHr
Professional Model 105,125 DLHr 280,625 DLHr 385,750 DLHr
Total 125,125 DLHr 330,625 DLHr 455,750 DLHr
Compute the predetermined overhead allocation rates using machine hours as the allocation base for the Assembly Department and direct labor hours for the Packaging Department. How much overhead is allocated to the basic model? To the professional model? Round allocation rates to two decimal places and allocated costs to whole dollars.
Question:Refer to Exercises E19-24 and E19-25. Suppose Western’s direct labor rate was $280 per hour. The Halbert engagement used the following resources last month:
Allocation Base Halbert
Direct labor hours 170
Pages 310
Applications used 80
Requirements
1. Compute the cost assigned to the Halbert engagement, using the ABC system.
2. Compute the operating income or loss from the Halbert engagement, using theABC system.
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.
Harris Systems specializes in servers for workgroup, e-commerce, and ERP applications. The company’s original job costing system has two direct cost categories: direct materials and direct labor. Overhead is allocated to jobs at the single rate of \(22 per direct labor hour.
A task force headed by Harris’s CFO recently designed an ABC system with four activities. The ABC system retains the current system’s two direct cost categories. Overhead costs are reflected in the four activities. Pertinent data follow:
___________________________________________________________________
Activity Allocation Base Predetermined Overhead
Allocation Rate____
Materials handling Number of parts \) 0.85
Machine setup Number of setups 500.00
Assembling Number of assembling hours 80.00
Shipping Number of shipments 1,500.00_______
Harris Systems has been awarded two new contracts, which will be produced as Job A and Job B. Budget data relating to the contracts follow:
____________________________________________________________
Job A Job B__
Number of parts 15,000 2,000
Number of setups 6 4
Number of assembling hours 1,500 200
Number of shipments 1 1
Total direct labor hours 8,000 600
Number of units produced 100 10
Direct materials cost \( 220,000 \) 30,000
Direct labor cost \( 160,000 \) 12,000__
Requirements
2. Suppose Harris Systems adopts the ABC system. Compute the budgeted product cost per unit for each job using ABC.
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