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Chapter 19: Q19-17RQ (page 1063)
How is the Conversion Costs account used in JIT costing?
The conversion cost account is debited for the accumulation of direct labor and manufacturing overhead and credited for allocation and adjustment of cost.
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Koehler makes handheld calculators in two models: basic and professional. Koehler estimated $721,000 of manufacturing overhead and 515,000 machine hours for the year. The basic model actually consumed 230,000 machine hours, and the professional model consumed 285,000 machine hours.
Compute the predetermined overhead allocation rate using machine hours (MHr) as the allocation base. How much overhead is allocated to the basic model? To the professional model?
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.
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.
Rennie Plant Service completed a special landscaping job for Brenton Company. rennie uses ABC and has the following predetermined overhead allocation rates:
Activity Predetermined
Allocation Base Overhead Allocation Rate
Designing Number of designs \( 290 per design
Planting Number of plants \) 20 per plant
The Rennie job included \(1,500 in plants; \)800 in direct labor; one design; and 30 plants.
Requirements
3. If Rennie desires an operating income of 30% of cost, how much should the company charge for the Brenton job?
Willette 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
1. Willitte’s original single plantwide overhead allocation rate costing system allocated indirect costs to products at $81.50 per machine hour. Compute the total indirect costs allocated to the commercial containers and to the travel packs under the original system. Then compute the indirect cost per unit for each product. Round to two decimal places.
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