540,000 2,500 Inspection hrs. 2. Apply the activity rates to compute the manufacturing overhead assigned to each product.

Transcription

1 Chapter 4 LO3, LO4, LO5, & LO6 Exercise 1 This exercise covers LO3, LO4, LO5, & LO6. Clackamas, Inc currently uses traditional volume-based cost system applies manufacturing overhead cost to products on the basis of direct labor. Cost production information for their two products was seen in the LO1 exercise. Management is evaluating the possibility of implementing an -Based Costing (ABC) system. Total manufacturing overhead cost is $1,800,000. Four activity cost pools activity cost drivers have been identified by management as follows. Cost Pool Driver Cost Total $1,000,000 Design 100, Assembling 160, hrs testing 540,000 2,500 hrs Design hrs hrs 10,000 Design 50 8,000 hrs 8,000 hrs Complete the following: 1. Compute the activity rate for each activity cost pool. 2. Apply the activity rates to compute the manufacturing overhead assigned to each product. 3. Compute the activity proportion (percentage) for each activity pool. 4. Apply the activity proportions to compute the manufacturing overhead assigned to each product

2 5. Compute the total manufacturing cost per unit for each product. 6. The unit selling prices of desktop laptop computers are as follows: Unit selling price $500 $700 Compute the gross profit per unit the gross profit margin (% of sales) for each product. Compare your results with those derived with the traditional costing method in LO1.

3 Chapter 4 LO3, LO4, LO5, & LO6 Exercise 1 Solutions 1. Compute the activity rate for each activity cost pool. rate = cost in the activity cost pool Total activity in the activity cost pool Cost Pool Cost Total Rate $1,000,000 10,000 Design 100, Assembling 160,000 8,000 testing 540,000 8,000 = $ 100 per design hour = 2,000 per = 20 per direct labor hour = per hour 2. Apply the activity rates to compute the manufacturing overhead assigned to each product. Assigned cost to each product = rate in the cost pool in the cost pool Cost Pool Assembling testing Assigned Cost Rate $ 100 per design hour 2,000 per 20 per direct labor hour 67.5 per hour Design 20 2,000 2,500 Design Direct labor hrs = $ 500,000 = $ 500,000 = 40,000 = 60,000 = 40,000 = 120,000 = 168,750 = 371,250

4 Total manufacturing overhead $ 748,750 $ 1,051, Compute the activity proportion (percentage) for each activity pool. Cost Pool Design 20 Assembling 2,000 testing 2,500 Proportions Design 10,000= 50% 20 50= 40% 2,000 8,000= 25% 2,500 8,000= 31.25% 10,000= 50% 50 = 60% 8,000= 75% 8,000= 68.75% 4. Apply the activity proportions to compute the manufacturing overhead assigned to each product. Cost Pool Assigned Cost Proportions Cost $ 1,000,000 50% 50% $ 500,000 $ 500, ,000 40% 60% 40,000 60,000 Assembling 160,000 25% 75% 40, ,000 testing 540, % 68.75% 168, ,250 Total manufacturing overhead $ 748,750 $ 1,051,250

5 5. Compute the total manufacturing cost per unit for each product. Manufacturing overhead cost applied to units of desktop computers = $748,750 Manufacturing overhead cost per unit of desktop = $748,750 = $ Similarly, Manufacturing overhead cost applied to 10,000 units of laptop computers = $1,051,250 Manufacturing overhead cost per unit of laptop = $1,051,250 10,000 = $ Unit Cost Information Direct materials $ 100 $ 120 $ 160 $ 2 Manufacturing overhead Total manufacturing cost per unit $ $ $ $ The unit selling prices of desktop laptop computers are as follows. Unit selling price $ 500 $ 700 The calculation of gross profit per unit gross profit margin (% of sales) follows: Unit selling price $ 500 $ 700 Less: Manufacturing cost per unit $ $ Gross profit per unit $ $ Gross profit margin (% of sales) 18.05% 34.98% (rounded)