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Connect Financial and Managerial Accounting Chapter 17
Q1. Xie Company identified the following activities, costs, and activity drivers for this year. The company manufactures two types of go-karts: Deluxe and Basic.
| Activity | Expected Costs | Expected Activity | ||||
| Handling materials | $ | 635,000 | 100,000 | parts | ||
| Inspecting product | 910,000 | 1,500 | batches | |||
| Processing purchase orders | 115,000 | 700 | orders | |||
| Paying suppliers | 185,000 | 500 | invoices | |||
| Insuring the factory | 310,000 | 40,000 | square feet | |||
| Designing packaging | 85,000 | 2 | models | |||
Required:
1. Compute a single plantwide overhead rate for the year, assuming that the company assigns overhead based on 125,000 budgeted direct labor hours.
2. In January of this year, the Deluxe model required 2,500 direct labor hours and the basic model required 6,000 direct labor hours. Assign overhead costs to each model using the single plantwide overhead rate.
Q2. Xie Company identified the following activities, costs, and activity drivers for this year. The company manufactures two types of go-karts: Deluxe and Basic.
| Activity | Expected Costs | Expected Activity | ||||
| Handling materials | $ | 720,000 | 100,000 | parts | ||
| Inspecting product | 995,000 | 1,500 | batches | |||
| Processing purchase orders | 200,000 | 700 | orders | |||
| Paying suppliers | 270,000 | 500 | invoices | |||
| Insuring the factory | 395,000 | 40,000 | square feet | |||
| Designing packaging | 170,000 | 2 | models | |||
Required:
Compute the activity rate for each activity, assuming the company uses activity-based costing. (Round activity rate answers to 2 decimal places.)
Q3. Xie Company identified the following activities, costs, and activity drivers for this year. The company manufactures two types of go-karts: Deluxe and Basic.
| Activity | Expected Costs | Expected Activity | ||||
| Handling materials | $ | 690,000 | 100,000 | parts | ||
| Inspecting product | 965,000 | 1,500 | batches | |||
| Processing purchase orders | 170,000 | 700 | orders | |||
| Paying suppliers | 240,000 | 500 | invoices | |||
| Insuring the factory | 365,000 | 40,000 | square feet | |||
| Designing packaging | 140,000 | 2 | models | |||
Assume that the following information is available for the company’s two products for the first quarter of this year.
| Deluxe Model | Basic Model | |||
| Production volume | 10,000 | units | 30,000 | units |
| Parts required | 20,000 | parts | 30,000 | parts |
| Batches made | 250 | batches | 100 | batches |
| Purchase orders | 50 | orders | 20 | orders |
| Invoices | 50 | invoices | 10 | invoices |
| Space occupied | 10,000 | sq. ft. | 7,000 | sq. ft |
| Models | 1 | model | 1 | model |
Required:
Compute activity rates for each activity and assign overhead costs to each product model using activity-based costing (ABC). What is the overhead cost per unit of each model? (Round activity rate and average OH cost per unit answers to 2 decimal places.)
Q4. Textra Plastics produces parts for a variety of small machine manufacturers. Most products go through two operations, molding and trimming, before they are ready for packaging. Expected costs and activities for the molding department and for the trimming department for this year follow.
| Molding | Trimming | |||||
| Direct labor hours | 44,000 | DLH | 52,000 | DLH | ||
| Machine hours | 32,500 | MH | 4,800 | MH | ||
| Overhead costs | $ | 740,000 | $ | 610,000 | ||
Data for two special-order parts to be manufactured by the company in this year follow.
| Part A27C | Part X82B | |||||
| Number of units | 10,200 | units | 51,000 | units | ||
| Machine hours | ||||||
| Molding | 5,300 | MH | 1,060 | MH | ||
| Trimming | 2,800 | MH | 700 | MH | ||
| Direct labor hours | ||||||
| Molding | 3,500 | DLH | 3,050 | DLH | ||
| Trimming | 700 | DLH | 3,500 | DLH | ||
Required:
1. Compute the plantwide overhead rate using direct labor hours as the base.
2. Determine the overhead cost assigned to each product line using the plantwide rate computed in requirement 1.
Q5. Textra Plastics produces parts for a variety of small machine manufacturers. Most products go through two operations, molding and trimming, before they are ready for packaging. Expected costs and activities for the molding department and for the trimming department for this year follow. (Round “OH rate and cost per unit” answers to 2 decimal places.)
| Molding | Trimming | |||||
| Direct labor hours | 52,000 | DLH | 48,000 | DLH | ||
| Machine hours | 30,500 | MH | 3,600 | MH | ||
| Overhead costs | $ | 756,000 | $ | 616,000 | ||
Data for two special-order parts to be manufactured by the company in this year follow:
| Part A27C | Part X82B | |||||
| Number of units | 9,800 | units | 54,500 | units | ||
| Machine hours | ||||||
| Molding | 5,100 | MH | 1,020 | MH | ||
| Trimming | 2,600 | MH | 650 | MH | ||
| Direct labor hours | ||||||
| Molding | 5,500 | DLH | 2,150 | DLH | ||
| Trimming | 700 | DLH | 3,500 | DLH | ||
Q6. Way Cool produces two different models of air conditioners. The company produces the mechanical systems in its 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 | $ | 500,050 | Number of batches | 730 | |||
| Machining | 390,216 | Machine hours | 8,520 | |||||
| Setups | 259,700 | Number of setups | 140 | |||||
| $ | 1,149,966 | |||||||
| Finishing | Welding | $ | 332,280 | Welding hours | 5,200 | |||
| Inspecting | 295,800 | Number of inspections | 870 | |||||
| Rework | 43,700 | Rework orders | 190 | |||||
| $ | 671,780 | |||||||
| Support | Purchasing | $ | 178,565 | Purchase orders | 503 | |||
| Providing space | 31,800 | Number of units | 8,700 | |||||
| Providing utilities | 131,760 | Number of units | 8,700 | |||||
| $ | 342,125 | |||||||
Additional production information concerning its two product lines follows.
| Model 145 | Model 212 | |||||
| Units produced | 2,900 | 5,800 | ||||
| Welding hours | 2,000 | 3,200 | ||||
| Batches | 365 | 365 | ||||
| Number of inspections | 490 | 380 | ||||
| Machine hours | 3,250 | 5,270 | ||||
| Setups | 70 | 70 | ||||
| Rework orders | 100 | 90 | ||||
| Purchase orders | 335 | 168 | ||||
Required:
1. Using ABC, 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 $220 for Model 145 and $112 for Model 212.
3. If the market price for Model 145 is $572.27 and the market price for Model 212 is $309.65, determine the profit or loss per unit for each model.
Q7. Smythe Co. makes furniture. The following data are taken from its production plans for the year.
| Direct labor costs | $ | 5,810,000 | |
| Hazardous waste disposal costs | 605,000 | ||
| Chairs | Tables | |||
| Expected production | 216,000 | units | 15,000 | units |
| Direct labor hours required | 272,000 | DLH | 15,400 | DLH |
| Hazardous waste disposed | 700 | pounds | 900 | pounds |
