Cost Accounts

Problem 3-12A Contrasting ABC and Conventional Product Costs [LO2, LO3, LO4]

Precision Manufacturing Inc. ( PMI ) makes two  types  of industrial component parts—the EX300 and the TX500. It annually produces 60,000 units of EX300 and 12,500 units of TX500. The company’s conventional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company’s two product lines is shown below:

 

  EX300 TX500 Total
  Direct materials $ 366,325 $ 162,550 $ 528,875
  Direct labor $ 120,000 $ 42,500 $ 162,500
 

 

The company is considering implementing an activity-based costing system that distributes all of its manufacturing  overhead to four activities as shown below:

 

Activity Cost Pool (and Activity Measure) Manufacturing  Overhead Activity
     
    EX300 TX500 Total
  Machining (machine-hours) $ 198,250   90,000   62,500   152,500
  Setups (setup hours)   150,000   75   300   375
  Product-level (number of products)   100,250   1   1   2
  General factory (direct labor dollars)   60,125 $ 120,000 $ 42,500 $ 162,500
                 
  Total manufacturing  overhead cost $ 508,625            
   

 

 

 

           
 

 

Required:

 

1-a. Compute the plantwide overhead rate that would be used in the company’s conventional cost system. (Round your answer to 2 decimal places.)

 

 

  Predetermined overhead rate $ per DL$

 

1-b. Using the plantwide rate, compute the unit product cost for each product. (Do not round intermediate calculations. Round your  answers to  2 decimal places.)

 

  EX300 TX500
  Unit product cost $ $
 

 

2-a. Compute the activity rate for each activity cost pool. (Round your answers to 2 decimal places.)

 

 

 Activity Cost Pools             Activity Rate
  Machining $    per MH
  Setups $    per setup hr.
  Product-level $    per product
  General factory $    per DL$
 

 

2-b. Using the activity rates, compute the unit product cost for each product. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

      EX300     TX500
  Unit product cost $ $
 

 

 

Exercise 3-7 Contrast ABC and Conventional Product Costs [LO2, LO3, LO4]

Kunkel Company makes two products and uses a conventional costing system in which a single plantwide predetermined overhead rate is computed based on direct labor-hours. Data for the two products for the upcoming year follow:

 

  Mercon Wurcon
  Direct materials cost per unit $ 10.00 $ 8.00
  Direct  labor cost  per unit $ 3.00 $ 3.75
  Direct labor-hours per unit   0.20   0.25
  Number of units produced   10,000   40,000
 

 

 

These products are customized to some  degree for  specific customers.

 

Required:
1. The company’s  manufacturing   overhead costs  for the year are expected to be $336,000. Using the company’s conventional costing system, compute the unit product costs for the two products. (Do not round intermediate calculation. Round your final answers to 2 decimal places.)

 

  Mercon Wurcon
  Unit product cost $ $
 

 

 

2. Management is considering an activity-based costing system in which half of the overhead would continue  to be allocated on the basis of direct labor-hours and half would be allocated on the basis of engineering design time. This time is expected to be distributed as follows during the upcoming year:

 

  Mercon Wurcon Total
   Engineering design  time (in hours) 4,000 4,000 8,000
 

 

 

Compute the unit product costs for the two products using the proposed ABC system. (Do not round intermediate calculation. Round your final answers to 2 decimal places.)

 

  Mercon Wurcon
  Unit product cost $ $
 

 

 

Exercise 3-3 Compute ABC Product Costs [LO3]

Larner Corporation is a diversified manufacturer of industrial goods. The company’s activity-based costing system contains the following six activity cost pools and activity rates:

 

  Activity Cost Pool         Activity Rates
  Labor-related $ 7.00  per direct labor-hour
  Machine-related $ 3.00  per machine-hour
  Machine setups $ 40.00  per setup
   Production  orders $ 160.00  per order
   Shipments $ 120.00  per shipment
  General factory $ 4.00  per direct labor-hour
 

 

Cost and activity data have been supplied for the following products:

 

  J78 B52
  Direct materials cost per unit $ 6.50 $ 31.00
  Direct  labor cost  per unit $ 3.75 $ 6.00
  Number of units produced per year   4,000   100
 

 

  Total ExpectedActivity
   
   J78    B52
  Direct labor-hours 1,000   40
  Machine-hours 3,200   30
  Machine setups 5   1
  Production orders 5   1
  Shipments 10   1
 

 

 

Required:
Compute the unit product cost of each product listed above. (Round your  answers to  2 decimal places.)

 

 

  J78 B52
  Unit product cost $ $
 

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