3. Koontz's production manager has suggested using activity-based costing instead of either the plantwide or departmental approaches. To facilitate the necessary calculations, she assigned the company's total manufacturing overhead cost to five activity cost pools as follows: Manufacturing Activity Cost Pool Machining Assemble and pack Order processing Activity Measure Machine-hours in Molding Direct labor hours in Assemble and Pack Overhead 417,500 282,500 230,000 340,000 80,000 Number of customer orders Setups Other (unused capacity) Setup hours $1,350,000 She also determined that the average order size for the Basic and Advanced models is 400 units and 50 units, respectively. The molding machines require a setup for each order. One setup hour is required for each customer order of the Basic model and three hours are required to setup for an order of the Advanced model. The company pays a sales commissions of 5% for the Basic model and 10% for the Advanced model. Its traceable fixed advertising costs include $150,000 for the Basic model and $200,000 for the Advanced model. The remainder of the company's selling and administrative costs are organization-sustaining in nature. Using the additional information provided by the production manager, calculate: a. An activity rate for each activity cost pool. b. The total manufacturing overhead cost allocated to the Basic model and the Advanced model using the activity-based approach. c. The total selling and administrative cost traced to the Basic model and the Advanced model using the activity-based approach. 4. Using your activity-based cost assignments from requirement 3, prepare a contribution format segmented income statement that is adapted from Exhibit 4-8. (Hint: Organize all of the company's costs into three categories: variable expenses, traceable fixed expenses and common fixed expenses.) 5. Using your contribution format segmented income statement from requirement 4, calculate the break-even point in dollar sales for

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

question 3-5

Koontz Company manufactures two models of industrial components-a Basic model and an Advanced Model. The company
considers all of its manufacturing overhead costs to be fixed and it uses plantwide manufacturing overhead cost allocation based on
direct labor-hours. Koontz's controller prepared the segmented income statement that is shown below for the most recent year (he
allocated selling and administrative expenses to products based on sales dollars):
Basic
Advanced
Total
Number of units produced and sold
20,000
10,000
30,000
$3,000,000
2,300,000
700,000
$2,000,000
1,350,000
650,000
480,000
$5,000,000
3,650,000
1,350,000
1,200,000
Sales
Cost of goods sold
Gross margin
Selling and administrative expenses
720,000
$
(20,000)
$
170,000
$
150,000
Net operating income (loss)
Direct laborers are paid $20 per hour. Direct materials cost $40 per unit for the Basic model and $60 per unit for the Advanced model.
Koontz is considering a change from plantwide overhead allocation to a departmental approach. The overhead costs in the company's
Molding Department would be allocated based on machine-hours and the overhead costs in its Assembly and Pack Department would
be allocated based on direct labor-hours. To enable further analysis, the controller gathered the following information:
Assemble
Molding
$ 787,500
and Pack
Total
Manufacturing overhead costs
Direct labor hours:
$ 562,500
$1,350,000
30,000
15,000
Basic
10,000
20,000
10,000
Advanced
5,000
Machine hours:
Basic
12,000
10,000
12,000
10,000
Advanced
Transcribed Image Text:Koontz Company manufactures two models of industrial components-a Basic model and an Advanced Model. The company considers all of its manufacturing overhead costs to be fixed and it uses plantwide manufacturing overhead cost allocation based on direct labor-hours. Koontz's controller prepared the segmented income statement that is shown below for the most recent year (he allocated selling and administrative expenses to products based on sales dollars): Basic Advanced Total Number of units produced and sold 20,000 10,000 30,000 $3,000,000 2,300,000 700,000 $2,000,000 1,350,000 650,000 480,000 $5,000,000 3,650,000 1,350,000 1,200,000 Sales Cost of goods sold Gross margin Selling and administrative expenses 720,000 $ (20,000) $ 170,000 $ 150,000 Net operating income (loss) Direct laborers are paid $20 per hour. Direct materials cost $40 per unit for the Basic model and $60 per unit for the Advanced model. Koontz is considering a change from plantwide overhead allocation to a departmental approach. The overhead costs in the company's Molding Department would be allocated based on machine-hours and the overhead costs in its Assembly and Pack Department would be allocated based on direct labor-hours. To enable further analysis, the controller gathered the following information: Assemble Molding $ 787,500 and Pack Total Manufacturing overhead costs Direct labor hours: $ 562,500 $1,350,000 30,000 15,000 Basic 10,000 20,000 10,000 Advanced 5,000 Machine hours: Basic 12,000 10,000 12,000 10,000 Advanced
3. Koontz's production manager has suggested using activity-based costing instead of either the plantwide or departmental
approaches. To facilitate the necessary calculations, she assigned the company's total manufacturing overhead cost to five activity
cost pools as follows:
Manufacturing
Activity Cost Pool
Machining
Assemble and pack
Order processing
Activity Measure
Machine-hours in Molding
Direct labor hours in Assemble and Pack
Number of customer orders
Overhead
$
417,500
282,500
230,000
340,000
80,000
Setups
Other (unused capacity)
Setup hours
$1,350,000
She also determined that the average order size for the Basic and Advanced models is 400 units and 50 units, respectively. The
molding machines require a setup for each order. One setup hour is required for each customer order of the Basic model and three
hours are required to setup for an order of the Advanced model.
The company pays a sales commissions of 5% for the Basic model and 10% for the Advanced model. Its traceable fixed advertising
costs include $150,000 for the Basic model and $200,000 for the Advanced model. The remainder of the company's selling and
administrative costs are organization-sustaining in nature.
Using the additional information provided by the production manager, calculate:
a. An activity rate for each activity cost pool.
b. The total manufacturing overhead cost allocated to the Basic model and the Advanced model using the activity-based approach.
c. The total selling and administrative cost traced to the Basic model and the Advanced model using the activity-based approach.
4. Using your activity-based cost assignments from requirement 3, prepare a contribution format segmented income statement that is
adapted from Exhibit 4-8. (Hint: Organize all of the company's costs into three categories: variable expenses, traceable fixed expenses,
and common fixed expenses.)
5. Using your contribution format segmented income statement from requirement 4, calculate the break-even point in dollar sales for
the Advanced model.
Transcribed Image Text:3. Koontz's production manager has suggested using activity-based costing instead of either the plantwide or departmental approaches. To facilitate the necessary calculations, she assigned the company's total manufacturing overhead cost to five activity cost pools as follows: Manufacturing Activity Cost Pool Machining Assemble and pack Order processing Activity Measure Machine-hours in Molding Direct labor hours in Assemble and Pack Number of customer orders Overhead $ 417,500 282,500 230,000 340,000 80,000 Setups Other (unused capacity) Setup hours $1,350,000 She also determined that the average order size for the Basic and Advanced models is 400 units and 50 units, respectively. The molding machines require a setup for each order. One setup hour is required for each customer order of the Basic model and three hours are required to setup for an order of the Advanced model. The company pays a sales commissions of 5% for the Basic model and 10% for the Advanced model. Its traceable fixed advertising costs include $150,000 for the Basic model and $200,000 for the Advanced model. The remainder of the company's selling and administrative costs are organization-sustaining in nature. Using the additional information provided by the production manager, calculate: a. An activity rate for each activity cost pool. b. The total manufacturing overhead cost allocated to the Basic model and the Advanced model using the activity-based approach. c. The total selling and administrative cost traced to the Basic model and the Advanced model using the activity-based approach. 4. Using your activity-based cost assignments from requirement 3, prepare a contribution format segmented income statement that is adapted from Exhibit 4-8. (Hint: Organize all of the company's costs into three categories: variable expenses, traceable fixed expenses, and common fixed expenses.) 5. Using your contribution format segmented income statement from requirement 4, calculate the break-even point in dollar sales for the Advanced model.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps

Blurred answer
Knowledge Booster
Market Efficiency
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education