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4. Using your activity-based cost assignments from requirement 3, prepare a contribution format segmented income statement that is adapted from Exhibit 6-8. (Hint: Organize all of the company's costs into three categories: variable expenses, traceable fixed expenses, and common fixed expenses.)

4. Using your activity-based cost assignments from requirement 3, prepare a contribution format segmented income statement that is adapted from Exhibit 6-8. (Hint: Organize all of the company's costs into three categories: variable expenses, traceable fixed expenses, and common fixed expenses.)

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Please help with Req 4. I do not believe it is complete. If you can help I will give a thumbs up. Thanks! :)

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 Sales $ 5,000,000 $3,000,000 2, 300, өөө 700,000 720,000 $2,000,000 1,350, 000 Cost of goods sold Gross margin 3,650,000 1,350,000 650,000 480,000 Selling and administrative expenses 1,200,000 Net operating income (loss) $ (20,000) $ 170,000 $ 150,000 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 Assemble 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 $ 562,500 $ 1,350,000 Manufacturing overhead costs Direct labor hours: Basic 10,000 20,000 30,000 Advanced 5,000 10,000 15,000 Machine hours: 12,000 10,000 Basic 12,000 10,000 Advanced Required: 1. Using the plantwide approach: a. Calculate the plantwide overhead rate. b. Calculate the amount of overhead that would be assigned to each product. 2. Using a departmental approach: a. Calculate the departmental overhead rates. b. Calculate the total amount of overhead that would be assigned to each product. c. Using your departmental overhead cost allocations, redo the controller's segmented income statement (continue to allocate selling and administrative expenses based on sales dollars). 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 Setups Other (unused capacity) Activity Measure Machine-hours in Molding Overhead $ 417,500 282,500 230,000 340,000 Direct labor-hours in Assemble and Pack Number of customer orders Setup hours 80,000 $1,350,000
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 Sales $ 5,000,000 $3,000,000 2, 300, өөө 700,000 720,000 $2,000,000 1,350, 000 Cost of goods sold Gross margin 3,650,000 1,350,000 650,000 480,000 Selling and administrative expenses 1,200,000 Net operating income (loss) $ (20,000) $ 170,000 $ 150,000 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 Assemble 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 $ 562,500 $ 1,350,000 Manufacturing overhead costs Direct labor hours: Basic 10,000 20,000 30,000 Advanced 5,000 10,000 15,000 Machine hours: 12,000 10,000 Basic 12,000 10,000 Advanced Required: 1. Using the plantwide approach: a. Calculate the plantwide overhead rate. b. Calculate the amount of overhead that would be assigned to each product. 2. Using a departmental approach: a. Calculate the departmental overhead rates. b. Calculate the total amount of overhead that would be assigned to each product. c. Using your departmental overhead cost allocations, redo the controller's segmented income statement (continue to allocate selling and administrative expenses based on sales dollars). 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 Setups Other (unused capacity) Activity Measure Machine-hours in Molding Overhead $ 417,500 282,500 230,000 340,000 Direct labor-hours in Assemble and Pack Number of customer orders Setup hours 80,000 $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 6-8. (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. Req 1A Req 1B Req 2A Req 2B Req 20 Reg 3A Req 3B Req 3C Req 4 Req 5 Using your activity-based cost assignments from requirement 3, prepare a contribution format segmented income statement that is adapted from Exhibit 6-8. (Hint: Organize all of the company's costs into three categories: variable expenses, traceable fixed expenses, and common fixed expenses.) (Round your intermediate calculations to 2 decimal places.) Show less A Koontz Company Income statement Total Basic Advanced Sales $ 3,000,000 $ 2,000,000 $ 5,000,000 Variable expenses: Direct materials 800,000 600,000 1,400,000 Direct labor 600,000 300,000 900,000 Selling and administrative 150,000 200,000 350,000 Total variable expenses 1,550,000 1,100,000 2,650,000 Contribution margin 1,450,000 900,000 2,350,000 Traceable fixed expenses: 488,314 781,848 1,270,162 Selling and administrative 150,000 200,000 350,000 Total traceable fixed expenses 638,314 981,848 1,620,162 Segment margin 729,838 $ (81,848) $ 729,838 Common fixed expenses: Other 580,000 Total common fixed expenses 580,000 Net operating income 149,838
Transcribed Image Text: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 6-8. (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. Req 1A Req 1B Req 2A Req 2B Req 20 Reg 3A Req 3B Req 3C Req 4 Req 5 Using your activity-based cost assignments from requirement 3, prepare a contribution format segmented income statement that is adapted from Exhibit 6-8. (Hint: Organize all of the company's costs into three categories: variable expenses, traceable fixed expenses, and common fixed expenses.) (Round your intermediate calculations to 2 decimal places.) Show less A Koontz Company Income statement Total Basic Advanced Sales $ 3,000,000 $ 2,000,000 $ 5,000,000 Variable expenses: Direct materials 800,000 600,000 1,400,000 Direct labor 600,000 300,000 900,000 Selling and administrative 150,000 200,000 350,000 Total variable expenses 1,550,000 1,100,000 2,650,000 Contribution margin 1,450,000 900,000 2,350,000 Traceable fixed expenses: 488,314 781,848 1,270,162 Selling and administrative 150,000 200,000 350,000 Total traceable fixed expenses 638,314 981,848 1,620,162 Segment margin 729,838 $ (81,848) $ 729,838 Common fixed expenses: Other 580,000 Total common fixed expenses 580,000 Net operating income 149,838
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