5. Lemuel Office Equipment Corporation manufactures two types of filing cabinets-Deluxe and Executive-and applies manufacturing overhead to all units at the rate of P80 per machine hour. Production information follows. Deluxe P40 25 Executive Direct-material cost Direct-labor cost P65 25 Budgeted volume (units) 16,000 30,000 The controller, who is studying the use of activity-based costing, has determined that the firm's overhead can be identified with three activities: manufacturing setups, machine processing, and product shipping. Data on the number of setups, machine hours, and outgoing shipments, which are the activities' three respective cost drivers, follow. Deluxe 100 32,000 200 Executive 60 Setups Machine hours Outgoing shipments Total 160 77,000 350 45,000 150 The firm's total overhead of P6,160,000 is subdivided as follows: manufacturing setups, P1,344,000; machine processing, P3,696,000; and product shipping, P1,120,000. REQUIRED: 1. Compute the unit manufacturing cost of Deluxe and Executive filing cabinets by using the company's current overhead costing procedures. 2. Compute the unit manufacturing cost of Deluxe and Executive filing cabinets by using activity based costing. 3. Is the cost of the Deluxe filing cabinet overstated or understated (i.e., distorted) by the use of machine hours to allocate total manufacturing overhead to production? By how much? 5/6 ACTIVITY BASED COSTING 4. Calculate the aggregate amount by which the Deluxe cabinet line is undercosted by the company's current traditional overhead costing procedures. Then calculate the aggregate amount by which the traditional system overcosts the Executive cabinet line. 5. Assume that the current selling price of a Deluxe filing cabinet is P270 and the marketing manager is contemplating a P30 discount to stimulate volume. Is this disseunt nduienble Ruiefl dissu SS ...
5. Lemuel Office Equipment Corporation manufactures two types of filing cabinets-Deluxe and Executive-and applies manufacturing overhead to all units at the rate of P80 per machine hour. Production information follows. Deluxe P40 25 Executive Direct-material cost Direct-labor cost P65 25 Budgeted volume (units) 16,000 30,000 The controller, who is studying the use of activity-based costing, has determined that the firm's overhead can be identified with three activities: manufacturing setups, machine processing, and product shipping. Data on the number of setups, machine hours, and outgoing shipments, which are the activities' three respective cost drivers, follow. Deluxe 100 32,000 200 Executive 60 Setups Machine hours Outgoing shipments Total 160 77,000 350 45,000 150 The firm's total overhead of P6,160,000 is subdivided as follows: manufacturing setups, P1,344,000; machine processing, P3,696,000; and product shipping, P1,120,000. REQUIRED: 1. Compute the unit manufacturing cost of Deluxe and Executive filing cabinets by using the company's current overhead costing procedures. 2. Compute the unit manufacturing cost of Deluxe and Executive filing cabinets by using activity based costing. 3. Is the cost of the Deluxe filing cabinet overstated or understated (i.e., distorted) by the use of machine hours to allocate total manufacturing overhead to production? By how much? 5/6 ACTIVITY BASED COSTING 4. Calculate the aggregate amount by which the Deluxe cabinet line is undercosted by the company's current traditional overhead costing procedures. Then calculate the aggregate amount by which the traditional system overcosts the Executive cabinet line. 5. Assume that the current selling price of a Deluxe filing cabinet is P270 and the marketing manager is contemplating a P30 discount to stimulate volume. Is this disseunt nduienble Ruiefl dissu SS ...
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Question
Transcribed Image Text:5. Lemuel Office Equipment Corporation manufactures two types of filing cabinets-Deluxe
and Executive-and applies manufacturing overhead to all units at the rate of P80 per
machine hour. Production information follows.
Deluxe
Direct-material cost
Direct-labor cost
P40
25
Executive
Р65
25
Budgeted volume (units)
16,000
30,000
The controller, who is studying the use of activity-based costing, has determined that the
firm's overhead can be identified with three activities: manufacturing setups, machine
processing, and product shipping. Data on the number of setups, machine hours, and
outgoing shipments, which are the activities' three respective cost drivers, follow.
Deluxe
100
Executive
60
45,000
150
Total
160
77,000
350
Setups
Machine hours
32,000
200
Outgoing shipments
The firm's total overhead of P6,160,000 is subdivided as follows: manufacturing setups,
P1,344,000; machine processing, P3,696,000; and product shipping, P1,120,000.
REQUIRED:
1. Compute the unit manufacturing cost of Deluxe and Executive filing cabinets by
using the company's current overhead costing procedures.
2. Compute the unit manufacturing cost of Deluxe and Executive filing cabinets by
using activity based costing.
3. Is the cost of the Deluxe filing cabinet overstated or understated (i.e., distorted) by
the use of machine hours to allocate total manufacturing overhead to production? By
how much?
5/6
ACTIVITY BASED COSTING
4. Calculate the aggregate amount by which the Deluxe cabinet line is undercosted by
the company's current traditional overhead costing procedures. Then calculate the
aggregate amount by which the traditional system overcosts the Executive cabinet
line.
5. Assume that the current selling price of a Deluxe filing cabinet is P270 and the
marketing manager is contemplating a P30 discount to stimulate volume. Is this
discount advisable? Briefly discuss.
...
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