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. Direct-material cost Direct-labor cost Deluxe P40 25 Executive 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 45,000 150 Total 160 77,000 350 Setups Machine hours 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. 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. Direct-material cost Direct-labor cost Deluxe P40 25 Executive 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 45,000 150 Total 160 77,000 350 Setups Machine hours 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?
Chapter1: Financial Statements And Business Decisions
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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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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
P40
25
Executive
Direct-material cost
P65
Direct-labor cost
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
Total
160
77,000
350
Setups
Machine hours
32,000
200
Outgoing shipments
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?
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