Arrow Boards manufactures two models of surfboards, Basic and Competition, in a facility in Southern California. In fabrication, machine setup costs are driven by the number of setups, machine maintenance and utility costs increase with the number of machine hours, and indirect labor costs increase with direct labor hours. Facility rent and machine depreciation are fixed, and are the basis of manufacturing capacity. Fixed costs are allocated equally to each unit produced, regardless of model. Currently, Arrow uses 80% of its manufacturing capacity. The cost of unused capacity is not assigned to products, but is expensed as a separate line item. For 2020, Arrow has budgeted the following: (Click the icon to view the budgeted information.) (Click the icon to view other information.) Read the equirement

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Arrow Boards manufactures two models of surfboards, Basic and Competition, in a facility in Southern California. In fabrication, machine setup costs are driven by the number of setups, machine maintenance and utility
costs increase with the number of machine hours, and indirect labor costs increase with direct labor hours. Facility rent and machine depreciation are fixed, and are the basis of manufacturing capacity. Fixed costs are
allocated equally to each unit produced, regardless of model. Currently, Arrow uses 80% of its manufacturing capacity. The cost of unused capacity is not assigned to products, but is expensed as a separate line item.
For 2020, Arrow has budgeted the following:
(Click the icon to view the budgeted information.)
(Click the icon to view other information.)
Read the requiremenil
Requirement 1. Calculate the cost-allocation rate for each of the activity-cost pools for variable and fixed overhead costs. Select the formula you will use, then calculate the cost driver rate. (Round the cost driver rates to
the nearest cent, $X.XX. "Machine maint & util" = "Machine maintenance and utility costs". When calculating the cost driver rates for facility rent and depreciation, use a numerator that accounts for the fact that Arrow
uses only 80% of its manufacturing capacity.)
Cost
Machine setups
Data table
Arrow Boards
Budgeted Costs for the.
Year Ended December 31, 2020
Direct materials-Basic boards
Direct materials-Competition boards
Direct manufacturing labor-Basic boards
Direct manufacturing labor-Competition boards
Machine setup costs
Machine maintenance and utility costs
Indirect labor costs
Facility rent
Machine depreciation
Print
Done
$
+
Total quantity of cost driver
-
357,500
722,000
798,000
1,482,000
238,000
924,000
1,140,000
278,375
98,250
=
Requirements
1.
2.
3.
4.
Cost driver rate
Calculate the cost-allocation rate for each of the activity-cost pools for
variable and fixed overhead costs.
Calculate the cost of unused capacity for the year.
Calculate the total cost for each model, and the cost per unit for each model.
Arrow has the opportunity to sublease the unused factory space to a startup
company that will be manufacturing surf apparel. None of Arrow's machinery
will be used. Is there a minimum annual rent that Arrow should charge? Are
there any other considerations that Arrow's management should make prior
to offering the space?
Print
- X
Done
Data table
Other information:
Units produced
Machine hours
Number of setups
Direct labor-hours
Print
Basic
5,500
26,000
800
42,000
Done
Competition
- X
7,600
58,000
900
78,000
Transcribed Image Text:Arrow Boards manufactures two models of surfboards, Basic and Competition, in a facility in Southern California. In fabrication, machine setup costs are driven by the number of setups, machine maintenance and utility costs increase with the number of machine hours, and indirect labor costs increase with direct labor hours. Facility rent and machine depreciation are fixed, and are the basis of manufacturing capacity. Fixed costs are allocated equally to each unit produced, regardless of model. Currently, Arrow uses 80% of its manufacturing capacity. The cost of unused capacity is not assigned to products, but is expensed as a separate line item. For 2020, Arrow has budgeted the following: (Click the icon to view the budgeted information.) (Click the icon to view other information.) Read the requiremenil Requirement 1. Calculate the cost-allocation rate for each of the activity-cost pools for variable and fixed overhead costs. Select the formula you will use, then calculate the cost driver rate. (Round the cost driver rates to the nearest cent, $X.XX. "Machine maint & util" = "Machine maintenance and utility costs". When calculating the cost driver rates for facility rent and depreciation, use a numerator that accounts for the fact that Arrow uses only 80% of its manufacturing capacity.) Cost Machine setups Data table Arrow Boards Budgeted Costs for the. Year Ended December 31, 2020 Direct materials-Basic boards Direct materials-Competition boards Direct manufacturing labor-Basic boards Direct manufacturing labor-Competition boards Machine setup costs Machine maintenance and utility costs Indirect labor costs Facility rent Machine depreciation Print Done $ + Total quantity of cost driver - 357,500 722,000 798,000 1,482,000 238,000 924,000 1,140,000 278,375 98,250 = Requirements 1. 2. 3. 4. Cost driver rate Calculate the cost-allocation rate for each of the activity-cost pools for variable and fixed overhead costs. Calculate the cost of unused capacity for the year. Calculate the total cost for each model, and the cost per unit for each model. Arrow has the opportunity to sublease the unused factory space to a startup company that will be manufacturing surf apparel. None of Arrow's machinery will be used. Is there a minimum annual rent that Arrow should charge? Are there any other considerations that Arrow's management should make prior to offering the space? Print - X Done Data table Other information: Units produced Machine hours Number of setups Direct labor-hours Print Basic 5,500 26,000 800 42,000 Done Competition - X 7,600 58,000 900 78,000
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