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Asbury Coffee Enterprises (ACE) manufactures two models of coffee grinders: Personal and Commercial. The Personal grinders have smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Sind the Introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at ACE belleves that the problem might be in how the accounting system allocates costs to products. The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which Is representative, manufacturing overhead totaled $2,050,500 based on production of 30,000 Personal grinders and 10,000 Commercial grinders. Direct costs were as follows: Direct materials Direct labor Personal $1,445,800 1,031,000 Commercial $ 630,250 677,750 Total $ 2,076,050 1,708,750 Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows: Activity Level Cost Driver Costs Assigned Personal Commercial Total Number of production runs Quality tests performed Shipping orders processed $ 982,500 824,000 244,000 $2,050,500 se 15 25 25 75 40 150 200 Total overhead Required: a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? b. How much overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per

Asbury Coffee Enterprises (ACE) manufactures two models of coffee grinders: Personal and Commercial. The Personal grinders have smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Sind the Introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at ACE belleves that the problem might be in how the accounting system allocates costs to products. The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which Is representative, manufacturing overhead totaled $2,050,500 based on production of 30,000 Personal grinders and 10,000 Commercial grinders. Direct costs were as follows: Direct materials Direct labor Personal $1,445,800 1,031,000 Commercial $ 630,250 677,750 Total $ 2,076,050 1,708,750 Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows: Activity Level Cost Driver Costs Assigned Personal Commercial Total Number of production runs Quality tests performed Shipping orders processed $ 982,500 824,000 244,000 $2,050,500 se 15 25 25 75 40 150 200 Total overhead Required: a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? b. How much overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Exercise 9-41 (Algo) Activity-Based versus Traditional Costing (LO 9-4, 5, 6) Asbury Coffee Enterprises (ACE) manufactures two models of coffee grinders: Personal and Commercial. The Personal grinders have a smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Since the Introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at ACE belleves that the problem might be in how the accounting system allocates costs to products. The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which Is representative, manufacturing overhead totaled $2,050,500 based on production of 30,000 Personal grinders and 10,000 Commercial grinders. Direct costs were as follows: Direct materials Direct labor Personal $ 1,445,800 1,031,000 Commercial $ 630,250 677,750 Total $ 2,076,050 1,788,750 Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows: Activity Level Cost Driver Number of production runs Quality tests performed Shipping orders processed Total overhead Costs Assigned $ 982,500 824,000 244,000 $2,050,500 Personal Commercial Total se 15 25 75 25 40 150 se 200 Required: a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? b. How much overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B How much overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? Note: Round "Total Cost per Unit" to 2 decimal places. Overhead Total Cost per Unit Personal Commercial $ 1,237,200 ( S 123.80 $2,121,300 S 212.13
Transcribed Image Text:Exercise 9-41 (Algo) Activity-Based versus Traditional Costing (LO 9-4, 5, 6) Asbury Coffee Enterprises (ACE) manufactures two models of coffee grinders: Personal and Commercial. The Personal grinders have a smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Since the Introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at ACE belleves that the problem might be in how the accounting system allocates costs to products. The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which Is representative, manufacturing overhead totaled $2,050,500 based on production of 30,000 Personal grinders and 10,000 Commercial grinders. Direct costs were as follows: Direct materials Direct labor Personal $ 1,445,800 1,031,000 Commercial $ 630,250 677,750 Total $ 2,076,050 1,788,750 Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows: Activity Level Cost Driver Number of production runs Quality tests performed Shipping orders processed Total overhead Costs Assigned $ 982,500 824,000 244,000 $2,050,500 Personal Commercial Total se 15 25 75 25 40 150 se 200 Required: a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? b. How much overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B How much overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? Note: Round "Total Cost per Unit" to 2 decimal places. Overhead Total Cost per Unit Personal Commercial $ 1,237,200 ( S 123.80 $2,121,300 S 212.13
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