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 believes 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 $1,983,000 based on production of 30,000 Personal grinders and 10,000 Commercial grinders. Direct costs were as follows: Direct materials Direct labor Personal $ 1,441,800 1,026,000 Commercial $ 579,000 626,500 Total $ 2,020,800 1,652,500 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 Personal Commercial Total $ 945,000 804,000 234,000 50 25 75 15 25 40 150 50 200 $ 1,983,000
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 believes 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 $1,983,000 based on production of 30,000 Personal grinders and 10,000 Commercial grinders. Direct costs were as follows: Direct materials Direct labor Personal $ 1,441,800 1,026,000 Commercial $ 579,000 626,500 Total $ 2,020,800 1,652,500 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 Personal Commercial Total $ 945,000 804,000 234,000 50 25 75 15 25 40 150 50 200 $ 1,983,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
9
Transcribed Image Text: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 believes 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 $1,983,000 based on production of 30,000 Personal grinders and 10,000
Commercial grinders. Direct costs were as follows:
Direct materials
Direct labor
Cost Driver
Number of production runs
Quality tests performed
Shipping orders processed
Total overhead
Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as
follows:
Personal
$ 1,441,800
1,026,000
Required A Required B
Commercial
$ 579,000
626,500
Personal
Commercial
Overhead
Costs Assigned Personal
$ 945,000
804,000
234,000
$ 1,983,000
Total
$ 2,020,800
1,652,500
Activity Level
50
15
150
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?
Complete this question by entering your answers in the tabs below.
Total Cost per
Unit
Commercial
25
25
50
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?
Note: Round "Total Cost per Unit" to 2 decimal places.
Total
75
40
200
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