Accounting Banes Co. incurs $350,000 of overhead costs each year in its three maindepartments, machining ($200,000), inspections ($100,000), and packing ($50,000).The machining department works 4,000 hours per year, there are 500 inspectionsper year, and the packing department packs 500 orders per year. Information aboutBanes's two products is as follows:Product X Product YMachining hours1,0003,000Inspections100500Orders packed3506501,800Direct labor hours 1,700Using ABC, how much overhead is assigned to Product X this year?A) $84,167B) $121,154C) $170,000D) $175,000

Step 1: Define Activity-based CostingThe method used for allocating overhead costs in this problem…

Answered: Banes Co. incurs $350,000 of overhead…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter6: Activity-based, Variable, And Absorption Costing

Section: Chapter Questions

Problem 6PA: Box Springs, Inc., makes two sizes of box springs: twin and double. The direct material for the twin...

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Box Springs, Inc., makes two sizes of box springs: twin and double. The direct material for the twin is $25 per unit and $40 s used in direct labor, while the direct material for the double is $40 per unit, and the labor cost is $50 per unit. Box Springs estimates it will make 5,000 twins and 9,000 doubles in the next year. It estimates the overhead for each cost pool and cost driver activities as follows: How much does each unit cost to manufacture?
Corazon Manufacturing Company has a purchasing department staffed by five purchasing agents. Each agent is paid 28,000 per year and is able to process 4,000 purchase orders. Last year, 17,800 purchase orders were processed by the five agents. Required: 1. Calculate the activity rate per purchase order. 2. Calculate, in terms of purchase orders, the: a. total activity availability b. unused capacity 3. Calculate the dollar cost of: a. total activity availability b. unused capacity 4. Express total activity availability in terms of activity capacity used and unused capacity. 5. What if one of the purchasing agents agreed to work half time for 14,000? How many purchase orders could be processed by four and a half purchasing agents? What would unused capacity be in purchase orders?
Elliott, Inc., has four salaried clerks to process purchase orders. Each clerk is paid a salary of 25,750 and is capable of processing as many as 6,500 purchase orders per year. Each clerk uses a PC and laser printer in processing orders. Time available on each PC system is sufficient to process 6,500 orders per year. The cost of each PC system is 1,100 per year. In addition to the salaries, Elliott spends 27,560 for forms, postage, and other supplies (assuming 26,000 purchase orders are processed). During the year, 25,350 orders were processed. Required: 1. Classify the resources associated with purchasing as (1) flexible or (2) committed. 2. Compute the total activity availability, and break this into activity usage and unused activity. 3. Calculate the total cost of resources supplied (activity cost), and break this into the cost of activity used and the cost of unused activity. 4. (a) Suppose that a large special order will cause an additional 500 purchase orders. What purchasing costs are relevant? By how much will purchasing costs increase if the order is accepted? (b) Suppose that the special order causes 700 additional purchase orders. How will your answer to (a) change?
Cashion Company produces chemical mixtures for veterinary pharmaceutical companies. Its factory has four mixing lines that mix various powdered chemicals together according to specified formulas. Each line can produce up to 5,000 barrels per year. Each line has one supervisor who is paid 34,000 per year. Depreciation on equipment averages 16,000 per year. Direct materials and power cost about 4.50 per unit. Required: 1. Prepare a graph for each of these three costs: equipment depreciation, supervisors wages, and direct materials and power. Use the vertical axis for cost and the horizontal axis for units (barrels). Assume that sales range from 0 to 20,000 units. 2. Assume that the normal operating range for the company is 16,000 to 19,000 units per year. How would you classify each of the three types of cost?
Vollmer Manufacturing makes three components for sale to refrigeration companies. The components are processed on two machines: a shaper and a grinder. The times (in minutes) required on each machine are as follows: The shaper is available for 120 hours, and the grinder for 110 hours. No more than 200 units of component 3 can be sold, but up to 1,000 units of each of the other components can be sold. In fact, the company already has orders for 600 units of component 1 that must be satisfied. The profit contributions for components 1, 2, and 3 are 8, 6, and 9, respectively. a. Formulate and solve for the recommended production quantities. b. What are the objective coefficient ranges for the three components? Interpret these ranges for company management. c. What are the right-hand-side ranges? Interpret these ranges for company management. d. If more time could be made available on the grinder, how much would it be worth? e. If more units of component 3 can be sold by reducing the sales price by 4, should the company reduce the price?
Box Springs. Inc., makes two sizes of box springs: queen and king. The direct material for the queen is $35 per unit and $55 is used in direct labor, while the direct material for the king is $55 per unit, and the labor cost is $70 per unit. Box Springs estimates it will make 4,300 queens and 3,000 kings in the next year. It estimates the overhead for each cost pool and cost driver activities as follows: How much does each unit cost to manufacture?
Colonels uses a traditional cost system and estimates next years overhead will be $480,000, with the estimated cost driver of 240,000 direct labor hours. It manufactures three products and estimates these costs: If the labor rate is $25 per hour, what is the per-unit cost of each product?
Five Card Draw manufactures and sells 24,000 units of Diamonds, which retails for $180, and 27,000 units of Clubs, which retails for $190. The direct materials cost is $25 per unit of Diamonds and $30 per unit of Clubs. The labor rate is $25 per hour, and Five Card Draw estimated 180,000 direct labor hours. It takes 3 direct labor hours to manufacture Diamonds and 4 hours for Clubs. The total estimated overhead is $720,000. Five Card Draw uses the traditional allocation method based on direct labor hours. A. What is the gross profit per unit for Diamonds and Clubs? B. What is the total gross profit for the year?
Taylor Company produces two industrial cleansers that use the same liquid chemical input: Pocolimpio and Maslimpio. Pocolimpio uses two quarts of the chemical for every unit produced, and Maslimpio uses five quarts. Currently, Taylor has 6,000 quarts of the material in inventory. All of the material is imported. For the coming year, Taylor plans to import 6,000 quarts to produce 1,000 units of Pocolimpio and 2,000 units of Maslimpio. The detail of each products unit contribution margin is as follows: Taylor Company has received word that the source of the material has been shut down by embargo. Consequently, the company will not be able to import the 6,000 quarts it planned to use in the coming years production. There is no other source of the material. Required: 1. Compute the total contribution margin that the company would earn if it could import the 6,000 quarts of the material. 2. Determine the optimal usage of the companys inventory of 6,000 quarts of the material. Compute the total contribution margin for the product mix that you recommend. 3. Assume that Pocolimpio uses three direct labor hours for every unit produced and that Maslimpio uses two hours. A total of 6,000 direct labor hours is available for the coming year. a. Formulate the linear programming problem faced by Taylor Company. To do so, you must derive mathematical expressions for the objective function and for the materials and labor constraints. b. Solve the linear programming problem using the graphical approach. c. Compute the total contribution margin produced by the optimal mix.
Five Card Draw manufactures and sells 10,000 units of Aces, which retails for $200, and 8,000 units of Kings, which retails for $170. The direct materials cost is $20 per unit of Aces and $15 per unit of Kings. The labor rate is $30 per hour, and Five Card Draw estimated 64000 direct labor hours. It takes 4 direct labor hours to manufacture Aces and 3 hours for Kings. The total estimated overhead is $128,000. Five Card Draw uses the traditional allocation method based on direct labor hours. A. How much is the gross profit per unit for Aces and Kings? B. What is the total gross profit for the year?
Roper Furniture manufactures office furniture and tracks cost data across their process. The following are some of the costs that they incur. Classify these costs as fixed or variable costs, and as product costs or period costs. Wood used to produce desks ($125,00 per desk) Production labor used to produce desks ($15 per hour) Production supervisor salary ($45,000 per year) Depreciation on factory equipment ($60,000 per year) Selling and administrative expenses ($45,000 per year) Rent on corporate office ($44,000 per year) Nails, glue, and other materials required to produce desks (varies per desk) Utilities expenses for production facility Sales staff commission (5% of gross sales)
Columbia Products Inc. has two divisions, Salem and Seaside. For the month ended March 31, Salem had sales and variable costs of 500,000 and 225,000, respectively, and Seaside had sales and variable costs of 800,000 and 475,000, respectively. Salem had direct fixed production and administrative expenses of 60,000 and 35,000, respectively, and Seaside had direct fixed production and administrative expenses of 80,000 and 45,000, respectively. Fixed costs that were common to both divisions and couldnt be allocated to the divisions in any meaningful way were selling, 33,000, and administration, 27,000. Prepare a segmented income statement by division for March.

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