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Cartwright Ltd. manufactures two models of saddles, the Jordan and the Shenandoah. The Jordan is a more basic model and sells for $900. The Shenandoah is a professional- model saddle and sells for $1,500. At the beginning of the year, the following budgeted data were available: Expected production (units) Machine time (hours) Direct materials unit cost Direct labour-hours Receiving (number of orders processed) Setups (number of setups) Direct labour average wage rate (per hour) Purchasing (number of requisitions) Inspection (% of units inspected) Maintenance hours Design and production support (hours) Jordan 15,000 2,000 $ 100 30,000 150 15 20 50 10% $ 450 100 The following are the budgeted indirect costs for the year. Equipment maintenance Utilities Purchasing materials Indirect materials Receiving goods Factory rental Setting up equipment Inspection costs Design Production support Facility-level costs are allocated on the basis of machine-hours. Shenandoah 5,000 2,000 $ 200 30,000 650 $ 100 20 110 20% 950 400 $140,000 48,000 50,000 60,000 35,000 96,000 13,800 148,000 50,000 75,000 1. Calculate the cost per unit for each product assuming the company uses a single overhead allocation rate based on direct labour-hours. 2. Form homogeneous cost pools and select appropriate cost drivers. Explain the rationale behind each of your groupings. Calculate the activity rates. 3. Using the activity rates calculated in requirement 2, calculate the per-unit cost for each product. 4. Compare your results from requirements 1 and 3, and comment on your results.

Cartwright Ltd. manufactures two models of saddles, the Jordan and the Shenandoah. The Jordan is a more basic model and sells for $900. The Shenandoah is a professional- model saddle and sells for $1,500. At the beginning of the year, the following budgeted data were available: Expected production (units) Machine time (hours) Direct materials unit cost Direct labour-hours Receiving (number of orders processed) Setups (number of setups) Direct labour average wage rate (per hour) Purchasing (number of requisitions) Inspection (% of units inspected) Maintenance hours Design and production support (hours) Jordan 15,000 2,000 $ 100 30,000 150 15 20 50 10% $ 450 100 The following are the budgeted indirect costs for the year. Equipment maintenance Utilities Purchasing materials Indirect materials Receiving goods Factory rental Setting up equipment Inspection costs Design Production support Facility-level costs are allocated on the basis of machine-hours. Shenandoah 5,000 2,000 $ 200 30,000 650 $ 100 20 110 20% 950 400 $140,000 48,000 50,000 60,000 35,000 96,000 13,800 148,000 50,000 75,000 1. Calculate the cost per unit for each product assuming the company uses a single overhead allocation rate based on direct labour-hours. 2. Form homogeneous cost pools and select appropriate cost drivers. Explain the rationale behind each of your groupings. Calculate the activity rates. 3. Using the activity rates calculated in requirement 2, calculate the per-unit cost for each product. 4. Compare your results from requirements 1 and 3, and comment on your results.

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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Cartwright Ltd. manufactures two models of saddles, the Jordan and the Shenandoah. The Jordan is a more basic model and sells for $900. The Shenandoah is a professional- model saddle and sells for $1,500. At the beginning of the year, the following budgeted data were available: Expected production (units) Machine time (hours) Direct materials unit cost Direct labour-hours Receiving (number of orders processed) Setups (number of setups) Direct labour average wage rate (per hour) Purchasing (number of requisitions) Inspection (% of units inspected) Maintenance hours Design and production support (hours) Jordan 15,000 2,000 $ 100 30,000 150 15 20 50 10% $ 450 100 The following are the budgeted indirect costs for the year. Equipment maintenance Utilities Purchasing materials Indirect materials Receiving goods Factory rental Setting up equipment Inspection costs Design Production support Facility-level costs are allocated on the basis of machine-hours. Shenandoah 5,000 2,000 $ 200 30,000 650 100 20 110 S 20% 950 400 $140,000 48,000 50,000 60,000 35,000 96,000 13,800 148,000 50,000 75,000 1. Calculate the cost per unit for each product assuming the company uses a single overhead allocation rate based on direct labour-hours. 2. Form homogeneous cost pools and select appropriate cost drivers. Explain the rationale behind each of your groupings. Calculate the activity rates. 3. Using the activity rates calculated in requirement 2, calculate the per-unit cost for each product. 4. Compare your results from requirements 1 and 3, and comment on your results.
Transcribed Image Text:Cartwright Ltd. manufactures two models of saddles, the Jordan and the Shenandoah. The Jordan is a more basic model and sells for $900. The Shenandoah is a professional- model saddle and sells for $1,500. At the beginning of the year, the following budgeted data were available: Expected production (units) Machine time (hours) Direct materials unit cost Direct labour-hours Receiving (number of orders processed) Setups (number of setups) Direct labour average wage rate (per hour) Purchasing (number of requisitions) Inspection (% of units inspected) Maintenance hours Design and production support (hours) Jordan 15,000 2,000 $ 100 30,000 150 15 20 50 10% $ 450 100 The following are the budgeted indirect costs for the year. Equipment maintenance Utilities Purchasing materials Indirect materials Receiving goods Factory rental Setting up equipment Inspection costs Design Production support Facility-level costs are allocated on the basis of machine-hours. Shenandoah 5,000 2,000 $ 200 30,000 650 100 20 110 S 20% 950 400 $140,000 48,000 50,000 60,000 35,000 96,000 13,800 148,000 50,000 75,000 1. Calculate the cost per unit for each product assuming the company uses a single overhead allocation rate based on direct labour-hours. 2. Form homogeneous cost pools and select appropriate cost drivers. Explain the rationale behind each of your groupings. Calculate the activity rates. 3. Using the activity rates calculated in requirement 2, calculate the per-unit cost for each product. 4. Compare your results from requirements 1 and 3, and comment on your results.
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