Commonwealth Devices makes three wearable fitness devices at its Lake Plant: CFit-1, CFit-2, and CFit-Xtra. The company has for many years allocated overhead to products using machine-hours. Last year, the Lake Plant produced and shipped 8,280 units of CFit-1, 14,840 units of CFit-2, and 8,280 units of CFit-Xtra. The plant recorded the following revenues and costs: COMMONWEALTH DEVICES Lake Plant Income Statement CFit-1 CFit-2 CFit-Xtra Total Sales revenue $ 910,800 $ 1,484,000 $ 1,242,000 $ 3,636,800 Direct costs Direct materials 220,000 308,000 268,000 796,000 Direct labor 68,000 80,500 148,000 296,500 Variable overhead Machine setup 220,000 Order processing 172,000 Materials handling 220,000 Machining 124,000 Shipping 114,000 Contribution margin $ 1,694,300 Plant administration costs 1,428,000 Gross profit $ 266,300 The Lake Plant has put together an employee team to recommend a possible activity-based cost system, including cost allocation bases. The employee team recommends the following: Activity Cost Driver CFit-1 CFit-2 CFit-Xtra Machine setup Setups 80 160 160 Order processing Orders received 9 20 11 Materials handling Material movements 3,000 4,500 5,000 Machining Machine-hours 10,000 16,000 24,000 Shipping Units shipped 8,000 14,000 8,000 The employee team further recommends that administration costs not be allocated to products. Required: a. Using machine-hours to allocate overhead, complete the income statement for the Lake Plant. Do not allocate administrative costs to products. b-1. Compute the cost driver rates. b-2. Complete the income statement using the activity-based costing method suggested by the employee team.

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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Commonwealth Devices makes three wearable fitness devices at its Lake Plant: CFit-1, CFit-2, and CFit-Xtra. The company has for many years allocated overhead to products using machine-hours. Last year, the Lake Plant produced and shipped 8,280 units of CFit-1, 14,840 units of CFit-2, and 8,280 units of CFit-Xtra. The plant recorded the following revenues and costs:

	CFit-1	CFit-2	CFit-Xtra	Total
COMMONWEALTH DEVICES
Lake Plant
Income Statement
Sales revenue	$ 910,800	$ 1,484,000	$ 1,242,000	$ 3,636,800
Direct costs
Direct materials	220,000	308,000	268,000	796,000
Direct labor	68,000	80,500	148,000	296,500
Variable overhead
Machine setup				220,000
Order processing				172,000
Materials handling				220,000
Machining				124,000
Shipping				114,000
Contribution margin				$ 1,694,300
Plant administration costs				1,428,000
Gross profit				$ 266,300

The Lake Plant has put together an employee team to recommend a possible activity-based cost system, including cost allocation bases. The employee team recommends the following:

Activity	Cost Driver	CFit-1	CFit-2	CFit-Xtra
Machine setup	Setups	80	160	160
Order processing	Orders received	9	20	11
Materials handling	Material movements	3,000	4,500	5,000
Machining	Machine-hours	10,000	16,000	24,000
Shipping	Units shipped	8,000	14,000	8,000

The employee team further recommends that administration costs not be allocated to products.

Required:

a. Using machine-hours to allocate overhead, complete the income statement for the Lake Plant. Do not allocate administrative costs to products.

b-1. Compute the cost driver rates.

b-2. Complete the income statement using the activity-based costing method suggested by the employee team.

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