Drippin' in Heat manufactures the finest formal wear west of the Mississippi. The company produces two main products: Suit Jackets and Sport Coats. Currently the company uses a traditional overhead rate in which Manufacturing Overhead is allocated to products based on direct labor hours logged. The projected production levels for the period are 1,200 Suit Jackets and 400 Sport Coats. Due to profitability concerns, management is considering switching to Activity-Based Costing (ABC). Management has divided manufacturing overhead costs into three activities and cost pools: Assembly $30,000; Machine Setup $20,000; and Product Movement $102,400. Management has identified the following cost drivers for each overhead activity: direct labor hours for assembly, number of setups for machine setup, and number of moves for product movement. The following information has been compiled for each product line: Direct Labor Requirements. Machine Setup Requirements. Product Movement Requirements Suit Jackets 0.5 DL Hour per unit 1 Setup per every 15 units produced 1 Move per every 25 units produced OA. $16.13 overcosted Sport Coats 1.0 DL Hour per unit 1 Setup for every 20 units produced 1 Move per every 25 units produced Using the above information, determine the per-unit amount by which the Suit Jacket product line overcosted/undercosted by the current cost system.
Drippin' in Heat manufactures the finest formal wear west of the Mississippi. The company produces two main products: Suit Jackets and Sport Coats. Currently the company uses a traditional overhead rate in which Manufacturing Overhead is allocated to products based on direct labor hours logged. The projected production levels for the period are 1,200 Suit Jackets and 400 Sport Coats. Due to profitability concerns, management is considering switching to Activity-Based Costing (ABC). Management has divided manufacturing overhead costs into three activities and cost pools: Assembly $30,000; Machine Setup $20,000; and Product Movement $102,400. Management has identified the following cost drivers for each overhead activity: direct labor hours for assembly, number of setups for machine setup, and number of moves for product movement. The following information has been compiled for each product line: Direct Labor Requirements. Machine Setup Requirements. Product Movement Requirements Suit Jackets 0.5 DL Hour per unit 1 Setup per every 15 units produced 1 Move per every 25 units produced OA. $16.13 overcosted Sport Coats 1.0 DL Hour per unit 1 Setup for every 20 units produced 1 Move per every 25 units produced Using the above information, determine the per-unit amount by which the Suit Jacket product line overcosted/undercosted by the current cost system.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Transcribed Image Text:Drippin' in Heat manufactures the finest formal wear west of the Mississippi. The company produces two main products: Suit Jackets and Sport Coats. Currently the company uses a traditional
overhead rate in which Manufacturing Overhead is allocated to products based on direct labor hours logged. The projected production levels for the period are 1,200 Suit Jackets and 400 Sport
Coats.
Due to profitability concerns, management is considering switching to Activity-Based Costing (ABC). Management has divided manufacturing overhead costs into three activities and cost pools:
Assembly $30,000; Machine Setup $20,000; and Product Movement $102,400. Management has identified the following cost drivers for each overhead activity: direct labor hours for assembly,
number of setups for machine setup, and number of moves for product movement.
The following information has been compiled for each product line:
Direct Labor Requirements
Machine Setup Requirements
Product Movement Requirements
Suit Jackets
0.5 DL Hour per unit
1 Setup per every 15 units produced
1 Move per every 25 units produced
O A. Overcosted
OB. Neither
OC. Undercosted
Sport Coats
1.0 DL Hour per unit
1 Setup for every 20 units produced
1 Move per every 25 units produced
Using the above information, determine the per-unit amount by which the Suit Jacket product line is overcosted/undercosted by the current cost system.
OA. $16.13 overcosted
OB. $48.40 overcosted
OC. $48.40 undercosted
O D. $16.13 undercosted
OE. None of the above.
ThAssuming the company marks up costs 75% to determine sales price, the Sport Coat line is being
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