Koontz Company manufactures two models of industrial components-a Basic model and an Advanced Model. The company considers all of its manufacturing overhead costs to be fixed and it uses plantwide manufacturing overhead cost allocation based on direct labor-hours. Koontz's controller prepared the segmented income statement that is shown below for the most recent year (he allocated selling and administrative expenses to products based on sales dollars): Basic Advanced Total Number of units produced and sold 20,000 10,000 30,000 $2,000,000 1,350,000 $ 5,000,000 3,650,000 1,350,000 Sales $3,000,000 Cost of goods sold Gross margin Selling and administrative expenses 2,300,000 700,000 650,000 480,000 720,000 1,200,000 Net operating income (loss) $ (20,000) $ 170,000 $ 150,000 Direct laborers are paid $20 per hour. Direct materials cost $40 per unit for the Basic model and $60 per unit for the Advanced model. Koontz is considering a change from plantwide overhead allocation to a departmental approach. The overhead costs in the company's Molding Department would be allocated based on machine-hours and the overhead costs in its Assemble and Pack Department would be allocated based on direct labor-hours. To enable further analysis, the controller gathered the following information: Assemble Molding $ 787,500 and Pack Total $ 562,500 $ 1,350,000 Manufacturing overhead costs Direct labor hours: Basic 10,000 5,000 20,000 10,000 30,000 15,000 Advanced Machine hours: Basic Advanced 12, е00 10.A0A 12,000 10.000
Koontz Company manufactures two models of industrial components-a Basic model and an Advanced Model. The company considers all of its manufacturing overhead costs to be fixed and it uses plantwide manufacturing overhead cost allocation based on direct labor-hours. Koontz's controller prepared the segmented income statement that is shown below for the most recent year (he allocated selling and administrative expenses to products based on sales dollars): Basic Advanced Total Number of units produced and sold 20,000 10,000 30,000 $2,000,000 1,350,000 $ 5,000,000 3,650,000 1,350,000 Sales $3,000,000 Cost of goods sold Gross margin Selling and administrative expenses 2,300,000 700,000 650,000 480,000 720,000 1,200,000 Net operating income (loss) $ (20,000) $ 170,000 $ 150,000 Direct laborers are paid $20 per hour. Direct materials cost $40 per unit for the Basic model and $60 per unit for the Advanced model. Koontz is considering a change from plantwide overhead allocation to a departmental approach. The overhead costs in the company's Molding Department would be allocated based on machine-hours and the overhead costs in its Assemble and Pack Department would be allocated based on direct labor-hours. To enable further analysis, the controller gathered the following information: Assemble Molding $ 787,500 and Pack Total $ 562,500 $ 1,350,000 Manufacturing overhead costs Direct labor hours: Basic 10,000 5,000 20,000 10,000 30,000 15,000 Advanced Machine hours: Basic Advanced 12, е00 10.A0A 12,000 10.000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:Required:
1. Using the plantwide approach:
a. Calculate the plantwide overhead rate.
b. Calculate the amount of overhead that would be assigned to each product.
2. Using a departmental approach:
a. Calculate the departmental overhead rates.
b. Calculate the total amount of overhead that would be assigned to each product.
c. Using your departmental overhead cost allocations, redo the controller's segmented income statement (continue to allocate selling
and administrative expenses based on sales dollars).
3. Koontz's production manager has suggested using activity-based costing instead of either the plantwide or departmental
Transcribed Image Text:Koontz Company manufactures two models of industrial components-a Basic model and an Advanced Model. The company
considers all of its manufacturing overhead costs to be fixed and it uses plantwide manufacturing overhead cost allocation based on
direct labor-hours. Koontz's controller prepared the segmented income statement that is shown below for the most recent year (he
allocated selling and administrative expenses to products based on sales dollars):
Basic
Advanced
Total
Number of units produced and sold
20,000
10,000
30,000
$ 5,000,000
3,650,000
1,350,000
1,200,000
$3,000,000
$2,000,000
1,350,000
650,000
480,000
Sales
Cost of goods sold
Gross margin
Selling and administrative expenses
2,300,000
700,000
720,000
(20,000)
Net operating income (loss)
$4
$4
170,000
150,000
Direct laborers are paid $20 per hour. Direct materials cost $40 per unit for the Basic model and $60 per unit for the Advanced model.
Koontz is considering a change from plantwide overhead allocation to a departmental approach. The overhead costs in the company's
Molding Department would be allocated based on machine-hours and the overhead costs in its Assemble and Pack Department would
be allocated based on direct labor-hours. To enable further analysis, the controller gathered the following information:
Assemble
Molding
and Pack
Total
Manufacturing overhead costs
$ 787,500
$ 562,500
$ 1,350,000
Direct labor hours:
Basic
10,000
5,000
20,000
30,000
15,000
Advanced
10,000
Machine hours:
Basic
12,000
10,000
12,000
10,000
Advanced
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