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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 Sales $3,000,000 $2,000,000 $ 5,000,000 Cost of goods sold Gross margin Selling and administrative expenses 2,300,000 1,350,000 700,000 720,000 650,000 480,000 3,650,000 1,350,000 1,200,000 Net operating income (loss) $ (20,000) $ 170,000 $ 150, е00

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 Sales $3,000,000 $2,000,000 $ 5,000,000 Cost of goods sold Gross margin Selling and administrative expenses 2,300,000 1,350,000 700,000 720,000 650,000 480,000 3,650,000 1,350,000 1,200,000 Net operating income (loss) $ (20,000) $ 170,000 $ 150, е00

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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I need the answer to 2.B-3.

### 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 Suggestion: The production manager proposed using activity-based costing (ABC) instead of the plantwide or departmental approaches. The company’s total manufacturing overhead cost is allocated to five activity cost pools: | Activity Cost Pool | Activity Measure | Manufacturing Overhead | |-----------------------|-------------------------------------|------------------------| | Machining | Machine-hours in Molding | $417,500 | | Assemble and Pack | Direct Labor-hours in Assemble and Pack | $282,500 | | Order Processing | Number of Customer Orders | $230,000 | | Setups | Setup Hours | $340,000 | | Other (Unused Capacity) | | $80,000 | | **Total** | | **$1,350,000** | Additional insights include: - The average order size for the Basic and Advanced models is 400 units and 50 units, respectively. - Molding machines require a setup for each order. - One setup hour is needed for each customer order of the Basic model; three hours are needed for the Advanced model. - Sales commissions are 5% for the Basic model and 10% for the Advanced model. - Traceable fixed advertising costs are $150,000 for the Basic model and $200,000 for the Advanced model. - Remaining selling and administrative costs are organization-sustaining in nature. ### Calculations: Using the additional information, perform the following calculations: a. **Activity Rate for Each Activity Cost Pool.** b. **Total Manufacturing Overhead Cost Allocated to the Basic Model and the Advanced Model using the Activity-Based Approach.** c. **Total Selling and Administrative Cost Traced to the Basic Model and the Advanced Model using the Activity-Based Approach.**
Transcribed Image Text:### 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 Suggestion: The production manager proposed using activity-based costing (ABC) instead of the plantwide or departmental approaches. The company’s total manufacturing overhead cost is allocated to five activity cost pools: | Activity Cost Pool | Activity Measure | Manufacturing Overhead | |-----------------------|-------------------------------------|------------------------| | Machining | Machine-hours in Molding | $417,500 | | Assemble and Pack | Direct Labor-hours in Assemble and Pack | $282,500 | | Order Processing | Number of Customer Orders | $230,000 | | Setups | Setup Hours | $340,000 | | Other (Unused Capacity) | | $80,000 | | **Total** | | **$1,350,000** | Additional insights include: - The average order size for the Basic and Advanced models is 400 units and 50 units, respectively. - Molding machines require a setup for each order. - One setup hour is needed for each customer order of the Basic model; three hours are needed for the Advanced model. - Sales commissions are 5% for the Basic model and 10% for the Advanced model. - Traceable fixed advertising costs are $150,000 for the Basic model and $200,000 for the Advanced model. - Remaining selling and administrative costs are organization-sustaining in nature. ### Calculations: Using the additional information, perform the following calculations: a. **Activity Rate for Each Activity Cost Pool.** b. **Total Manufacturing Overhead Cost Allocated to the Basic Model and the Advanced Model using the Activity-Based Approach.** c. **Total Selling and Administrative Cost Traced to the Basic Model and the Advanced Model using the Activity-Based Approach.**
### Koontz Company Production and Financial Analysis Koontz Company manufactures two models of industrial components: a Basic model and an Advanced model. The company's manufacturing overhead is considered fixed and is allocated using plantwide rates based on direct labor-hours. Below is the segmented income statement provided for the recent year, withholding the allocation of selling and administrative expenses based on sales dollars. **Income Statement:** | | Basic | Advanced | Total | |--------------------------|-----------------|----------------|----------------| | Number of units produced and sold | 20,000 | 10,000 | 30,000 | | Sales | $3,000,000 | $2,000,000 | $5,000,000 | | Cost of goods sold | 2,300,000 | 1,350,000 | 3,650,000 | | **Gross margin** | **700,000** | **650,000** | **1,350,000** | | Selling and administrative expenses | 720,000 | 480,000 | 1,200,000 | | **Net operating income (loss)** | **$(20,000)** | **170,000** | **150,000** | **Labor and Material Costs:** - Direct laborers are paid $20 per hour. - Direct materials cost: - Basic model: $40 per unit - Advanced model: $60 per unit **Overhead Allocation:** Koontz is evaluating a shift from plantwide overhead allocation to a departmental approach. This involves: - Allocating overhead in the Molding Department based on machine-hours. - Allocating overhead in the Assemble and Pack Department based on direct labor-hours. The following data was compiled for further analysis: **Departmental Overhead and Labor Information:** | | Molding | Assemble and Pack | Total | |--------------------------|----------------|-------------------|----------------| | Manufacturing overhead costs | $787,500 | $562,500 | $1,350,000 | | **Direct labor hours:** | | | | | - Basic | 10,000 | 20,000 | 30,000 | | - Advanced | 5,000 | 10,000 | 15,000
Transcribed Image Text:### Koontz Company Production and Financial Analysis Koontz Company manufactures two models of industrial components: a Basic model and an Advanced model. The company's manufacturing overhead is considered fixed and is allocated using plantwide rates based on direct labor-hours. Below is the segmented income statement provided for the recent year, withholding the allocation of selling and administrative expenses based on sales dollars. **Income Statement:** | | Basic | Advanced | Total | |--------------------------|-----------------|----------------|----------------| | Number of units produced and sold | 20,000 | 10,000 | 30,000 | | Sales | $3,000,000 | $2,000,000 | $5,000,000 | | Cost of goods sold | 2,300,000 | 1,350,000 | 3,650,000 | | **Gross margin** | **700,000** | **650,000** | **1,350,000** | | Selling and administrative expenses | 720,000 | 480,000 | 1,200,000 | | **Net operating income (loss)** | **$(20,000)** | **170,000** | **150,000** | **Labor and Material Costs:** - Direct laborers are paid $20 per hour. - Direct materials cost: - Basic model: $40 per unit - Advanced model: $60 per unit **Overhead Allocation:** Koontz is evaluating a shift from plantwide overhead allocation to a departmental approach. This involves: - Allocating overhead in the Molding Department based on machine-hours. - Allocating overhead in the Assemble and Pack Department based on direct labor-hours. The following data was compiled for further analysis: **Departmental Overhead and Labor Information:** | | Molding | Assemble and Pack | Total | |--------------------------|----------------|-------------------|----------------| | Manufacturing overhead costs | $787,500 | $562,500 | $1,350,000 | | **Direct labor hours:** | | | | | - Basic | 10,000 | 20,000 | 30,000 | | - Advanced | 5,000 | 10,000 | 15,000
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