Lauder Company manufactures and distributes various fixtures used primarily in new building construction. At the company's Bayside plant, Lauder produces two models of one widely used fixture designated by model names LC-20 and LC-50. Currently, the Bayside plant uses direct labor-hours to allocate manufacturing overhead costs to products. The vice president—manufacturing (VP-M) at Lauder has recently been considering updates to the company's costing systems as a way to ensure that managers had the best information available for decision making. However, rather than update throughout the entire firm, the VP—M and CFO agreed to test an ABC system. Because of its size and focus, the Bayside plant was selected for the experiment. An ABC study team, consisting of both plant and corporate employees was formed to propose an ABC system and compare the product costs with those reported by the current system. Based on the experiment, the executives at Lauder will decide whether to roll out the new cost system to the entire company. The study team identified four cost pools into which the manufacturing overhead costs could be grouped. There was a great deal of discussion about both the pools and the cost drivers. The final system selected consisted of the following pools and drivers. The costs were based on the forecasts for the coming year. Cost Pools Costs Activity Drivers Material inspection $ 396,000 Direct material cost Assembly 2,210,000 Machine-hours Equipment setup 790,000 Production runs Packaging and shipping 420,000 Units shipped Data for production of the two products at the Bayside plant for the coming year of operations follows: Products LC-20 LC-50 Total direct material costs $ 540,000 $ 180,000 Total direct labor costs $ 420,000 $ 210,000 Total machine-hours 92,125 46,000 Total number of production runs 75 50 Number of units produced and shipped 240,000 60,000 All direct labor at the Bayside plant is paid $35 per hour. Problem 9-64 (Static) Activity-Based Costing and Predetermined Overhead Rates (LO 9-3, 5, 6) The study team decides to look more closely at the assembly activity and determines that it can be broken down into two activities: production and engineering. Production covers the costs of ongoing manufacturing while engineering includes those activities dealing with design changes, equipment calibration, and so on. The costs attributed to production are $1,657,500, and the costs attributed to engineering are $552,500. After discussion with plant engineers, the team decides that although machine-hours are an appropriate cost driver for production, the best cost driver for engineering is setups because most of the work arises from changes in the way the product is run. Required: a-1. Compute the totals of the cost driver rates shown below. a-2. What unit product costs will be reported for the two products if the revised ABC system is used?
Lauder Company manufactures and distributes various fixtures used primarily in new building construction. At the company's Bayside plant, Lauder produces two models of one widely used fixture designated by model names LC-20 and LC-50. Currently, the Bayside plant uses direct labor-hours to allocate manufacturing overhead costs to products. The vice president—manufacturing (VP-M) at Lauder has recently been considering updates to the company's costing systems as a way to ensure that managers had the best information available for decision making. However, rather than update throughout the entire firm, the VP—M and CFO agreed to test an ABC system. Because of its size and focus, the Bayside plant was selected for the experiment. An ABC study team, consisting of both plant and corporate employees was formed to propose an ABC system and compare the product costs with those reported by the current system. Based on the experiment, the executives at Lauder will decide whether to roll out the new cost system to the entire company. The study team identified four cost pools into which the manufacturing overhead costs could be grouped. There was a great deal of discussion about both the pools and the cost drivers. The final system selected consisted of the following pools and drivers. The costs were based on the forecasts for the coming year. Cost Pools Costs Activity Drivers Material inspection $ 396,000 Direct material cost Assembly 2,210,000 Machine-hours Equipment setup 790,000 Production runs Packaging and shipping 420,000 Units shipped Data for production of the two products at the Bayside plant for the coming year of operations follows: Products LC-20 LC-50 Total direct material costs $ 540,000 $ 180,000 Total direct labor costs $ 420,000 $ 210,000 Total machine-hours 92,125 46,000 Total number of production runs 75 50 Number of units produced and shipped 240,000 60,000 All direct labor at the Bayside plant is paid $35 per hour. Problem 9-64 (Static) Activity-Based Costing and Predetermined Overhead Rates (LO 9-3, 5, 6) The study team decides to look more closely at the assembly activity and determines that it can be broken down into two activities: production and engineering. Production covers the costs of ongoing manufacturing while engineering includes those activities dealing with design changes, equipment calibration, and so on. The costs attributed to production are $1,657,500, and the costs attributed to engineering are $552,500. After discussion with plant engineers, the team decides that although machine-hours are an appropriate cost driver for production, the best cost driver for engineering is setups because most of the work arises from changes in the way the product is run. Required: a-1. Compute the totals of the cost driver rates shown below. a-2. What unit product costs will be reported for the two products if the revised ABC system is used?
Lauder Company manufactures and distributes various fixtures used primarily in new building construction. At the company's Bayside plant, Lauder produces two models of one widely used fixture designated by model names LC-20 and LC-50. Currently, the Bayside plant uses direct labor-hours to allocate manufacturing overhead costs to products. The vice president—manufacturing (VP-M) at Lauder has recently been considering updates to the company's costing systems as a way to ensure that managers had the best information available for decision making. However, rather than update throughout the entire firm, the VP—M and CFO agreed to test an ABC system. Because of its size and focus, the Bayside plant was selected for the experiment. An ABC study team, consisting of both plant and corporate employees was formed to propose an ABC system and compare the product costs with those reported by the current system. Based on the experiment, the executives at Lauder will decide whether to roll out the new cost system to the entire company. The study team identified four cost pools into which the manufacturing overhead costs could be grouped. There was a great deal of discussion about both the pools and the cost drivers. The final system selected consisted of the following pools and drivers. The costs were based on the forecasts for the coming year. Cost Pools Costs Activity Drivers Material inspection $ 396,000 Direct material cost Assembly 2,210,000 Machine-hours Equipment setup 790,000 Production runs Packaging and shipping 420,000 Units shipped Data for production of the two products at the Bayside plant for the coming year of operations follows: Products LC-20 LC-50 Total direct material costs $ 540,000 $ 180,000 Total direct labor costs $ 420,000 $ 210,000 Total machine-hours 92,125 46,000 Total number of production runs 75 50 Number of units produced and shipped 240,000 60,000 All direct labor at the Bayside plant is paid $35 per hour. Problem 9-64 (Static) Activity-Based Costing and Predetermined Overhead Rates (LO 9-3, 5, 6) The study team decides to look more closely at the assembly activity and determines that it can be broken down into two activities: production and engineering. Production covers the costs of ongoing manufacturing while engineering includes those activities dealing with design changes, equipment calibration, and so on. The costs attributed to production are $1,657,500, and the costs attributed to engineering are $552,500. After discussion with plant engineers, the team decides that although machine-hours are an appropriate cost driver for production, the best cost driver for engineering is setups because most of the work arises from changes in the way the product is run. Required: a-1. Compute the totals of the cost driver rates shown below. a-2. What unit product costs will be reported for the two products if the revised ABC system is used?
Lauder Company manufactures and distributes various fixtures used primarily in new building construction. At the company's Bayside plant, Lauder produces two models of one widely used fixture designated by model names LC-20 and LC-50. Currently, the Bayside plant uses direct labor-hours to allocate manufacturing overhead costs to products.
The vice president—manufacturing (VP-M) at Lauder has recently been considering updates to the company's costing systems as a way to ensure that managers had the best information available for decision making. However, rather than update throughout the entire firm, the VP—M and CFO agreed to test an ABC system. Because of its size and focus, the Bayside plant was selected for the experiment. An ABC study team, consisting of both plant and corporate employees was formed to propose an ABC system and compare the product costs with those reported by the current system. Based on the experiment, the executives at Lauder will decide whether to roll out the new cost system to the entire company.
The study team identified four cost pools into which the manufacturing overhead costs could be grouped. There was a great deal of discussion about both the pools and the cost drivers. The final system selected consisted of the following pools and drivers. The costs were based on the forecasts for the coming year.
Cost Pools
Costs
Activity Drivers
Material inspection
$ 396,000
Direct material cost
Assembly
2,210,000
Machine-hours
Equipment setup
790,000
Production runs
Packaging and shipping
420,000
Units shipped
Data for production of the two products at the Bayside plant for the coming year of operations follows:
Products
LC-20
LC-50
Total direct material costs
$ 540,000
$ 180,000
Total direct labor costs
$ 420,000
$ 210,000
Total machine-hours
92,125
46,000
Total number of production runs
75
50
Number of units produced and shipped
240,000
60,000
All direct labor at the Bayside plant is paid $35 per hour.
Problem 9-64 (Static) Activity-Based Costing and Predetermined Overhead Rates (LO 9-3, 5, 6)
The study team decides to look more closely at the assembly activity and determines that it can be broken down into two activities: production and engineering. Production covers the costs of ongoing manufacturing while engineering includes those activities dealing with design changes, equipment calibration, and so on.
The costs attributed to production are $1,657,500, and the costs attributed to engineering are $552,500. After discussion with plant engineers, the team decides that although machine-hours are an appropriate cost driver for production, the best cost driver for engineering is setups because most of the work arises from changes in the way the product is run.
Required:
a-1. Compute the totals of the cost driver rates shown below.
a-2. What unit product costs will be reported for the two products if the revised ABC system is used?
Transcribed Image Text:What unit product costs will be reported for the two products if the revised ABC system is used?
Direct material costs
Direct labor cost
Overhead:
Material inspection
Production
Engineering
Equipment setup
Packaging and shipping
Total costs
Number of units
Unit cost
LC-20
0
0
LC-50
< Req A1
0
0
Req A2 >
Transcribed Image Text:Material inspection
Production
Engineering
Equipment setup
Packaging and shipping
% of material dollars
per hour
per setup
per setup
per unit
Leveraging special tenchniques in analyzing historical data to predict future trends. Forecasting covers the methods and types of forecasting and their application to case studies.
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