Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month manufacturing overhead was $212,400. During that time, the company produced 9,440 units of Model SF-08 and 2,360 units of Model SF-48. The direct costs of production were as follows: Direct materials Direct labor SF-08 $ 188,800 141,600 Cost Driver Direct material costs Number of production runs Number of inspections Total overhead SF-48 $ 106, 200 94,400 Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last month were as follows: Total $ 295,000 236,000 Overhead Costs $ 59,000 63,720 89,680 $ 212,400 Activity Level SF-08 188,800 20 8 SF-48 106, 200 40 11 Total 295,000 60 19 Required: a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product?
Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month manufacturing overhead was $212,400. During that time, the company produced 9,440 units of Model SF-08 and 2,360 units of Model SF-48. The direct costs of production were as follows: Direct materials Direct labor SF-08 $ 188,800 141,600 Cost Driver Direct material costs Number of production runs Number of inspections Total overhead SF-48 $ 106, 200 94,400 Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last month were as follows: Total $ 295,000 236,000 Overhead Costs $ 59,000 63,720 89,680 $ 212,400 Activity Level SF-08 188,800 20 8 SF-48 106, 200 40 11 Total 295,000 60 19 Required: a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product?
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
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Chapter9: Standard Costing: A Functional-based Control Approach
Section: Chapter Questions
Problem 12E: Quincy Farms is a producer of items made from farm products that are distributed to supermarkets....
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Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Transcribed Image Text:Shady Fabrication Group (SFG) manufactures components for manufacturing equipment at several facilities. The company produces
two, related, parts at its Park River Plant, the models SF-08 and SF-48. The differences in the models are the quality of the materials
and the precision to which they are produced. The SF-48 model is used in applications where the precision is critical and thus requires
greater oversight in the production process.
Although sales remain reasonably strong, managers at SFG have noticed that the company is meeting more resistance to the pricing
for SF-08, although there seems to be little need for negotiation on the price of the SF-48 model. As a result, the marketing manager
at SFG has asked the financial staff to review the costs of the two products to understand better what might be happening in the
market.
Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month manufacturing
overhead was $212,400. During that time, the company produced 9,440 units of Model SF-08 and 2,360 units of Model SF-48. The
direct costs of production were as follows:
Direct materials
Direct labor
SF-08
SF-48
$ 188,800 $ 106, 200
141,600
94,400
Cost Driver
Direct material costs
Number of production runs
Number of inspections
Total overhead
Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last month were as
follows:
Total
$ 295,000
236,000
Overhead Costs
$ 59,000
63,720
89,680
$ 212,400
Activity Level
SF-08
188,800
20
8
SF-48
106, 200
40
11
Total
295,000
60
19
Required:
a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total
cost per unit produced for each product?
b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost
per unit produced for each product?
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