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Marine, Incorporated, manufactures a product that is available in both a flexible and a rigid model. The company has made the rigid model for years, the flexible model was introduced several years ago to tap a new segment of the market. Since introduction of the flexible model, the company's profits have steadily declined, and management has become concerned about the accuracy of its costing system. Sales of the flexible model have been increasing rapidly. Overhead is applied to products on the basis of direct labor-hours. At the beginning of the current year, management estimated that $756,000 in overhead costs would be incurred and the company would produce and sell 3,000 units of the flexible model and 15,000 units of the regular model. The flexible model requires 2.4 hours of direct labor time per unit, and the regular model requires 1.20 hours. Direct materials and labor costs per unit are given below: Direct materials cost per unit Direct labor cost per unit Flexible $ 205 $ 45 Activity Cost Pool and Activity Measure Purchase orders (number of orders) Rework requests (number of requests) Product testing (number of tests) Machine related (machine-hours) Rigid $ 60 $.30 Required: 1-a. Compute the predetermined overhead rate using direct labor-hours as the basis for allocating overhead costs to products, 1-b. Compute the unit product cost for one unit of each model. 2. An intern suggested that the company use activity-based costing to cost its products. A team was formed to investigate this idea. It came back with the recommendation that four activity cost pools be used. These cost pools and their associated activities are listed as follows: Estimated Overhead Cost Flexible $ 28,000 Expected Activity Rigid 435 305 18,000 250,000 460,000 3 000 125 55 850 1,100 1,150 4,650 Total 560 360 2,000 5,750

Marine, Incorporated, manufactures a product that is available in both a flexible and a rigid model. The company has made the rigid model for years, the flexible model was introduced several years ago to tap a new segment of the market. Since introduction of the flexible model, the company's profits have steadily declined, and management has become concerned about the accuracy of its costing system. Sales of the flexible model have been increasing rapidly. Overhead is applied to products on the basis of direct labor-hours. At the beginning of the current year, management estimated that $756,000 in overhead costs would be incurred and the company would produce and sell 3,000 units of the flexible model and 15,000 units of the regular model. The flexible model requires 2.4 hours of direct labor time per unit, and the regular model requires 1.20 hours. Direct materials and labor costs per unit are given below: Direct materials cost per unit Direct labor cost per unit Flexible $ 205 $ 45 Activity Cost Pool and Activity Measure Purchase orders (number of orders) Rework requests (number of requests) Product testing (number of tests) Machine related (machine-hours) Rigid $ 60 $.30 Required: 1-a. Compute the predetermined overhead rate using direct labor-hours as the basis for allocating overhead costs to products, 1-b. Compute the unit product cost for one unit of each model. 2. An intern suggested that the company use activity-based costing to cost its products. A team was formed to investigate this idea. It came back with the recommendation that four activity cost pools be used. These cost pools and their associated activities are listed as follows: Estimated Overhead Cost Flexible $ 28,000 Expected Activity Rigid 435 305 18,000 250,000 460,000 3 000 125 55 850 1,100 1,150 4,650 Total 560 360 2,000 5,750

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Marine, Incorporated, manufactures a product that is available in both a flexible and a rigid model. The company has made the rigid model for years, the flexible model was introduced several years ago to tap a new segment of the market. Since introduction of the flexible model, the company's profits have steadily declined, and management has become concerned about the accuracy of its costing system. Sales of the flexible model have been increasing rapidly. Overhead is applied to products on the basis of direct labor-hours. At the beginning of the current year, management estimated that $756,000 in overhead costs would be incurred and the company would produce and sell 3,000 units of the flexible model and 15,000 units of the regular model. The flexible model requires 2.4 hours of direct labor time per unit, and the regular model requires 1.20 hours. Direct materials and labor costs per unit are given below: Direct materials cost per unit Direct labor cost per unit Flexible $ 105 $ 45 Activity Cost Pool and Activity Measure: Purchase orders (number of orders) Rework requests (number of requests)) Product testing (number of tests) Machine related (machine-hours) Rigid $ 60 $.30 Required: 1-a. Compute the predetermined overhead rate using direct labor-hours as the basis for allocating overhead costs to products. 1-b. Compute the unit product cost for one unit of each model. 2. An intern suggested that the company use activity-based costing to cost its products. A team was formed to investigate this idea. It came back with the recommendation that four activity cost pools be used. These cost pools and their associated activities are listed as follows: Expected Activity Rigid 435 305 Estimated Overhead Cost Flexible $ 28,000 125 18,000 55 250,000 850 460,000 1,100 THE Bna 1,150 4,650 Total 560 360 2,000 5,750
Transcribed Image Text:Marine, Incorporated, manufactures a product that is available in both a flexible and a rigid model. The company has made the rigid model for years, the flexible model was introduced several years ago to tap a new segment of the market. Since introduction of the flexible model, the company's profits have steadily declined, and management has become concerned about the accuracy of its costing system. Sales of the flexible model have been increasing rapidly. Overhead is applied to products on the basis of direct labor-hours. At the beginning of the current year, management estimated that $756,000 in overhead costs would be incurred and the company would produce and sell 3,000 units of the flexible model and 15,000 units of the regular model. The flexible model requires 2.4 hours of direct labor time per unit, and the regular model requires 1.20 hours. Direct materials and labor costs per unit are given below: Direct materials cost per unit Direct labor cost per unit Flexible $ 105 $ 45 Activity Cost Pool and Activity Measure: Purchase orders (number of orders) Rework requests (number of requests)) Product testing (number of tests) Machine related (machine-hours) Rigid $ 60 $.30 Required: 1-a. Compute the predetermined overhead rate using direct labor-hours as the basis for allocating overhead costs to products. 1-b. Compute the unit product cost for one unit of each model. 2. An intern suggested that the company use activity-based costing to cost its products. A team was formed to investigate this idea. It came back with the recommendation that four activity cost pools be used. These cost pools and their associated activities are listed as follows: Expected Activity Rigid 435 305 Estimated Overhead Cost Flexible $ 28,000 125 18,000 55 250,000 850 460,000 1,100 THE Bna 1,150 4,650 Total 560 360 2,000 5,750
Required: 1-a. Compute the predetermined overhead rate using direct labor-hours as the basis for allocating overhead costs to products. 1-b. Compute the unit product cost for one unit of each model. 2. An intern suggested that the company use activity-based costing to cost its products. A team was formed to investigate this idea.it came back with the recommendation that four activity cost pools be used. These cost pools and their associated activities are listed as follows: Activity Cost Pool and Activity Measure Purchase orders (number of orders) Rework requests (number of requests) Product testing (number of tests) Machine related (machine-hours) Estimated Overhead Cost Flexible $ 28,000 18,000 125 55 250,000 850 460,000 1,100 Expected Activity Rigid 435 305 $ 756,000 1,150 4,650 Total 560 360 2,000 5,750 Compute the activity rate for each of the activity cost pools. 3-a. Using activity-based costing, determine the total amount of overhead that would be assigned to each model for the year. 3-b. Using activity-based costing, compute the unit product for one unit of each model.
Transcribed Image Text:Required: 1-a. Compute the predetermined overhead rate using direct labor-hours as the basis for allocating overhead costs to products. 1-b. Compute the unit product cost for one unit of each model. 2. An intern suggested that the company use activity-based costing to cost its products. A team was formed to investigate this idea.it came back with the recommendation that four activity cost pools be used. These cost pools and their associated activities are listed as follows: Activity Cost Pool and Activity Measure Purchase orders (number of orders) Rework requests (number of requests) Product testing (number of tests) Machine related (machine-hours) Estimated Overhead Cost Flexible $ 28,000 18,000 125 55 250,000 850 460,000 1,100 Expected Activity Rigid 435 305 $ 756,000 1,150 4,650 Total 560 360 2,000 5,750 Compute the activity rate for each of the activity cost pools. 3-a. Using activity-based costing, determine the total amount of overhead that would be assigned to each model for the year. 3-b. Using activity-based costing, compute the unit product for one unit of each model.
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