Maxey & Sons manufactures two types of storage cabinets-lype A and lype B-and applies manufacturing overhead to all units at the rate of $120 per machine hour. Production information follows. Descriptions Anticipated volume (units) Direct-material cost per unit Direct-labor cost per unit Descriptions The controller, who is studying the use of activity-based costing, has determined that the firm's overhead can be identified with three activities: manufacturing setups, machine processing, and product shipping. Data on the number of setups, machine hours, and outgoing shipments, which are the activities' three respective cost drivers, follow. Setups Machine hours Outgoing shipments Type A 24,000 $ 28 33 Type A 140 48,000 200 Type B Type B 45,000 $ 42 33 100 67,500 150 Total 240 115,500 350 The firm's total overhead of $13,860,000 is subdivided as follows: manufacturing setups, $3,024,000; machine processing, $8,316,000; and product shipping, $2,520,000. Required: 1. Compute the unit manufacturing cost of Type A and Type B storage cabinets by using the company's current overhead costing procedures. 2. Compute the unit manufacturing cost of Type A and Type B storage cabinets by using activity-based costing. 3. Is the cost of the Type A storage cabinet overstated or understated (i.e., distorted) by the use of machine hours to allocate total manufacturing overhead to production? By how much? 4. Assume that the current selling price of a Type A storage cabinet is $360.00 and the marketing manager is contemplating a $40 discount to stimulate volume. Is this discount advisable?
Maxey & Sons manufactures two types of storage cabinets-lype A and lype B-and applies manufacturing overhead to all units at the rate of $120 per machine hour. Production information follows. Descriptions Anticipated volume (units) Direct-material cost per unit Direct-labor cost per unit Descriptions The controller, who is studying the use of activity-based costing, has determined that the firm's overhead can be identified with three activities: manufacturing setups, machine processing, and product shipping. Data on the number of setups, machine hours, and outgoing shipments, which are the activities' three respective cost drivers, follow. Setups Machine hours Outgoing shipments Type A 24,000 $ 28 33 Type A 140 48,000 200 Type B Type B 45,000 $ 42 33 100 67,500 150 Total 240 115,500 350 The firm's total overhead of $13,860,000 is subdivided as follows: manufacturing setups, $3,024,000; machine processing, $8,316,000; and product shipping, $2,520,000. Required: 1. Compute the unit manufacturing cost of Type A and Type B storage cabinets by using the company's current overhead costing procedures. 2. Compute the unit manufacturing cost of Type A and Type B storage cabinets by using activity-based costing. 3. Is the cost of the Type A storage cabinet overstated or understated (i.e., distorted) by the use of machine hours to allocate total manufacturing overhead to production? By how much? 4. Assume that the current selling price of a Type A storage cabinet is $360.00 and the marketing manager is contemplating a $40 discount to stimulate volume. Is this discount advisable?
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter4: Activity-based Costing
Section: Chapter Questions
Problem 3PB: Activity-based department rate product costing and product cost distortions Big Sound Inc....
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Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Transcribed Image Text:Maxey & Sons manufactures two types of storage cabinets-lype A and Type B-and applies manufacturing overhead to all units at
the rate of $120 per machine hour. Production information follows.
Descriptions
Anticipated volume (units)
Direct-material cost per unit
Direct-labor cost per unit
Descriptions
The controller, who is studying the use of activity-based costing, has determined that the firm's overhead can be identified with three
activities: manufacturing setups, machine processing, and product shipping. Data on the number of setups, machine hours, and
outgoing shipments, which are the activities' three respective cost drivers, follow.
Setups
Machine hours
Outgoing shipments
Type A
140
48,000
200
Required 1
Type A
24,000
$28
33
Required 2 Required 3
The firm's total overhead of $13,860,000 is subdivided as follows: manufacturing setups, $3,024,000; machine processing.
$8,316,000; and product shipping, $2,520,000.
Required:
1. Compute the unit manufacturing cost of Type A and Type B storage cabinets by using the company's current overhead costing
procedures.
2. Compute the unit manufacturing cost of Type A and Type B storage cabinets by using activity-based costing.
3. Is the cost of the Type A storage cabinet overstated or understated (i.e., distorted) by the use of machine hours to allocate total
manufacturing overhead to production? By how much?
4. Assume that the current selling price of a Type A storage cabinet is $360.00 and the marketing manager is contemplating a $40
discount to stimulate volume. Is this discount advisable?
Type A store cabinet line is
Type B
100
67,500
150
Complete this question by entering your answers in the tabs below.
Type B
45,000
$ 42
33
overstated
Total
240
115,500
350
Required 4
Is the cost of the Type A storage cabinet overstated or understated (i.e., distorted) by the use of machine hours to allocate
total manufacturing overhead to production? By how much?
Note: Do not round intermediate calculations. Round activity based application rates, overhead application and the final
answers to 2 decimal places.
Show less A
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