Model N 800 XL Model N 500 Activity Cost Pool Machine setups Special processing General factory Direct Labor- Hours per Unit 3.5 1.3 Activity Measure Number of setups Machine-hours Direct labor-hours. Annual Production 2,000 units 10,000 units Additional information about the company follows: a. Model N 800 XL requires $70 in direct materials per unit, and Model N 500 requires $20. b. The direct labor wage rate is $14 per hour. c. The company has always used direct labor-hours as the base for applying manufacturing overhead cost to products. d. Model N 800 XL is more complex to manufacture than Model N 500 and requires the use of special equipment. Consequently, the company is considering the use of activity-based costing to assign manufacturing overhead cost to products. Three activity cost pools have been identified as follows: Activity Measure Number of setups Machine-hours Direct labor-hours Model N 800 XL 165 Direct Labor-Hours 17,000 7,000 7,000 13,000 20,000 Estimated Overhead Cost $ 370,000 170,000 1,260,000 $ 1,800,000 Expected Activity Model N 500 205 0 13,000 Total 370 17,000 20,000 ired: sume that the company continues to use direct labor-hours as the base for applying overhead cost to products. mpute the predetermined overhead rate. mpute the unit product cost of each model.
Model N 800 XL Model N 500 Activity Cost Pool Machine setups Special processing General factory Direct Labor- Hours per Unit 3.5 1.3 Activity Measure Number of setups Machine-hours Direct labor-hours. Annual Production 2,000 units 10,000 units Additional information about the company follows: a. Model N 800 XL requires $70 in direct materials per unit, and Model N 500 requires $20. b. The direct labor wage rate is $14 per hour. c. The company has always used direct labor-hours as the base for applying manufacturing overhead cost to products. d. Model N 800 XL is more complex to manufacture than Model N 500 and requires the use of special equipment. Consequently, the company is considering the use of activity-based costing to assign manufacturing overhead cost to products. Three activity cost pools have been identified as follows: Activity Measure Number of setups Machine-hours Direct labor-hours Model N 800 XL 165 Direct Labor-Hours 17,000 7,000 7,000 13,000 20,000 Estimated Overhead Cost $ 370,000 170,000 1,260,000 $ 1,800,000 Expected Activity Model N 500 205 0 13,000 Total 370 17,000 20,000 ired: sume that the company continues to use direct labor-hours as the base for applying overhead cost to products. mpute the predetermined overhead rate. mpute the unit product cost of each model.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
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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Question
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Transcribed Image Text:Model N 800 XL
Model N 500
Direct Labor-
Hours per Unit
3.5
1.3
Activity Cost Pool
Machine setups
Special processing
General factory
Annual Production
2,000 units
10,000 units
Activity Measure
Number of setups
Machine-hours
Direct labor-hours
Additional information about the company follows:
a. Model N 800 XL requires $70 in direct materials per unit, and Model N 500 requires $20.
b. The direct labor wage rate is $14 per hour.
c. The company has always used direct labor-hours as the base for applying manufacturing overhead cost to products.
d. Model N 800 XL is more complex to manufacture than Model N 500 and requires the use of special equipment.
Consequently, the company is considering the use of activity-based costing to assign manufacturing overhead cost to
products. Three activity cost pools have been identified as follows:
Direct
Labor-Hours
Activity Measure
Number of setups
Machine-hours
Direct labor-hours
7,000
13,000
20,000
Model N 800 XL
165
17,000
7,000
Estimated
Overhead Cost
$ 370,000
170,000
1,260,000
$ 1,800,000
Expected Activity
Model N 500
205
0
13,000
Total
370
17,000
20,000
Required:
1. Assume that the company continues to use direct labor-hours as the base for applying overhead cost to products.
a. Compute the predetermined overhead rate.
b. Compute the unit product cost of each model.
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