FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Product Costs and Product Profitability Reports, using a Single Plantwide Factory Overhead Rate
Isaac Engines Inc. produces three products-pistons, valves, and cams-for the heavy equipment industry. Isaac Engines has a very simple production
process and product line and uses a single plantwide factory overhead rate to allocate overhead to the three products. The factory overhead rate is based on
direct labor hours. Information about the three products for 20Y2 is as follows:
Budgeted
Direct Labor
Price Per
Direct Materials
Volume
Hours Per Unit
Unit
Per Unit
(Units)
Pistons
6,000
0.30
$40
$ 9
Valves
13,000
0.50
21
Cams
1,000
0.10
55
20
The estimated direct labor rate is $20 per direct labor hour. Beginning and ending inventories are negligible and are, thus, assumed to be zero. The budgeted
factory overhead for Isaac Engines is $235,200.
If required, round all per unit answers to the nearest cent.
a. Determine the plantwide factory overhead rate.
V per dlh
28
b. Determine the factory overhead and direct labor cost per unit for each product.
Direct Labor
Factory Overhead
DIrect Labor
Hours Per Unit
Cost Per Unit
Cost Per Unit
Dictons
0.30 Y dih
8.4 Y
6 V
Transcribed Image Text:Product Costs and Product Profitability Reports, using a Single Plantwide Factory Overhead Rate Isaac Engines Inc. produces three products-pistons, valves, and cams-for the heavy equipment industry. Isaac Engines has a very simple production process and product line and uses a single plantwide factory overhead rate to allocate overhead to the three products. The factory overhead rate is based on direct labor hours. Information about the three products for 20Y2 is as follows: Budgeted Direct Labor Price Per Direct Materials Volume Hours Per Unit Unit Per Unit (Units) Pistons 6,000 0.30 $40 $ 9 Valves 13,000 0.50 21 Cams 1,000 0.10 55 20 The estimated direct labor rate is $20 per direct labor hour. Beginning and ending inventories are negligible and are, thus, assumed to be zero. The budgeted factory overhead for Isaac Engines is $235,200. If required, round all per unit answers to the nearest cent. a. Determine the plantwide factory overhead rate. V per dlh 28 b. Determine the factory overhead and direct labor cost per unit for each product. Direct Labor Factory Overhead DIrect Labor Hours Per Unit Cost Per Unit Cost Per Unit Dictons 0.30 Y dih 8.4 Y 6 V
E. Use the information provided to construct a budgeted gross profit report by product line for the year ended December 31, 20Y2. Include the gros
as a percent of sales in the last line of your report, rounded to one decimal place.
Isaac Engines Inc.
Product Line Budgeted Gross Profit Reports
For the Year Ended December 31, 2OY2
Pistons
Valves
Cams
Revenues
240,000
273,000
55,000
Product Costs
Direct materials
54,000
65,000
20,000
Direct labor
36,000
130,000
2,000
Factory overhead
50,400
182,000
2,800
Total Product Costs
140,400
$4
377,000
24,800
Gross profit (loss)
$1
99,600
-104,000
30,200
%
%
%
Gross profit percentage of sales
:-
d. What does the report in (c) indicate to you?
price or lower v
cost to manufacture in order
Valves have the lowest v
gross profit as a percent of sales. Valves may require a higher v
achieve a higher profitability similar to the other two products.
Transcribed Image Text:E. Use the information provided to construct a budgeted gross profit report by product line for the year ended December 31, 20Y2. Include the gros as a percent of sales in the last line of your report, rounded to one decimal place. Isaac Engines Inc. Product Line Budgeted Gross Profit Reports For the Year Ended December 31, 2OY2 Pistons Valves Cams Revenues 240,000 273,000 55,000 Product Costs Direct materials 54,000 65,000 20,000 Direct labor 36,000 130,000 2,000 Factory overhead 50,400 182,000 2,800 Total Product Costs 140,400 $4 377,000 24,800 Gross profit (loss) $1 99,600 -104,000 30,200 % % % Gross profit percentage of sales :- d. What does the report in (c) indicate to you? price or lower v cost to manufacture in order Valves have the lowest v gross profit as a percent of sales. Valves may require a higher v achieve a higher profitability similar to the other two products.
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