Precision Manufacturing Incorporated (PMI) makes two types of industrial component parts-the EX300 and the TX500. It annually produces 60,000 units of EX300 and 12,500 units of TX500. The company's conventional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company's two product lines is shown below: Direct materials. Direct labor EX300 $366,325 $ 120,000 TX500 $ 162,550 $ 42,500 The company is considering implementing an activity-based costing system that distributes all of its manufacturing overhead to four activities as shown below: Activity Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Product-level (number of products) General factory (direct labor dollars) Total manufacturing overhead cost Total $ 528,875 $ 162,500 Manufacturing Overhead $ 198,250 150,000 100, 250 60,125 6508,625 2-a. Compute the activity rate for each activity cost pool. 2-h Using the activity rat EX300 90,000 75 1 $ 120,000 Activity TX500 62,500 300 1 $ 42,500 Required: 1-a. Compute the plantwide overhead rate that would be used in the company's conventional cost system. 1-b. Using the plantwide rate, compute the unit product cost for each product. Total 152,500 375 2 @162,500
Precision Manufacturing Incorporated (PMI) makes two types of industrial component parts-the EX300 and the TX500. It annually produces 60,000 units of EX300 and 12,500 units of TX500. The company's conventional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company's two product lines is shown below: Direct materials. Direct labor EX300 $366,325 $ 120,000 TX500 $ 162,550 $ 42,500 The company is considering implementing an activity-based costing system that distributes all of its manufacturing overhead to four activities as shown below: Activity Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Product-level (number of products) General factory (direct labor dollars) Total manufacturing overhead cost Total $ 528,875 $ 162,500 Manufacturing Overhead $ 198,250 150,000 100, 250 60,125 6508,625 2-a. Compute the activity rate for each activity cost pool. 2-h Using the activity rat EX300 90,000 75 1 $ 120,000 Activity TX500 62,500 300 1 $ 42,500 Required: 1-a. Compute the plantwide overhead rate that would be used in the company's conventional cost system. 1-b. Using the plantwide rate, compute the unit product cost for each product. Total 152,500 375 2 @162,500
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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:Precision Manufacturing Incorporated (PMI) makes two types of industrial component parts-the EX300 and the TX500. It annually
produces 60,000 units of EX300 and 12,500 units of TX500. The company's conventional cost system allocates manufacturing
overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to
the company's two product lines is shown below:
Direct materials
Direct labor
EX300
$366,325
$ 120,000
TX500
$ 162,550
$ 42,500
The company is considering implementing an activity-based costing system that distributes all of its manufacturing overhead to four
activities as shown below:
Activity Cost Pool (and Activity Measure)
Machining (machine-hours)
Setups (setup hours)
Product-level (number of products)
General factory (direct labor dollars)
Total manufacturing overhead cost
Total
$ 528,875
$ 162,500
Manufacturing
Overhead
$198,250
150,000
100,250
60,125
$ 508,625
EX300
90,000
75
1
$ 120,000
Activity
TX500
62,500
300
1
$ 42,500
Total
152,500
Required:
1-a. Compute the plantwide overhead rate that would be used in the company's conventional cost system.
1-b. Using the plantwide rate, compute the unit product cost for each product.
2-a. Compute the activity rate for each activity cost pool.
2-b. Using the activity rates, compute the unit product cost for each product.
375
2
$ 162,500
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