Production and sales (units) Materials cost ($) Labour cost per unit ($) at $12 per hour Machine hours (per unit) Total no. of production runs Total no. of purchase orders Total no. of deliveries to retail division Market/Retail prices Overhead costs: Machine set-up costs ($) Machine maintenance costs ($) Ordering costs ($) Delivery costs ($) Total ($) Product S Product R 3,200 5,450 117 95 6 9 2 1 30 12 82 64 64 80 320 260 total: 306,435 415,105 11,680 144,400 877,620 The company's policy is to transfer the washing machines from the assembly division to the retail division at full cost plus 10% resulting in internal transfer prices, of $220.17 and $241.69 for S and R when transferred to the retail division. The retail division sells S for $320 per machine and R for $260 per machine to the market. (a) Use activity based costing to allocate the overheads and recalculate the transfer prices for S and R. (b) Calculate the profit for each division and the entire company if activity based costing is used. (c) Which cost allocation method should be applied?

Production and sales (units) Materials cost ($) Labour cost per unit ($) at $12 per hour Machine hours (per unit) Total no. of production runs Total no. of purchase orders Total no. of deliveries to retail division Market/Retail prices Overhead costs: Machine set-up costs ($) Machine maintenance costs ($) Ordering costs ($) Delivery costs ($) Total ($) Product S Product R 3,200 5,450 117 95 6 9 2 1 30 12 82 64 64 80 320 260 total: 306,435 415,105 11,680 144,400 877,620 The company's policy is to transfer the washing machines from the assembly division to the retail division at full cost plus 10% resulting in internal transfer prices, of $220.17 and $241.69 for S and R when transferred to the retail division. The retail division sells S for $320 per machine and R for $260 per machine to the market. (a) Use activity based costing to allocate the overheads and recalculate the transfer prices for S and R. (b) Calculate the profit for each division and the entire company if activity based costing is used. (c) Which cost allocation method should be applied?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Exercise 7-4 (Algo) Second-Stage Allocation [LO7-4] Klumper Corporation is a diversified manufacturer of industrial goods. The company's activity-based costing system contains the following six activity cost pools and activity rates: Activity Cost Pool Supporting direct labor Machine processing Machine setups Number of units produced per year Direct labor-hours Activity Rate $ 11 per direct labor-hour $5 per machine-hour $ 45 Production orders Shipments $ 120 per shipment Product sustaining $ 900 per product Activity data have been supplied for the following two products: Machine-hours Machine setups Production orders Shipments Product sustaining per setup $ 160 per order Total Expected Activity K425 M67 2,000 200 1,025 2,600 7 7 14 3 50 40 3 3 3 3 Required: How much total overhead cost would be assigned to K425 and M67 using the activity-based costing system?
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Appendix 4B) Assigning Support Department Costs by Using the Direct Method Quillen Company manufactures a product in a factory that has two producing departments, Cutting and Sewing, and two support departments, S1 and S2. The activity driver for S1 is number of employees, and the activity driver for S2 is number of maintenance hours. The following data pertain to Quillen: Support Departments Producing Departments S1 S2 Cutting Sewing Direct costs $180,000 $150,000 $122,000 $90,500 Normal activity: Number of employees — 30 63 147 Maintenance hours 1,200 — 16,000 4,000 Required: 1. Calculate the cost assignment ratios to be used under the direct method for Departments S1 and S2. (Note: Each support department will have two ratios—one for Cutting and the other for Sewing.) Enter your answers as decimal values. S1 S2 Cutting Sewing 2. Allocate the support department costs to the producing departments by using the direct method. Use a…
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