Shady Fabrication Group (SFG) manufactures components for manufacturing equipment at several facilities. The company produces two, related, parts at its Park River Plant, the models SF-08 and SF-48. The differences in the models are the quality of the materials and the precision to which they are produced. The SF-48 model is used in applications where the precision is critical and thus requires greater oversight in the production process. Although sales remain reasonably strong, managers at SFG have noticed that the company is meeting more resistance to the pricing for SF-08, although there seems to be little need for negotiation on the price of the SF-48 model. As a result, the marketing manager at SFG has asked the financial staff to review the costs of the two products to understand better what might be happening in the market. Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month manufacturing overhead was $203,400. During that time, the company produced 9,040 units of Model SF-08 and 2,260 units of Model SF-48. The direct costs of production were as follows: Direct materials Direct labor SF-08 $ 180,800 135,600 SF-48 $ 101,700 90,400 Total $ 282,500 226,000
Shady Fabrication Group (SFG) manufactures components for manufacturing equipment at several facilities. The company produces two, related, parts at its Park River Plant, the models SF-08 and SF-48. The differences in the models are the quality of the materials and the precision to which they are produced. The SF-48 model is used in applications where the precision is critical and thus requires greater oversight in the production process. Although sales remain reasonably strong, managers at SFG have noticed that the company is meeting more resistance to the pricing for SF-08, although there seems to be little need for negotiation on the price of the SF-48 model. As a result, the marketing manager at SFG has asked the financial staff to review the costs of the two products to understand better what might be happening in the market. Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month manufacturing overhead was $203,400. During that time, the company produced 9,040 units of Model SF-08 and 2,260 units of Model SF-48. The direct costs of production were as follows: Direct materials Direct labor SF-08 $ 180,800 135,600 SF-48 $ 101,700 90,400 Total $ 282,500 226,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Denger
Transcribed Image Text:Shady Fabrication Group (SFG) manufactures components for manufacturing equipment at several facilities. The company produces
two, related, parts at its Park River Plant, the models SF-08 and SF-48. The differences in the models are the quality of the materials
and the precision to which they are produced. The SF-48 model is used in applications where the precision is critical and thus requires
greater oversight in the production process.
Although sales remain reasonably strong, managers at SFG have noticed that the company is meeting more resistance to the pricing
for SF-08, although there seems to be little need for negotiation on the price of the SF-48 model. As a result, the marketing manager
at SFG has asked the financial staff to review the costs of the two products to understand better what might be happening in the
market.
Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month manufacturing
overhead was $203,400. During that time, the company produced 9,040 units of Model SF-08 and 2,260 units of Model SF-48. The
direct costs of production were as follows:
Direct materials
Direct labor
SF-08
SF-48
$ 180,800 $ 101,700
135,600 90,400
Total
$ 282,500
226,000
Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last month were as
follows:
Cost Driver
Direct material costs
Number of production runs
Number of inspections
Total overhead
Required:
Activity Level
Overhead Costs
$ 56,500
SF-08
180,800
61,020
85,880
20
8
SF-48
101,700
40
Total
11
282,500
60
19
$ 203,400
a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total
cost per unit produced for each product?
b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost
per unit produced for each product?
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