Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost DistortionThe management of Nova Industries Inc. manufactures gasoline and diesel engines through two production departments, Fabrication andAssembly. Management needs accurate product cost information in order to guide product strategy. Presently, the company uses a singleplantwide factory overhead rate for allocating factory overhead to the two products. However, management is considering the multipleproduction department factory overhead rate method. The following factory overhead was budgeted for Nova:Fabrication Department factory overheadAssembly Department factory overheadTotalDirect labor hours were estimated as follows:Fabrication DepartmentAssembly Department4,500 hours4,5009,000 hoursIn addition, the direct labor hours (dih) used to produce a unit of each product in each department were determined from engineeringused torecords, as follows:$450,000180,000$630,000TotalProduction Departments Gasoline Engine Diesel EngineFabrication Department1.20 dih2.00 dih2.001.20Assembly DepartmentDirect labor hours per unit4.00 din4,00 dih eBookProduction Departments Gasoline Engine Diesel EngineFabrication Department2.80 dlh.Assembly Department1.20Direct labor hours per unit4.00 dih4.00 diha. Determine the per-unit factory overhead allocated to the gasoline and diesel engines under the single plantwide factory overhead ratemethod, using direct labor hours as the activity base.Gasoline engine sper unitDiesel engineper unitb. Determine the per-unit factory overhead allocated to the gasoline and diesel engines under the multiple production department factoryoverhead rate method, using direct labor hours as the activity base for each department.Gasoline engineper unitDiesel engineper unit.c. Recommend to management a product costing approach, based on your analyses in (a) and (b).IManagement should select the multiple department1.20 dih2.80single plantwide✔factory overhead rate method of allocating overhead costs. The✔factory overhead rate method indicates that both products have the same factory overhead per unit. Eachproduct uses the direct labor hours differently ✓. Thus, the multiple department✔rate method avoids the costdistortions by accounting for the overhead in each production department separately

Factory overhead The amount of charges incurred by a company in relation to the factory premises is…

Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost Distortion The management of Nova Industries Inc. manufactures gasoline and diesel engines through two production departments, Fabrication and Assembly. Management needs accurate product cost information in order to guide product strategy. Presently, the company uses a single plantwide factory overhead rate for allocating factory overhead to the two products. However, management is considering the multiple production department factory overhead rate method. The following factory overhead was budgeted for Nova: Fabrication Department factory overhead Assembly Department factory overhead Total Direct labor hours were estimated as follows: Fabrication Department Assembly Department Total $450,000 180,000 $630,000 4,500 hours 4,500 9,000 hours In addition, the direct labor hours (dih) used to produce a unit of each product in each department were determined from engineering records, as follows: 1.20 din 2.00 4.00 dih Production Departments Gasoline Engine Diesel Engine Fabrication Department 2.00 dih Assembly Department 1.20 Direct labor hours per unit 4,00 din

Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost Distortion The management of Nova Industries Inc. manufactures gasoline and diesel engines through two production departments, Fabrication and Assembly. Management needs accurate product cost information in order to guide product strategy. Presently, the company uses a single plantwide factory overhead rate for allocating factory overhead to the two products. However, management is considering the multiple production department factory overhead rate method. The following factory overhead was budgeted for Nova: Fabrication Department factory overhead Assembly Department factory overhead Total Direct labor hours were estimated as follows: Fabrication Department Assembly Department Total $450,000 180,000 $630,000 4,500 hours 4,500 9,000 hours In addition, the direct labor hours (dih) used to produce a unit of each product in each department were determined from engineering records, as follows: 1.20 din 2.00 4.00 dih Production Departments Gasoline Engine Diesel Engine Fabrication Department 2.00 dih Assembly Department 1.20 Direct labor hours per unit 4,00 din

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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ABC Company produces two products, Nifty and So-So, and uses a costing system in which all overhead is accumulated in a single cost pool and allocated based on machine hours. Blaine's management has decided to implement ABC because a cost study has revealed significant amounts of overhead cost related to setup activity and design activity. The number of setups and the number of design hours will be the activity drivers for the two new cost pools, and machine hours will continue as the base for allocating the remaining overhead. Selected information follows for ABC Company's most recent year of operations: A В ТОТAL UNITS PRODUCED 500 15,500 16,000 DIRECT MATERIAL COST PER UNIT $ 200.00 $ 20.00 ТОTAL 100,000.00 310,000.00 $ 410,000.00 MACHINE HOURS 3,000 47,000 50,000 DIRECT LABOR COST 2$ 50,000 $ 350,000 $ 400,000 SETUP 120 80 200 DESIGN HOURS 6,000 4,000 10,000 OVERHEAD SETUP RELATED $ 250,000 DESIGN RELATED 350,000 OTHERS 900,000 Calculate the total and per unit reported cost for the…
Helpful Division of X Company makes two products, Small and Large. The company has always used Conventional Costing (for financial reporting purposes), but this period wants to try using Activity-Based Costing to make better decisions. Information related to the current period is as follows: REQUIRED: (#1) Since the company has three activities, what are the three overhead application rates the company would use for activity-based costing? (ROUND EACH RATE TO THE NEAREST CENT and be sure to label the rates appropriately.) (#2) Using activity-based costing, what was the cost to manufacture one Small unit? (#3) Using activity-based costing, what was the cost to manufacture one Large unit? (#4) Based on what you learned about activity-based costing this week, how might Helpful Division managers use the new cost information from its activity-based costing system to better manage its operations? Helpful Resource: https://www.youtube.com/watch?v=PU3U_aMbKws
Fountain Water Products (FWP) manufacturers water bottles. They have historically used a traditional system that allocated the manufacturing overhead costs based on machine hours. FWP is looking at switching to an ABC system in order to ensure more accurate product costing. They first want to compare the traditional and ABC costing systems to determine if it is worth the effort and costs to implement and maintain. They estimate a total overhead cost of $459,000. Under the traditional system they identified machine hours as the cost driver, and estimated a total of 51,000 machine hours. They actually incurred 48,700 machine hours in production. The total applied MOH calculated under the more precise ABC system was $320,000. The ABC costing system will cost $50,000 to implement. FWP has determined that a benefit of more accurate costing by $80,000 is worth the $50,000 implementation cost. What is the difference between the ABC costing and traditional system? Enter your number as a…
Drippin' in Heat manufactures the finest formal wear west of the Mississippi. The company produces two main products: Suit Jackets and Sport Coats. Currently the company uses a traditional overhead rate in which Manufacturing Overhead is allocated to products based on direct labor hours logged. The projected production levels for the period are 1,200 Suit Jackets and 400 Sport Coats. Due to profitability concerns, management is considering switching to Activity-Based Costing (ABC). Management has divided manufacturing overhead costs into three activities and cost pools: Assembly $30,000; Machine Setup $20,000; and Product Movement $102,400. Management has identified the following cost drivers for each overhead activity: direct labor hours for assembly, number of setups for machine setup, and number of moves for product movement. The following information has been compiled for each product line: Direct Labor Requirements Machine Setup Requirements Product Movement Requirements Suit…
Julio produces two types of calculator, standard and deluxe. The company is currently using a traditional costing system with machine hours as the cost driver but is considering a move to activity-based costing. In preparing for the possible switch, Julio has identified two cost pools: materials handling and setup. The collected data follow: Number of machine hours Number of material moves Number of setups Total estimated overhead costs are $332,860, of which $158,400 is assigned to the material handling cost pool and $174,460 is assigned to the setup cost pool. Required: 1. Calculate the overhead assigned to each product using the traditional cost system. 2. Calculate the overhead assigned to each product using ABC. Required 1 Required 2 Standard Model Deluxe Model 30,400 870 520 Complete this question by entering your answers in the tabs below. Standard Model Deluxe Model 25,400 570 90 Calculate the overhead assigned to each product using the traditional cost system. (Round the…
Product Costing and Decision Analysis for a Service Company Pleasant Stay Medical Inc. wishes to determine its product costs. Pleasant Stay offers a variety of medical procedures (operations) that are considered its “products.” The overhead has been separated into three major activities. The annual estimated activity costs and activity bases follow: Activity Budgeted Activity Cost Activity Base Scheduling and admitting $432,000 Number of patients Housekeeping 4,212,000 Number of patient days Nursing 5,376,000 Weighted care unit Total costs $10,020,000 Total “patient days” are determined by multiplying the number of patients by the average length of stay in the hospital. A weighted care unit (wcu) is a measure of nursing effort used to care for patients. There were 192,000 weighted care units estimated for the year. In addition, Pleasant Stay estimated 6,000 patients and 27,000 patient days for the year. (The…
Nutterco, Inc., produces two types of nut butter: peanut butter and cashew butter. Of the two,peanut butter is the more popular. Cashew butter is a specialty line using smaller jars and fewerjars per case. Data concerning the two products follow: Annual overhead costs are listed below. These costs are classified as fixed or variable with respect to the appropriate activity driver. Required:1. Prepare a traditional segmented income statement, using a unit-level overhead rate based ondirect labor hours. Using this approach, determine whether the cashew butter product lineshould be kept or dropped.2. Prepare an activity-based segmented income statement. Repeat the keep-or-drop analysisusing an ABC approach.
Campbell Electronics produces video games in three market categories: commercial, home, and miniature. Campbell has traditionally allocated overhead costs to the three products using the companywide allocation base of direct labor hours. The company recently implemented an ABC system when it installed computer-controlled assembly stations that rendered the traditional costing system ineffective. In implementing the ABC system, the company identified the following activity cost pools and cost drivers: Category Unit Batch Product Facility Additional data for each of the product lines follow: Direct materials cost Direct labor cost Number of labor hours Number of machine hours Number of production orders Research and development time Number of units. Square footage Required Total Pooled Cost $ 376,000 206,400 109,600 304,000 Type of Product a. Commercial a. Home a. Miniature Combined total b. Commercial b. Home b. Miniature Combined total Types of Costs Indirect labor wages, supplies,…
Allocate overhead using a single plantwide rate, multiple department rates, and activity-based costing Big Sound Inc. manufactures two products: receivers and loudspeakers. The factory overhead incurred is as follows: Indirect labor Subassembly Department Final Assembly Department Total The activity base associated with the two production departments is direct labor hours. The indirect labor can be assigned to two different activities as follows: Activity Setup Quality control Total Budgeted Activity Cost Required: Receivers 80 Loudspeakers 320 Total 400 $400,400 198,800 114,800 $714,000 The activity-base usage quantities and units produced for the two products follow: $138,600 Number of setups 261,800 Number of inspections $400,400 Number of Number of Setups Inspections 450 Activity Base 1,750 2,200 Direct Labor Hours- Subassembly 875 525 1,400 Direct Labor Hours-Final Units Assembly Produced 7,000 7,000 14,000 525 875 1,400 1. Determine a plantwide overhead rate based upon direct…
Single plantwide and multiple production department factory overheadrate methods and product cost distortionThe management of Firebolt Industries Inc. manufactures gasoline anddiesel engines through two production departments, Fabrication and Assembly. Management needs accurate product cost information inorder to guide product strategy. Presently, the company uses a singleplantwide factory overhead rate for allocating factory overhead to thetwo products. However, management is considering the multipleproduction department factory overhead rate method. The followingfactory overhead was budgeted for Firebolt: Fabrication Department factory overhead $550,000 Assembly Department factory overhead 250,000 Total $800,000 Direct labor hours were estimated as follows: Fabrication Department 5,000 hours Assembly Department 5,000 Total 10,000 hours In addition, the direct labor hours(dlh) used to produce a unit of eachproduct in each department were determined from engineering…
Activity-Based Costing and Product Cost Distortion Four Finger Appliance Company manufactures small kitchen appliances. The product line consists of blenders and toaster ovens. Four Finger Appliance presently uses the multiple production department factory overhead rate method. The factory overhead is as follows: Assembly Department Test and Pack Department Total The direct labor information for the production of 7,500 units of each product is as follows: Blender Toaster oven Total $186,000 120,000 $306,000 Four Finger Appliance used direct labor hours to allocate production department factory overhead to products. Assembly Activity Test and Pack Activity Setup Activity Assembly Department Test and Pack Department 750 dih 2,250 dlh 750 3,000 dlh The management of Four Finger Appliance Company has asked you to use activity-based costing to allocate factory overhead costs to the two products. You have determined that $81,000 of factory overhead from each of the 2,250 3,000 dlh production…