Steampunk Corporation has the following predicted indirect costs and cost drivers for 2019 for the given activity cost pools: Fabrication Department Finishing Department Cost Driver Maintenance $ 30,000 15,000 Machine hours Materials handling 45,000 22,500 Material moves Machine 105,000 7,500 Machine setups Inspections - 37,500 Inspection hours Total $180,000 $82,500 The following activity predictions were also made for the year: Fabrication Department Finishing Department Machine hours 5,000 2,500 Material moves 1,500 750 Machine setups 350 25 Inspection hours - 500 It is assumed that the cost per unit of activity for a given activity does not vary between departments. Steampunk's president, Abner Punk, is trying to evaluate the company's product mix strategy regarding two of its product models, SW100 and SG150. The company has been using a company wide overhead rate based on machine hours but is considering switching to either department rates of activity-based rates. The production manager has provided the following data for the production of a batch of 100 units for each of these models: SW100 SG150 Direct materials cost $ 10,000 $ 15,000 Direct labor cost $ 4,000 $ 3,000 Machine hours (Fabrication) 250 350 Machine hours (Finishing) 100 50 Materials moves 20 40 Machine setups 5 10 Inspection hours 15 30 a. Determine the cost of one unit each of SW100 and SG150, assuming a company-wide overhead rate is used based on total machine hours. Round rate to two decimal places. Overhead rate based on total machine hours: $Answer per machine hour Use rounded overhead rate calculated about for calculations below. Round cost answers to the nearest whole number. Round cost per unit to two decimal places. Product Costs per Unit SW100 SG150 Direct materials Answer Answer Direct labor Answer Answer Manufacturing overhead Answer Answer Total cost per batch Answer Answer Number of units per batch Answer Answer Cost per unit Answer Answer b. Determine the cost of one unit of SW100 and SG150, assuming department overhead rates are used. Overhead is assigned based on machine hours in both departments. Round to two decimal places, if applicable. Overhead rate based on machine hours for Fabrication Dept.: $Answer per machine hour. Overhead rate based on machine hours for Finishing Dept.: $Answer per machine hour. Use rounded overhead rate calculated above for calculations below. Round cost answers to the nearest whole number, when needed. Round cost per unit to two decimal places, if needed. Product Costs per Unit SW100 SG150 Direct materials Answer Answer Direct labor Answer Answer Manufacturing overhead: Fabrication Dept. Answer Answer Finishing Dept. Answer Answer Total cost per batch Answer Answer Number of units per batch Answer Answer Cost per unit Answer Answer c. Determine the cost of one unit of SW100 and SG150, assuming activity-based overhead rates are used for maintenance, materials handling, machine setup, and inspection activities. Round rate to two decimal places, if applicable. Activity-based overhead rates: Maintenance Answer Materials handling Answer Machine setup Answer Inspection activities Answer Use rounded overhead rate calculated above for calculations below. Round cost answers to the nearest whole number, when needed. Round cost per unit to two decimal places, if needed. Product Costs per Unit SW100 SG150 Direct materials Answer Answer Direct labor Answer Answer Manufacturing overhead: Maintenance activity Answer Answer Materials handling activity Answer Answer Machine setups activity Answer Answer Inspections activity Answer Answer Total cost per batch Answer Answer Number of units per batch Answer Answer Cost per unit Answer Answer
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
Steampunk Corporation has the following predicted indirect costs and cost drivers for 2019 for the given activity cost pools:
| Fabrication Department |
Finishing Department |
Cost Driver | |
|---|---|---|---|
| Maintenance | $ 30,000 | 15,000 | Machine hours |
| Materials handling | 45,000 | 22,500 | Material moves |
| Machine | 105,000 | 7,500 | Machine setups |
| Inspections |
- |
37,500 |
Inspection hours |
| Total |
$180,000 |
$82,500 |
The following activity predictions were also made for the year:
| Fabrication Department |
Finishing Department |
|
|---|---|---|
| Machine hours | 5,000 | 2,500 |
| Material moves | 1,500 | 750 |
| Machine setups | 350 | 25 |
| Inspection hours | - | 500 |
It is assumed that the cost per unit of activity for a given activity does not vary between departments. Steampunk's president, Abner Punk, is trying to evaluate the company's product mix strategy regarding two of its product models, SW100 and SG150. The company has been using a company wide
| SW100 | SG150 | |
|---|---|---|
| Direct materials cost | $ 10,000 | $ 15,000 |
| Direct labor cost | $ 4,000 | $ 3,000 |
| Machine hours (Fabrication) | 250 | 350 |
| Machine hours (Finishing) | 100 | 50 |
| Materials moves | 20 | 40 |
| Machine setups | 5 | 10 |
| Inspection hours | 15 | 30 |
a. Determine the cost of one unit each of SW100 and SG150, assuming a company-wide overhead rate is used based on total machine hours.
Round rate to two decimal places.
Overhead rate based on total machine hours: $Answer per machine hour
Use rounded overhead rate calculated about for calculations below. Round cost answers to the nearest whole number. Round cost per unit to two decimal places.
| Product Costs per Unit | SW100 | SG150 |
|---|---|---|
| Direct materials | Answer | Answer |
| Direct labor | Answer | Answer |
| Manufacturing overhead | Answer | Answer |
| Total cost per batch | Answer | Answer |
| Number of units per batch | Answer | Answer |
| Cost per unit | Answer | Answer |
b. Determine the cost of one unit of SW100 and SG150, assuming department overhead rates are used. Overhead is assigned based on machine hours in both departments.
Round to two decimal places, if applicable.
Overhead rate based on machine hours for Fabrication Dept.: $Answer per machine hour.
Overhead rate based on machine hours for Finishing Dept.: $Answer per machine hour.
Use rounded overhead rate calculated above for calculations below. Round cost answers to the nearest whole number, when needed. Round cost per unit to two decimal places, if needed.
| Product Costs per Unit | SW100 | SG150 |
|---|---|---|
| Direct materials | Answer | Answer |
| Direct labor | Answer | Answer |
| Manufacturing overhead: | ||
| Fabrication Dept. | Answer | Answer |
| Finishing Dept. |
Answer |
Answer |
| Total cost per batch |
Answer |
Answer |
| Number of units per batch | Answer | Answer |
| Cost per unit |
Answer |
Answer |
c. Determine the cost of one unit of SW100 and SG150, assuming activity-based overhead rates are used for maintenance, materials handling, machine setup, and inspection activities.
Round rate to two decimal places, if applicable.
| Activity-based overhead rates: | |
| Maintenance | Answer |
| Materials handling | Answer |
| Machine setup | Answer |
| Inspection activities | Answer |
Use rounded overhead rate calculated above for calculations below. Round cost answers to the nearest whole number, when needed. Round cost per unit to two decimal places, if needed.
| Product Costs per Unit | SW100 | SG150 |
|---|---|---|
| Direct materials | Answer | Answer |
| Direct labor | Answer | Answer |
| Manufacturing overhead: | ||
| Maintenance activity | Answer | Answer |
| Materials handling activity | Answer | Answer |
| Machine setups activity | Answer | Answer |
| Inspections activity |
Answer |
Answer |
| Total cost per batch | Answer | Answer |
| Number of units per batch | Answer | Answer |
| Cost per unit |
Answer |
Answer |
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