Homework Help is Here – Start Your Trial Now!
Business
Accounting
Tas Machinery Ltd manufactures two products, basic and superior, and applies overhead on the basis of direct labour hours. Anticipated overhead and direct labour time for the upcoming accounting period are $960 000 and 25 000 hours, respectively. Information about the company's products follows: Basic: Estimated product volume Direct material cost Direct labour per unit Superior: Estimated product volume Direct material cost Direct labour per unit Basic Superior Total 3.000 units $25 per unit 3 hours at $12 per hour Tas Machinery's overhead of $960 000 can be identified with three major activities: order processing ($180 000),machine processing ($675 000) and product inspection ($105 000). These activities are driven by number of orders processed, machine hours worked and inspection hours, respectively. Data relevant to these activities follow: Order processed 300 200 500 4 000 units $40 per unit 4 hours at $12 per hour Machine hours worked 19 800 20 200 40 000 Inspection hours 2200 7:800 10 000 Top management is very concerned about declining profitability despite a healthy increase in sales volume. The decrease in profit is especially puzzling because the company recently undertook a massive plant renovation during which new, highly automated machinery was installed machinery that was expected to produce significant operating efficiencies. Required: (a) Calculate the unit cost for each product if manufacturing overhead costs are allocated to products on the basis of direct labour hours. (b) Calculate the unit cost for each product if an Activity-based costing is used. (c) Tas Machinery's selling prices are based heavily on cost. Which product is overcosted and which product is undercosted? Calculate the amount of the cost distortion for each unit product.

Tas Machinery Ltd manufactures two products, basic and superior, and applies overhead on the basis of direct labour hours. Anticipated overhead and direct labour time for the upcoming accounting period are $960 000 and 25 000 hours, respectively. Information about the company's products follows: Basic: Estimated product volume Direct material cost Direct labour per unit Superior: Estimated product volume Direct material cost Direct labour per unit Basic Superior Total 3.000 units $25 per unit 3 hours at $12 per hour Tas Machinery's overhead of $960 000 can be identified with three major activities: order processing ($180 000),machine processing ($675 000) and product inspection ($105 000). These activities are driven by number of orders processed, machine hours worked and inspection hours, respectively. Data relevant to these activities follow: Order processed 300 200 500 4 000 units $40 per unit 4 hours at $12 per hour Machine hours worked 19 800 20 200 40 000 Inspection hours 2200 7:800 10 000 Top management is very concerned about declining profitability despite a healthy increase in sales volume. The decrease in profit is especially puzzling because the company recently undertook a massive plant renovation during which new, highly automated machinery was installed machinery that was expected to produce significant operating efficiencies. Required: (a) Calculate the unit cost for each product if manufacturing overhead costs are allocated to products on the basis of direct labour hours. (b) Calculate the unit cost for each product if an Activity-based costing is used. (c) Tas Machinery's selling prices are based heavily on cost. Which product is overcosted and which product is undercosted? Calculate the amount of the cost distortion for each unit product.

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter2: Basic Cost Management Concepts
Section: Chapter Questions
Problem 21E: Ellerson Company provided the following information for the last calendar year: During the year,...
See similar textbooks
icon
Related questions
Question
Tas Machinery Ltd manufactures two products, basic and superior, and applies overhead on the basis of direct labour hours. Anticipated overhead and direct labour time for the upcoming accounting period are $960 000 and 25 000 hours, respectively. Information about the company's products follows: Basic: Estimated product volume Direct material cost Direct labour per unit Superior: Estimated product volume Direct material cost Direct labour per unit Basic Superior Total 3 000 units $25 per unit 3 hours at $12 per hour Tas Machinery's overhead of $960 000 can be identified with three major activities: order processing ($180 000),machine processing ($675 000) and product inspection ($105 000). These activities are driven by number of orders processed, machine hours worked and inspection hours, respectively. Data relevant to these activities follow: Order processed 300 200 500 4 000 units $40 per unit 4 hours at $12 per hour Machine hours worked 19 800 20 200 40 000 Inspection hours 2 200 7:800 10 000 Top management is very concerned about declining profitability despite a healthy increase in sales volume. The decrease in profit is especially puzzling because the company recently undertook a massive plant renovation during which new, highly automated machinery was installed machinery that was expected to produce significant operating efficiencies. Required: (a) Calculate the unit cost for each product if manufacturing overhead costs are allocated to products on the basis of direct labour hours. (b) Calculate the unit cost for each product if an Activity-based costing is used. (c) Tas Machinery's selling prices are based heavily on cost. Which product is overcosted and which product is undercosted? Calculate the amount of the cost distortion for each unit product.
Transcribed Image Text:Tas Machinery Ltd manufactures two products, basic and superior, and applies overhead on the basis of direct labour hours. Anticipated overhead and direct labour time for the upcoming accounting period are $960 000 and 25 000 hours, respectively. Information about the company's products follows: Basic: Estimated product volume Direct material cost Direct labour per unit Superior: Estimated product volume Direct material cost Direct labour per unit Basic Superior Total 3 000 units $25 per unit 3 hours at $12 per hour Tas Machinery's overhead of $960 000 can be identified with three major activities: order processing ($180 000),machine processing ($675 000) and product inspection ($105 000). These activities are driven by number of orders processed, machine hours worked and inspection hours, respectively. Data relevant to these activities follow: Order processed 300 200 500 4 000 units $40 per unit 4 hours at $12 per hour Machine hours worked 19 800 20 200 40 000 Inspection hours 2 200 7:800 10 000 Top management is very concerned about declining profitability despite a healthy increase in sales volume. The decrease in profit is especially puzzling because the company recently undertook a massive plant renovation during which new, highly automated machinery was installed machinery that was expected to produce significant operating efficiencies. Required: (a) Calculate the unit cost for each product if manufacturing overhead costs are allocated to products on the basis of direct labour hours. (b) Calculate the unit cost for each product if an Activity-based costing is used. (c) Tas Machinery's selling prices are based heavily on cost. Which product is overcosted and which product is undercosted? Calculate the amount of the cost distortion for each unit product.
Expert Solution
steps

Step by step

Solved in 5 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Cost classification
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser…
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
SEE MORE TEXTBOOKS