The new president of the Blake Company was stumped. Why had the gross profit margin percentage gone down? He had directed the sales department to push the product with the highest gross profit margin percentage, and the sales department had come through with flying colors. So what happened? FlopsChopsSales Price per Unit$150$500Direct Materials per Unit$50$150Direct Labor Cost per Unit$15$25Direct Labor Hours per Unit1 hours per unit5 hours per unitNumber of Units Produced15,00050,000The estimated overhead for the coming year is estimated to be $2,650,000.Answer the following questions.Calculate the Blake Company's estimated direct labor hours to produce flops and chops.Calculate the predetermined overhead rate that will be used in the coming year using a traditional costing system based upon direct labor hours.Using a traditional costing system based upon direct labor hours, compute unit product cost for flops and chops as well as the gross profit per unit.It has been suggested to the president to consider the use of an ABC costing system to allocate manufacturing overhead. Engineering studies have revealed the following information about estimated manufacturing activities for the coming year. Activity Cost PoolEstimated Overhead CostExpected Activity Level Setups$530,000200 setups Scrap$425,000400 units Testing$325,00010,000 tests Machine Related$1,370,00060,000 machine hoursTotal$2,650,000 Calculate the separate predetermined overhead rates for each of the activities listed above.

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Answered: The new president of the Blake Company…

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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The new president of the Blake Company was stumped. Why had the gross profit margin percentage gone down? He had directed the sales department to push the product with the highest gross profit margin percentage, and the sales department had come through with flying colors. So what happened?

	Flops	Chops
Sales Price per Unit	$150	$500
Direct Materials per Unit	$50	$150
Direct Labor Cost per Unit	$15	$25
Direct Labor Hours per Unit	1 hours per unit	5 hours per unit
Number of Units Produced	15,000	50,000

The estimated overhead for the coming year is estimated to be $2,650,000.

Answer the following questions.

Calculate the Blake Company's estimated direct labor hours to produce flops and chops.
Calculate the predetermined overhead rate that will be used in the coming year using a traditional costing system based upon direct labor hours.
Using a traditional costing system based upon direct labor hours, compute unit product cost for flops and chops as well as the gross profit per unit.

It has been suggested to the president to consider the use of an ABC costing system to allocate manufacturing overhead. Engineering studies have revealed the following information about estimated manufacturing activities for the coming year.

Activity Cost Pool	Estimated Overhead Cost	Expected Activity Level
Setups	$530,000	200 setups
Scrap	$425,000	400 units
Testing	$325,000	10,000 tests
Machine Related	$1,370,000	60,000 machine hours
Total	$2,650,000

Calculate the separate predetermined overhead rates for each of the activities listed above.

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