### Analysis of Per-Unit Overhead Allocation#### Methods ComparedThis section explores different methods for allocating per-unit overhead to products: the single plantwide factory overhead rate method, the multiple production department factory overhead rate method, and activity-based costing (ABC).#### Overhead Allocation Methods1. **Plantwide Overhead Method** - Allocates **$97.50** of overhead per product. - Snowboards: **$97.50** - Skis: **$115.20**2. **Multiple Production Department Method** - Allocates **$118.80** of overhead per product. - Snowboards: **$118.80** - Skis: **$117.20**3. **Activity-Based Costing (ABC)** - Allocates **$122.58** for snowboards based on accurate overhead consumption. - Better accounts for specific activities and overhead consumption patterns.#### Key Observations- **Distortion Issues**: Both plantwide and multiple department methods distort allocations as they do not accurately account for actual overhead consumption. - **Activity-Based Costing Advantage**: ABC offers a more precise allocation by considering: - **Direct Labor Hours**: Snowboards consume more direct labor in the Finishing Department, resulting in higher overhead costs. - **Production Control & Materials Handling**: Snowboards demand more control and handling, as they are produced in smaller lots with a wide variety of styles. - **Higher Activity Costs**: Due to smaller, varied production lots, snowboards incur higher activity costs compared to skis.This analysis underscores the benefits of using activity-based costing for more accurate and realistic overhead allocation, ensuring that costs reflect the real consumption of resources by different products.

1. Plantwide overhead rate = Total factory cost / Total direct labor hours ( herein referred as DLHs…

The plantwide overhead method allocates 97.50 X of overhead to each product, while the multiple production department method allocates $ 118.80 ✓ overhead to snowboards and $ because they do not adequately 115.20 ✔ to skis. Both the plantwide and multiple production department methods do ✔ distort the allocation of overhead ✓account for how each product consumes overhead. In contrast, activity-based costing allocates $ 122.58 X of factory 117.20 X to skis. Activity-based costing more ✔accurately allocates factory overhead because it better accounts ✓direct labor hours in the Finishing Department, which has more ✓overhead. In overhead to snowboards and $ for how each product consumes overhead Spowboards consume more

The plantwide overhead method allocates 97.50 X of overhead to each product, while the multiple production department method allocates $ 118.80 ✓ overhead to snowboards and $ because they do not adequately 115.20 ✔ to skis. Both the plantwide and multiple production department methods do ✔ distort the allocation of overhead ✓account for how each product consumes overhead. In contrast, activity-based costing allocates $ 122.58 X of factory 117.20 X to skis. Activity-based costing more ✔accurately allocates factory overhead because it better accounts ✓direct labor hours in the Finishing Department, which has more ✓overhead. In overhead to snowboards and $ for how each product consumes overhead Spowboards consume more

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Blue Ridge Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead. The following table presents information about estimated overhead and direct labor hours. Overhead DirectLabor Hours (dlh) Product A B Painting Dept. $459,138 11,800 dlh 16 dlh 2 dlh Finishing Dept. 56,203 4,900 6 20 Totals $515,341 16,700 dlh 22 dlh 22 dlh The overhead from both production departments allocated to each unit of Product B if Blue Ridge Marketing Inc. uses the multiple production department factory overhead rate method is
1. Calculate the overhead rate based on the traditional overhead allocation method using direct labour hours as the base. 2. Calculate the total overhead applied to order no. 147 using the traditional overhead rate calculated in question 3.1 above. 3. Using activity based costing (ABC), calculate the overhead rate for the following activity: Purchasing. That is, what is the overhead rate per purchase order?
LockTite Company produces two products, Pretty Safe (PS) and Virtually Impenetrable (VI). The following two tables give pertinent information about these products. Solve, a. What is the cost per unit of Pretty Safe if LockTite uses traditional overhead allocation based on number of units produced? b. What is the cost per unit of Pretty Safe if LockTite uses activity-based costing to allocate overhead?
Takulah Co. Ltd has traditionally allocated its overhead based on machine hours but had collected this information to change to activity-based costing: ESTIMATED ACTIVITY ACTIVITY CENTER PRODUCT 1 PRODUCT 2 ESTIMATED COST Machine setups 15 45 $10,800 Assembly Parts 3000 3000 144600 Packaging pieces 500 400 55350 Machine hour per unit 4 3 Production volume 750 1500 Required: i) How much overhead would be allocated to each unit under the traditional allocation method? ii) How much overhead would be allocated to each unit under activity-based costing? iii) Would you recommend a change to ABC costing for this company? Justify your answer
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.
Coronado Inc. has conducted the following analysis related to its product lines, using a traditional costing system (volume-based) and an activity-based costing system. The traditional and the activity-based costing systems assign the same amount of direct materials and direct labor costs. Products Product 540X Product 137Y Product 249S (a) Sales Revenue $210,000 Product 137Y * Your answer is incorrect. Product 540X $ LA LA 166,000 LA 94,000 Product 249S $ Total Costs Traditional $59,000 For each product line, compute operating income using the traditional costing system. 49,000 17,000 160060 131040 ABC 53900 $49,940 34,960 40,100
Blue Ridge Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead. The following table presents information about estimated overhead and direct labor hours. Painting Dept. Finishing Dept. Totals Overhead $257,800 76,100 $333,900 Direct Labor Hours (dlh) 10,200 dlh 11,700 21,900 dlh Using a single plantwide rate, the factory overhead alloca Oa. $15.25 Ob. $151.65 Oc. $152.50 d. $244.00 Product A 6 dlh 4 10 dlh ed per unit B 10 dlh 6 16 dlh Product B is
Blue Ridge Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead. The following table presents information about estimated overhead and direct labor hours. Direct Overhead Labor Hours (dlh) $248,000 72,000 $320,000 10,000 dlh 10,000 20,000 dlh Product A Painting Dept. Finishing Dept. Totals Using a single plantwide rate, the factory overhead allocated per unit of Product B is O a. $640 O b. $496 O c. $320 C. O d. $144 16 dlh 4 Product B 4 dlh 20 dlh 16 20 dlh Ⓒ
Standard Product CostsDeerfield Company manufactures product M in its factory. Production of M requires 2 pounds of material P, costing $8 per pound and 0.5 hour of direct labor costing, $14 per hour. The variable overhead rate is $12 per direct labor hour, and the fixed overhead rate is $16 per direct labor hour. What is the standard product cost for product M? Direct material Answer Direct labor Answer Variable overhead Answer Fixed overhead Answer Standard product cost per unit Answer
A company has the following overhead costs and activities: Estimated Expected Activity Product V Product W Product X Overhead Activities and Activity Measures Machine setups (setups) Processing customer orders (orders) Assembling products (assembly-hours) $9,178.00 Cost S7,234.50 $3,565.50 69 12 10 20 21 492 697 111 4. A company sells two products, one with sales of $10,000 and variable expenses of $2,500, another with sales of $46,000 and variable expenses of $15,420. Fixed expenses are $33,100. Breakeven point for the whole company is close to: А. 833,100 В. $22,900 C. $51,020 D. $48,676 A company that reduces the proportion of variable costs in its cost structure will: A. enjoys higher stability in profits. B. increase its profits more when the economy is good. C. have a loss more easily when the economy is bad. D. be indifferent. 5. 6. is normally recorded on any financial statement but irrelevant in decision making which is not. A. Sunk cost B. Incremental cost C. Differential…
Cost of the three alternative methods of processing work in an office is stated below: A-Manual: Total fixed cost PM=3,000 Variable cost per case=48 B-Semi-Automatic: Total fixed cost PM=9,000 Variable cost per case=28 C-Fully automatic: Total fixed cost PM=25,000 Variable cost per case=8 Identify the indifferences.
please answer do not image.