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1.
To compute:
1.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Given below is the table for the calculation of plantwide overhead rate:
Particulars | ($) |
Total overhead costs: | |
Department A | 215,630 |
Department B | 399,480 |
Support | 515,600 |
Total overhead costs | $1,130,710 |
Total direct labor hours: | |
Pup tent | 2,600 hours |
Pop-up tent | 1,600 hours |
Total number of cases | 4,200 hours |
Plantwide overhead rate | $269.22 |
Given below is the table for the calculation of overhead cost per unit Pup tent and each Pop-up tent:
Particulars | Pup tent | Pop-up tent ($) |
Direct labor hours | 2,600 hours | 1,600 hours |
Overhead rate | $269.22 | $269.22 |
Overhead cost | $699,972 | $430,752 |
Volume | 15,200 units | 7,600 units |
Overhead cost per unit | $46.05 | $56.68 |
Hence, overhead cost to be assigned to each caseof Pup tent and Pop-up tent is $46.05 and 56.68 respectively.
2.
To compute: Total cost per unit ofPup tent and Pop-up tent.
2.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Given below is the calculation of total cost unit of Pup tent and Pop-up tent:
Particulars | Pup tent ($) | Pop-up tent ($) |
Direct materials and direct labor | 25.00 | 32.00 |
Overhead | 46.05 | 56.68 |
Total cost per case | $71.05 | $88.68 |
Hence, total cost per unit of Pup tent is $71.05 and Pop-up tent is $88.68.
3.
To compute: Gross profit per unit
3.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Given below is the computation of gross profit per of Pup tent and Pop-up tent:
Particulars | Pup tent ($) | Pop-up tent ($) |
Market price | 65.00 | 200.00 |
Total cost per case | 71.05 | $88.68 |
Gross | $(6.05) | $111.32 |
- Pop-up tent is profitable for the company as it has a gross profit of $111.32 whereas Pup tent incurs a loss of $6.05.
- T Company is not advised to produce Pup tent if market price of the same is not increased or it is not able to lower its cost for producing Pup tent.
Hence,gross profit per unit of pop-up tent is $111.32 and Gross loss per unit of Pup tent is $ 6.05.
4.
To compute: Total cost per case using ABC.
4.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Given below is the calculation of activity rate:
Activity cost pool | Overhead cost ($) | Driver | Activity driver | Activity driver ($) |
Pattern alignment | 64,400 | Batches | 560 | 115 |
Cutting | 50,430 | machine hours | 12,300 | 4.10 |
Moving product | 100,800 | moves | 2,400 | 42 |
Sewing | 327,600 | direct labor hours | 4,200 | 78 |
Inspecting | 24,000 | inspections | 600 | 40 |
Folding | 47,880 | units | 22,800 | 2.10 |
Design | 280,000 | modification orders | 280 | 1,000 |
Providing space | 51,600 | square feet | 8,600 | 6 |
Materials handling | 184,000 | square yards | 920,000 | 0.20 |
Given below is the calculation of total cost per unit of Pup tent and Pop-up tent as per ABC method:
Activity | Overhead costs | Pup tent ($) | Pop-up tent ($) | ||
Pup tent ($) | Pop tent ($) | Cost per driver | |||
Pattern alignment | 140 | 420 | 115 | 16,100 | 48,300 |
Cutting | 7,000 | 5,300 | 4.1 | 28,700 | 21,730 |
Moving product | 800 | 1,600 | 42 | 33,600 | 67,200 |
Sewing | 2,600 | 1,600 | 78 | 202,800 | 124,800 |
Inspecting | 240 | 360 | 40 | 9,600 | 14,400 |
Folding | 15,200 | 7,600 | 2.1 | 31,920 | 15,960 |
Design | 70 | 210 | 1,000 | 70,000 | 210,000 |
Providing space | 4,300 | 4,300 | 6 | 25,800 | 25,800 |
Materials handling | 450,000 | 470,000 | 0.2 | 90,000 | 94,000 |
Total | 508,520 | 622,190 | |||
Number of units | 15,200 | 7,600 | |||
Overhead cost per unit | $33.46 | $81.86 | |||
Direct material and direct labor | $25.00 | $32.00 | |||
Total | $58.45 | $113.86 |
Hence, total cost per unit of Pop tent is $58.45 and Pop-up tent is $113.86.
To compute: Gross profit per unit.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Given below is the calculation of gross profit per unit of Pup tent and Pop-up tent:
Pup tent ($) | Pop-up tent ($) | |
Market price | 65.00 | 200.00 |
Cost | $58.45 | $113.86 |
Gross profit/loss per case | $9.55 | $86.14 |
- Pop-up tent is more profitable for the company as it has a gross profit of $86.14 whereas Pup tent has gross profit of $9.55.
- T Company is advised to produce more of Pop-up tent.
Hence,gross profit per unit of Pop tent is $9.55 and Pop-up tent is $86.14
To identify: Effect on pricing analysis if Company uses departmental rates over the plantwide overhead rate.
![Check Mark](/static/check-mark.png)
Explanation of Solution
- Departmental rates are used in companies where several products are manufactured; and different cost drivers are used for different activities.
- Departmental overhead rates use volume related allocation base and hence does not consider activities which drives the
manufacturing costs. - Activity based costing method allocates the cost of each task to all products and services.
- It is preferable to use activity based costing in companies where more than one product is manufactured or more than one services are provided, for more accurate results.
- Activity based costing helps in better controlling of overhead costs.
Hence, ABC helps in better decision making.
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Chapter 4 Solutions
Managerial Accounting
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