Potter Company manufactures two models of exercise bikes – the ST100 and the EX5
ID: 2331345 • Letter: P
Question
Potter Company manufactures two models of exercise bikes – the ST100 and the EX500. The current cost accounting system allocates manufacturing support costs to the two products on the basis of direct labor hours. For 2016, the company has estimated that it will incur $1,017,000 in manufacturing support costs, work 60,000 direct labor hours, and produce 10,000 units of the EX500 model and 40,000 units of the ST100 model. The EX500 model requires two hours of direct labor to assemble and the ST100 requires one hour of direct labor to assemble. Material and labor costs per unit and the selling price per unit are as follows:
ST100 EX500
Direct material $32 $45
Direct Labor 10 20
Selling Price 90 150
Return to the data for Potter Company. The company has decided to allocate manufacturing support costs based on four activities. The amount of manufacturing support cost traceable to the four activities for 2017 are given below:
Activity
Cost Driver
Total Cost
Total Driver Quantity
Driver Quantity
ST100
Driver Quantity
EX500
Machine setups
# of setups
$ 408,000
1,600
400
1,200
Purchasing
# of purchase orders
84,000
700
200
500
Machine maintenance
Machine hours
210,000
17,500
7,000
10,500
Quality control
# of inspections
315,000
1,500
600
900
$1,017,000
What is the total cost to produce one unit of the ST100 bike?
What is the total cost to produce one unit of the EX500 bike?
(in bold are the #'s)
Activity
Cost Driver
Total Cost
Total Driver Quantity
Driver Quantity
ST100
Driver Quantity
EX500
Machine setups
# of setups
$ 408,000
1,600
400
1,200
Purchasing
# of purchase orders
84,000
700
200
500
Machine maintenance
Machine hours
210,000
17,500
7,000
10,500
Quality control
# of inspections
315,000
1,500
600
900
$1,017,000
Explanation / Answer
Calculate total cost of produce one unit:
Total cost to produce one unit of the ST100 bike = $50.40
Total cost to produce one unit of the EX500 bike = $133.10
Activity Driver Total cost Driver quantity Quantity ST100 Quantity EX500 Machine setups # of setups 408000 1600 102000 306000 Purchasing # of purchase orders 84000 700 24000 60000 Machine maintenance Machine hour 210000 17500 84000 126000 Quality control # of inspections 315000 1500 126000 189000 Total overhead 336000 681000 Units 40000 10000 Overhead cost per unit 8.40 68.10 Direct material per unit 32 45 Direct labour per unit 10 20 Total cost produce per unit 50.40 133.10Related Questions
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