Valley View Trailmasters makes two types of tents for mountain camping, the Expl
ID: 2343138 • Letter: V
Question
Valley View Trailmasters makes two types of tents for mountain camping, the Explorer and the Climber. Data concerning the two product lines is presented in the table below:
EXPLORER
CLIMBER
Sales price per unit
$390
$615
Direct materials per unit
$92
$115
Direct labor per unit
$51
$75
Estimated annual production
4,000 units
9,000 units
The company has always employed a tradition costing system in which manufacturing overhead is applied to units based on machine hours. Estimated data concerning manufacturing overhead and direct labor hours for the upcoming year appear below:
Estimated total manufacturing overhead $484,746
Estimated total machine hours 1,000
The company is considering replacing its traditional costing system with an activity based costing system that would assign its indirect product costs to four activity cost pools. Information about the amount assigned to these cost pools, the identified cost driver for each and usage of the cost drivers by the two product lines is presented in the following table:
ACTIVITY
TOTAL COST
COST DRIVER
TOTAL
EXPLORER
CLIMBER
Machine maintenance
$78,840
Machine hours
1,000
350
650
Batch setups
$136,364
Setups
146
60
86
Quality control
$163,020
Inspections
1,650
975
675
Technical support
$106,522
Technical support calls
964
352
612
Total manufacturing overhead cost
$484,746
INSTRUCTIONS: Use EXCEL FROMULAS (Show them next to the value) to calculate the following amounts in the spaces provided on your template.
1. Calculate the predetermined overhead rate using the traditional volume-based costing system.
2. Calculate the total amount of overhead cost that would be assigned to each product line under the company’s traditional costing system.
3. Calculate the gross margin per unit for each product line using traditional volume-based costing.
4. Calculate the activity rate for each cost pool using activity-based costing.
5. Calculate the total amount of overhead cost that would be assigned to each product line using activity-based costing.
6. Calculate the gross margin per unit for each product line under the proposed activity based costing system.
Here is the attached template:
Show formulas next to the values.
EXPLORER
CLIMBER
Sales price per unit
$390
$615
Direct materials per unit
$92
$115
Direct labor per unit
$51
$75
Estimated annual production
4,000 units
9,000 units
Explanation / Answer
1 Predetermined overhead Rate Total estimated OH/Total estimated machine hours 484746/1000 484.746 Per machine hour 2 Calculation of assignment of OH Explorer Climber OH assigned 169661.1 315084.9 3 Calculation of gross margin Explorer Climber Sales price per unit $1,560,000 $5,535,000 Direct materials per unit $368,000 $1,035,000 Direct labor per unit $204,000 $675,000 Overhead cost 169661.1 315084.9 Gross margin $818,339 $3,509,915 4 ACTIVITY TOTAL COST COST DRIVER TOTAL Activity Rate Machine maintenance $78,840 Machine hours 1,000 $78.84 per machine hours Batch setups $136,364 Setups 146 $934.00 Per batch setups Quality control $163,020 Inspections 1,650 $98.80 per Inspections Technical support $106,522 Technical support calls 964 $110.50 per techinal calls Total manufacturing overhead cost $484,746
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