Not Secure ezto.mheducation.com/hm.tpx Siegel Corporation manufactures a product
ID: 2405464 • Letter: N
Question
Not Secure ezto.mheducation.com/hm.tpx Siegel Corporation manufactures a product available in both a deluxe and a regular model. The company has made the regular model for years; the deluxe model was introduced several years ago to capture a new segment of the market. Since the introduction of the deluxe model, the company's profits have steadily declined, and management has become concened about the accuracy of its costing system. Sales of the deluxe model have been increasing rapidly. Overhead is applied to products on the basis of direct labour-hours. At the beginning of the current year management estimated that $5,184,000 in overhead costs would be incurred and the company would produce and sell 5,000 units of the deluxe model and 40,000 units of the regular model. The deluxe model requires 3.2 hours of direct labour time per unit, and the regular model requires 0.8 hours. Materials and labour costs per unit follow: Deluxe Regular $150 Direct materials cost per unit Direct labour cost per hour $112 16 14 Required 1. Compute the predetermined overhead rate using direct labour-hours as the basis for allocating overhead costs to products. Compute the unit product cost for one unit of each model. (Do not round intermediate calculations. Round your answers to 2 decimal places.) overhead 108.00 per DLH rate Unit product cost of Deluxe S 292.00 Unit product cost of Regular $ 214.40 2. An intern suggested that the company use activity-based costing to cost its products. A team was formed to investigate this idea, and it came back with the recommendation that four activity cost pools be used. These cost pools and their associated activities follow Activity Estimated Overhead Activity Cost Pool and Activity Measure Purchase orders (number of orders) Rework requests (number of requests) Product testing (number of tests) Machine related (machine-hours) CostDeluxe Regular Total S 476,800 1,184 1,200 2,384 810 1,440 2,250 908,000 5,000 6,350 11,350 3,236,800 15,240 25,220 40,460 562,400 $5,184,000 MacBook ProExplanation / Answer
SOLUTION
1. The predetermined overhead is computed on direct labor hours. The total direct labour hours are computed as follows-
Duluxe:
= No. of units * Direct labour hours per unit
= 5,000 * 3.2 = 16,000 hours
Regular:
= No. of units * Direct labour hours per unit
= 40,000* 0.8 = 32,000 hours
Total direct labour hours = 16,000 + 32,000 = 48,000
Predetermined overhead rate = Estimated total manufactured overhead cost / Estimated direct labor hours
= $5,184,000 / 48,000 hours = $108
The predetermined overhead rate to-
Deluxe:
= Direct labor hours * Predetermined overhead rate
= 3.2 * $108 = $345.60
Regular:
= Direct labor hours * Predetermined overhead rate
= 0.8 * $108 = $86.40
2. Computation of Activity rate-
3. A.
Deluxe:
Per unit cost = Total overhead cost / units manufactured
= $2,058,500 / 5,000 = $411.70
Regular:
Per unit cost = Total overhead cost / units manufactured
= $3,125,600 / 40,000 = $78.14
B.
Activity cost pool Activity measure Expected activity ($) (A) Estimated overhead cost ($) (B) Activity rate (B/A) Purchase order Number of orders 2,384 476,800 $200 Rework request Number of requests 2,250 562,400 $250 Product testing Number of tests 11,350 908,000 $80 Machine related Machine hours 40,460 3,236,800 $80Related Questions
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