Question 1 McKay Company produces curling irons. The plastic handles used to pro

Question

Question 1

McKay Company produces curling irons. The plastic handles used to produce the curling irons are purchased from an outside supplier. Each year, 45,000 handles are used at the rate of 150 handles per day. Some days as many as 180 handles are used. On average it takes 4 days after an order is placed for the inventory to arrive at McKay Company.

Required:

A. Calculate the reorder point without safety stock.

B. Calculate the amount of safety stock.

C. Calculate the reorder point with safety stock.

Question 2

Randy Company produces candy sticks (hooked and straight). Both products pass through two producing departments. The hooked sticks's production is much more labor-intensive than the straight sticks. The straight stick is also more popular. The following data have been gathered for the two products:

Randy has decided to use activity-based costing and has developed two types of activities, machine related (based on machine hours), and other overhead (based on packing orders). Machine-related costs equal $160,000. Other overhead costs equal $240,000.

Required:

If required, round your answers to three decimal places. When required, use rounded amounts in subsequent computations.

A. Calculate the activity rate for machine-related costs based on machine hours.
$ per machine hour

B. Calculate the activity rate for other overhead costs based on packing orders.
$ per packing order

C. Using the two activity rates, calculate the overhead cost per unit for hooked sticks.
$

D. Using the two activity rates, calculate the overhead cost per unit for straight sticks.
$

Product Data Hooked Straight Units produced per year 200,000 2,000,000 Machine hours 10,000 40,000 Packing orders 30,000 30,000

Explanation / Answer

answer 1. A. Reorder point without safety stock = average daily rate x lead time=150 x 4 = 600

B. Safety stock = (maximum daily rate - average daily rate) x lead time=(180 - 150 ) x 4 = 120

C. Reorder point with safety stock = reorder point without safety stock + safety stock=600 + 120 = 720

Answe 2

A. Machine-related rate = $160,000/(10,000 + 40,000) = $3.20 per machine hour
B. Other overhead rate = $240,000/(30,000 + 30,000) = $4.00 per packing order
C. Overhead cost per unit for Hooked = [($3.20 ´ 10,000) +($4 ´ 30,000)]/200,000 = $0.76
D. Overhead cost per unit for Straight = [($3.20 ´ 40,000) + ($4 ´ 30,000)]/2,000,000 = $0.124

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