* 46% 1:33 PM a webassign.net Verizon Question 1 (allocating costs using ABC, pr
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* 46% 1:33 PM a webassign.net Verizon Question 1 (allocating costs using ABC, product profit margin) Generic Motors Corporation has two product lines, A and B. Its contribution margin statement for last year is as follows: Generic Motors uses ABC to allocate the fixed costs. It examined the main activities in the firm, and decided to break up the total fixed costs of $29,250 into 3 cost pools: ""labor-related" the total cost in this pool is $7,500, allocated based on direct labor dollars ""sales-related" the total cost in this pool is $6,750, allocated based on number of units "production setups" -the total cost in this pool is $15,000, allocated based on the number of production batches. A is produced in batches of 10 units, and B is produced in batches of 5 units. Required a) for each cost pool, compute the allocation rate and the amounts allocated to product A and product B. (hint: The amounts allocated to A and B from each pool should add up to the total cost in that pool. To allocate the costs in the "production setups pool, you will have to compute the number of batches. If the total number of batches for A and B does not add up to 75, you are doing something wrong). " "labor-related" pool allocation rate $ FC allocated to A-$ FC allocated to B-$ "sales-related" pool: allocation rate $ FC allocated to A $ FC allocated to B- per DL$ per unit ""production setups" pool allocation rate $ FC allocated to A = FC allocated to B-$ per batch b) using the allocated costs from (a), compute the profit margin for product A and product B. If you get a negative number, enter it with a minus sign, i.e., enter negative $100 as -100, not ($100) profit margin for A- profit margin for B-$Explanation / Answer
Solution:
Part 1 --- Calculation of allocation rate and FC allotted to Product A and B
Product A
Product B
Activity Cost Pool
Expected Manufacturing Overhead Costs (A)
Expected Activity Cost Driver (B)
Activity Rate (C = A/B)
Activity Driver USAGE (H)
Overhead Assigned (C*H)
Activity Driver USAGE (E)
Overhead Assigned (C*E)
Labor Related
$7,500
37,500
Direct labor dollars
$0.20
per labor dollar
7500
$1,500.00
30000
$6,000
Sales Related
$6,750
450
units
$15.00
per unit
150
$2,250.00
300
$4,500
Production setup
$15,000
15
batches
$1,000.00
per batch
10
$10,000.00
5
$5,000
$29,250
$13,750
$15,500
Labor related pool
Allocation rate = $0.20 per DL$
FC allocated to A = $1500
FC allocated to B = $6000
Sales related pool
Allocation rate = $15 per unit
FC allocated to A = $2250
FC allocated to B = $4500
Product Setup related pool
Allocation rate = $1000 per batch
FC allocated to A = $10,000
FC allocated to B = $5,000
Part 2 --- Calculation of Profit margin
Product A
Product B
Revenue
$15,000
$75,000
Expenses:
Direct materials
$3,000
$15,000
Direct Labor
$7,500
$30,000
Applied Manufacturing Overhead
$13,750
$15,500
Total Manufacturing Cost
$24,250
$60,500
Profit Margin
(Sales - Total MF Cost)
-$9,250
$14,500
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Pls ask separate question for remaining parts.
Product A
Product B
Activity Cost Pool
Expected Manufacturing Overhead Costs (A)
Expected Activity Cost Driver (B)
Activity Rate (C = A/B)
Activity Driver USAGE (H)
Overhead Assigned (C*H)
Activity Driver USAGE (E)
Overhead Assigned (C*E)
Labor Related
$7,500
37,500
Direct labor dollars
$0.20
per labor dollar
7500
$1,500.00
30000
$6,000
Sales Related
$6,750
450
units
$15.00
per unit
150
$2,250.00
300
$4,500
Production setup
$15,000
15
batches
$1,000.00
per batch
10
$10,000.00
5
$5,000
$29,250
$13,750
$15,500
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