Agricul farm equipment. Model T499 is a manual transmission and is their basic m
ID: 2510787 • Letter: A
Question
Agricul farm equipment. Model T499 is a manual transmission and is their basic model Model F888 is a higher performing transmission and sells for more. Agriculture Specialty Equipment, Inc. currently uses a traditional, volume-based costing system and applies overhead on the basis of direct labor hou Estimated overhead for the upcoming accounting period is $884,000 which is associated with an estimated 51,900 of direct labor hours. You will information concerning the two products summarized below: lture Specialty Equipment, Inc. manufactures two types of transmissions for Model T499 Estimated production and sales for the upcoming period Direct Material costs Direct Labor Hours Direct Labor rate Sales Price 1,500 units S 600 per unit 16 per unit $27 per DL hour S2,200 per unit Model F888 Estimated production and sales for the upcoming period Direct Material costs Direct Labor Hours Direct Labor rate Sales Price 1,280 units $850 per unit 21.8 per unit $27 per DL hour 2,700 per unit The $884,000 of estimated overhead is associated with three key activities direct labor support of $200,000, machine processing of $600,000 and, product inspecting of $84,000. These activities are driven by the number of direct labor hours, machine hours used, and inspection hours incurred, respectively. A study of these activities performed provided the following informaiton by product under the manufacgturing levels stated above Direct Labor Machine Inspection Hours incurred Product Model T499 Model F888 Support 24,000 27,900 Hours Used 27,000 12,000 800 3,200 The company recently upgraded some of the manufacturing equipment in hopes of increasing efficiency and minimizing waste. While sales volume has increased, the profit margin has not met expectations Required Compute the unit product margin under the current costing system if the expected activity level stated above is attained Compute the unit product margin under activity-based costing system if the expected activity level stated above is attained Which product margin (one calculated in "a" or "b") do you think is the better amount to use for future planning purposes (budget development)? Why? Be sure to report product margin in dollars and as a % of sales Be sure to report product margin in dollars and as a % of saExplanation / Answer
Answer
Overhead
$884000
Total direct labor hours (DLHs)
51900
Overhead rate per DLHs
$17.03
Model T499
Model F888
Units
1500
1280
DLHs per unit
16
21.8
Overhead allocated at above rate
$272.52
$371.31
Direct material cost
$600
$850
Direct labor cost [DLH x Labor rate]
$432
$588.6
Total cost per unit
$1304.52
$1809.91
Sales Price
$2200
$2700
Unit product margin
$895.48
$890.09
Calculation of cost driver activity rate
Model T499
Model F888
Total cost drivers
Activity Rate per cost driver
Direct Labor Support
$200000
24000
27900
51900
$3.85
Machine Processing
$600000
27000
12000
39000
$15.38
Product Inspecting
$84000
800
3200
4000
$21
Total
$884000
Allocation of overhead
Activity Rate per cost driver
Model T499 cost driver
Cost Allocated to Model T499
Model F888 cost driver
Cost Allocated to Model F888
Direct Labor Support
3.853564547
24000
92485.549
27900
107514.4509
Machine Processing
15.38461538
27000
415384.62
12000
184615.3846
Product Inspecting
21
800
16800
3200
67200
Total
Total cost allocated
524670.16
Total cost allocated
359329.8355
Units
1500
Units
1280
Overhead per unit
$349.78
Overhead per unit
$280.73
Answer
Model T499
Model F888
Overhead allocated at above rate
$349.78
$280.73
Direct material cost
$600
$850
Direct labor cost [DLH x Labor rate]
$432
$588.6
Total cost per unit
$1381.78011
$1719.32643
Sales Price
2200
2700
Unit product margin
$818.22
$980.67
For future planning, the product margin derived under ACTIVITY BASED COSTING (Requirement ‘b’) should be used. This is because this method provide a more reliable result as the overheads are classified and allocated on the basis of activities and not on the basis of ONE determined rate.
Overhead
$884000
Total direct labor hours (DLHs)
51900
Overhead rate per DLHs
$17.03
Model T499
Model F888
Units
1500
1280
DLHs per unit
16
21.8
Overhead allocated at above rate
$272.52
$371.31
Direct material cost
$600
$850
Direct labor cost [DLH x Labor rate]
$432
$588.6
Total cost per unit
$1304.52
$1809.91
Sales Price
$2200
$2700
Unit product margin
$895.48
$890.09
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.