For many years, Yelena Company manufactured a single product called a Mono-Relay
ID: 2552738 • Letter: F
Question
For many years, Yelena Company manufactured a single product called a Mono-Relay. Then three years ago, the company automated a portion of its plant and at the same time introduced a second product called a Bi-Relay that has become increasingly popular. The Bi-Relay is a more complex product, requiring 1.00 hour of direct labor time per unit to manufacture and extensive machining in the automated portion of the plant. The Mono-Relay requires only 0.50 hour of direct labor time per unit and only a small amount of machining. Manufacturing overhead costs are currently assigned to products on the basis of direct labor-hours.
Despite the growing popularity of the company’s new Bi-Relay, profits have been declining steadily. Management is beginning to believe that there may be a problem with the company’s costing system. Materials and labor costs per unit are given below:
Management estimates that the company will incur $654,720 in manufacturing overhead costs during the current year and 18,000 units of the Mono-Relay and 7,000 units of the Bi-Relay will be produced and sold.
For many years, Yelena Company manufactured a single product called a Mono-Relay. Then three years ago, the company automated a portion of its plant and at the same time introduced a second product called a Bi-Relay that has become increasingly popular. The Bi-Relay is a more complex product, requiring 1.00 hour of direct labor time per unit to manufacture and extensive machining in the automated portion of the plant. The Mono-Relay requires only 0.50 hour of direct labor time per unit and only a small amount of machining. Manufacturing overhead costs are currently assigned to products on the basis of direct labor-hours.
Despite the growing popularity of the company’s new Bi-Relay, profits have been declining steadily. Management is beginning to believe that there may be a problem with the company’s costing system. Materials and labor costs per unit are given below:
Required 1-a. Compute the predetermined manufacturing overhead rate assuming that the company continues to apply manufacturing overhead cost on the basis of direct labor-hours.(Round your final answer to 2 decimal places.) Predetermined manufacturing overhead rate per DLH 1-b. Using this rate and other data from the problem, determine the unit product cost of each product. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) Mono-Relay Bi-Relay Unit product costExplanation / Answer
Requirement 1-a Predetermined manufacturing overhead rate Mono Relay Bi-relay Units Produced and sold 18000 7000 Direct labor hour per unit 0.50 1.00 Direct Labor Hours 9000 7000 Total Direct Labor hours 16,000 Predetermined manufacturing overhead rate = $654,720/16,000 DLH = $40.92 per DLH Requirement 1-b Computation of unit product cost Mono Relay Bi-relay Direct Materials 52.00 67.00 Direct labour 5.00 10.00 Manufacturing Overhead 20.46 40.92 Unit Product Cost 77.46 117.92 Requirement 2-a Activity Cost Pool Estimated overhead Cost Total Activity Activity Rate Maintaining Inventory 93,120 1,164 80 Per part type Processing Purchase orders 2,02,400 4,048 50 Per order Quality Control 3,00,280 15,014 20 Per test Machine -related 58,920 1,964 30 Per MH Activity Rate = Overhead cost/Activity level Requirement 3-a Manufacturing overhead per unit of Mono-Relay Activity Expected Activity Activity Rate Expected Overhead Maintaining Inventory 432 80 34,560 Processing Purchase orders 3132 50 1,56,600 Quality Control 5532 20 1,10,640 Machine -related 932 30 27,960 Total manufacturing overhead cost 3,29,760 Units produced and sold 18,000 Manufacturing overhead per unit of Mono-Relay 18.32 Manufacturing overhead per unit of Bi-Relay Activity Expected Activity Activity Rate Expected Overhead Maintaining Inventory 732 80 58,560 Processing Purchase orders 916 50 45,800 Quality Control 9482 20 1,89,640 Machine -related 1032 30 30,960 Total manufacturing overhead cost 3,24,960 Units produced and sold 7,000 Manufacturing overhead per unit of Bi-Relay 46.42 Requirement 3-b Unit Product Cost Mono Relay Bi-relay Direct Materials 52.00 67.00 Direct labour 5.00 10.00 Manufacturing Overhead 18.32 46.42 Unit Product Cost 75.32 123.42
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