Exercise 7-14 Jay Krue makes two products, Simple and Complex. As their names su

Question

Exercise 7-14 Jay Krue makes two products, Simple and Complex. As their names suggest, Simple is the more basic product, and Complex comes with all the bells and whistles. The company has always allocated overhead costs to products based on machine hours. Last year, the company implemented an activity-based costing system, and managers determined the following activity pools and rates based on total overhead of $1,635,100: Rate Assembly $1.25 per direct labor hour Fabrication $9.75 per machine hour Setups $18 per batch Bonding $279,150 direct to Complex Only the Complex product requires bonding, so all the costs of bonding should be allocated to Complex. The following data relate to both products. Simple Complex Units produced 127,000 42,000 Direct labor hours 229,000 109,000 Machine hours 53,000 30,000 Batches 2,200 4,700 Using the traditional method of allocating overhead costs, • allocate overhead cost to the products. • show that the overhead assigned to each product sums to the total company overhead. • determine the overhead cost per unit for each product. (Round per unit answers to 2 decimal places, e.g. 15.25.) Simple Complex Total Machine hours Overhead rate $ $ Total overhead to product $ $ $ Simple Complex Total overhead to product $ $ Number of units produced Overhead per unit $ $ LINK TO TEXT Using the activity-based costing rates, • allocate overhead cost to the products. • show that the overhead assigned to each product sums to the total company overhead. • determine the overhead cost per unit for each product. (Round per unit answers to 2 decimal places, e.g. 15.25) Simple Complex Total Assembly $ $ Fabrication Setups Bonding Total overhead $ $ $ Simple Complex Total overhead to product $ $ Number of units produced Overhead per unit $ $

Explanation / Answer

Total Overhead 1635100 less Cost direct to Complex 279150 Overhead Cost Apportioned 1355950 Machine Hour 83000 overhead Rate per MH 1429000/41000 16.34 Traditional Costing Method Simple Complex Total overhead Rate per MH 1429000/41000 16.34 16.34 16.34 Machine Hour 53000 30000 83000 Overhead cost $8,65,847.59 $4,90,102.41 $13,55,950.00 Bounding $0.00 $2,79,150.00 $2,79,150.00 Total cost $8,65,847.59 $4,90,102.41 $16,35,100.00 Unit Produced $1,27,000.00 $42,000.00 $1,69,000.00 Rate per unit $6.82 $11.67 $9.68 Actvity Based Cost allocation Quantity Over head Cost Allocated Simple Complex Simple Complex TOTAL Assembly 1.25 229000 109000 $2,86,250.00 $1,36,250.00 $4,22,500.00 Fabrication 9.75 53000 30000 $5,16,750.00 $2,92,500.00 $8,09,250.00 Setups 18 2200 4700 $39,600.00 $84,600.00 $1,24,200.00 Bonding 279150 $2,79,150.00 $2,79,150.00 Total Overhead $8,42,600.00 $7,92,500.00 $16,35,100.00 Unit Produced 127000 42000 169000 Rate per unit $                  6.63 $              18.87 $                   9.68

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