LO 6.1Bobcat uses a traditional cost system and estimates next year’s overhead will be $800,000, as driven by the estimated 25,000 direct labor hours. It manufactures three products and estimates the following costs:
If the labor rate is $30 per hour, what is the per-unit cost of each product?
LO 6.1Five Card Draw manufactures and sells 10,000 units of Aces, which retails for $200, and 8,000 units of Kings, which retails for $170. The direct materials cost is $20 per unit of Aces and $15 per unit of Kings. The labor rate is $30 per hour, and Five Card Draw estimated 64,000 direct labor hours. It takes 4 direct labor hours to manufacture Aces and 3 hours for Kings. The total estimated overhead is $128,000. Five Card Draw uses the traditional allocation method based on direct labor hours.
- How much is the gross profit per unit for Aces and Kings?
- What is the total gross profit for the year?
LO 6.2A local picnic table manufacturer has budgeted the following overhead costs:
They are considering adapting ABC costing and have estimated the cost drivers for each pool as shown:
Recent success has yielded an order for 1,500 tables. Determine how much the job would cost given the following activities, and assuming an hourly rate for direct labor of $25 per hour:
LO 6.2Explain how each activity in this list can be associated with the corresponding unit or batch level provided.
- Assembling products: batch level
- Issuing raw materials: unit level
- Machine setup: unit level
- Inspection: batch level
- Loading the labeling machine: unit level
- Equipment maintenance: unit level
- Printing a banner: batch level
- Moving material: unit level
- Ordering a part: unit level
LO 6.3Wrappers Tape makes two products: Simple and Removable. It estimates it will produce 369,991 units of Simple and 146,100 of Removable, and the overhead for each of its cost pools is as follows:
It has also estimated the activities for each cost driver as follows:
How much is the overhead allocated to each unit of Simple and Removable?
LO 6.3Box Springs, Inc., makes two sizes of box springs: queen and king. The direct material for the queen is $35 per unit and $55 is used in direct labor, while the direct material for the king is $55 per unit, and the labor cost is $70 per unit. Box Springs estimates it will make 4,300 queens and 3,000 kings in the next year. It estimates the overhead for each cost pool and cost driver activities as follows:
How much does each unit cost to manufacture?
LO 6.3Please use the information from this problem for these calculations. After grouping cost pools and estimating overhead and activities, Box Springs determined these rates:
Box Springs estimates there will be four orders in the next year, and those jobs will involve:
What is the total cost of the jobs?
LO 6.4A company has traditionally allocated its overhead based on machine hours but collected this information to change to activity-based costing:
- How much overhead would be assigned to each unit under the traditional allocation method?
- How much overhead would be assigned to each unit under activity-based costing?
LO 6.4Casey’s Kitchens makes two types of food smokers: Gas and Electric. The company expects to manufacture 20,000 units of Gas smokers, which have a per-unit direct material cost of $15 and a per-unit direct labor cost of $25. It also expects to manufacture 50,000 units of Electric smokers, which have a per-unit material cost of $20 and a per-unit direct labor cost of $45. Historically, it has used the traditional allocation method and applied overhead at a rate of $125 per machine hour. It was determined that there were three cost pools, and the overhead for each cost pool is as follows:
The cost driver for each cost pool and its expected activity is as follows:
- What is the per-unit cost for each product under the traditional allocation method?
- What is the per-unit cost for each product under ABC costing?
LO 6.4Casey’s Kitchens’ three cost pools and overhead estimates are as follows:
Compare the overhead allocation using:
- The traditional allocation method
- The activity-based costing method
(Hint: the traditional method uses machine hours as the allocation base.)
LO 6.4Lampierre makes silver and gold candlesticks. The company computed this information to decide whether to switch from the traditional allocation method to ABC.
The estimated overhead for the material cost pool is estimated as $45,000, and the estimate for the machine setup pool is $55,000. Calculate the allocation rate per unit of silver and per unit of gold using:
- The traditional allocation method
- The activity-based costing method
LO 6.4Portable Seats makes two chairs: folding and wooden. This information was obtained to review the decision to consider ABC:
Compute the overhead assigned to each product under:
- The traditional allocation method
- The activity-based costing method
LO 6.5Submarine Company produces only one product and sells that product for $150 per unit. Cost information for the product is as follows:
Selling expenses are $2 per unit and are all variable. Administrative expenses of $15,000 are all fixed, Submarine produced 2,000 units and sold 1,800. Grainger had no beginning inventory.
- Compute net income under
- absorption costing
- variable costing
- Reconcile the difference between the income under absorption and variable costing.
LO 6.5Summarized data for Backdraft Co. for its first year of operations are as follows:
- Prepare an income statement under absorption costing
- Prepare an income statement under variable costing
LO 6.5Trail Outfitters has this information for its manufacturing:
Its income statement under absorption costing is as follows:
Prepare an income statement with variable costing and a reconciliation statement between both methods.
LO 6.5Wifi Apps has these costs associated with its production and sale of devices that allow visual communications between cell phones:
Prepare an income statement under both the absorption and variable costing methods along with a reconciliation between the two statements.
LO 6.5This information was collected for the first year of manufacturing for Wifi Apps:
Prepare an income statement under variable costing and prepare a reconciliation to the income under the absorption method.