lyCost Data for Almond Dream, Krispy Krackle, and Creamy CrunchProduct costsLabor-hours per caseTotal cases producedMaterial cost per caseDirect labor cost per caseLabor-hours per productTotal overhead = $69,500Total labor-hours = 11,000Direct labor costs per hour = $6Allocation rate per labor-hour = (a).Costs of productsAlmond Dream Krispy Krackle Creamy CrunchA71,000$8$427,000$842Material cost per caseDirect labor cost per caseAllocated overhead per case (to be computed) (b)Product cost(e)31,000$2$183,000$21800(c)S11,000$9$61,000$96(d)(g)Based on the additional data, determine the product cost and gross profit margin percentages ofeach product using the three allocation bases (labor-hours, machine-hours, and square feet) todetermine the allocation assigned to each product.B. Would management recommend dropping any product based on the criterion of dropping productswith less than 10 percent gross profit margin?C. Based on the recommendation you make in requirement (b), recalculate the allocations and profitmargins to determine whether any of the remaining products should be dropped from the product line. Ifso, substantiate the profitability of remaining products.Focus Jean Sharpe decides to gather additional data to identify the cause of overhead costs and figure outwhich products are most profitable. She notices that $30,000 of the overhead originated from theequipment used. She decides to incorporate machine-hours into the overhead allocation base todetermine the effect on product profitability. Almond Dream requires 2 machine-hours per case, KrispyKrackle requires 7 hours per case, and Creamy Crunch requires 6 hours per case. Additionally, Jeannotices that the $15,000 per month spent to rent 10,000 square feet of factory space accounts for almost22 percent of the overhead. The assignment of square feet is 1,000 to Almond Dream, 4,000 to KrispyKrackle, and 5,000 to Creamy Crunch. Jean decides to incorporate this into the allocation base for therental costs.Because labor-hours are still an important cost driver for overhead, Jean decides that she should uselabor-hours to allocate the remaining $24,500.CBI still plans to produce 1,000 cases each of Almond Dream, Krispy Krackle, and Creamy Crunch.Assume that CBI can sell all products it manufactures and that if it drops any products, it will use excesscapacity to produce additional cases of the most profitable product. Overhead will remain $69,500 permonth under all alternatives.

This question is based on cost allocation of Cost Accounting . A. Statement showing Gross Profit and…

Cost Data for Almond Dream, Krispy Krackle, and Creamy Crunch Product costs Labor-hours per case Total cases produced Material cost per case Direct labor cost per case duct Almond Dream Krispy Krackle Creamy Crunch 7 1,000 $8 $42 7.000 3 1,000 $2 $18 3,000 1 1,000 $9 $6 1,000

Cost Data for Almond Dream, Krispy Krackle, and Creamy Crunch Product costs Labor-hours per case Total cases produced Material cost per case Direct labor cost per case duct Almond Dream Krispy Krackle Creamy Crunch 7 1,000 $8 $42 7.000 3 1,000 $2 $18 3,000 1 1,000 $9 $6 1,000

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter8: Standard Costs And Variances

Section: Chapter Questions

Problem 2EB: Salley is developing material and labor standards for her company. She finds that it costs $0.55 per...

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Sweet Dreams Bakery was started five years ago by Della Fontera who was known for her breads, sweet rolls, and personalized cakes. Della had kept her accounting system simple, believing that she had a good intuitive handle on costs. She had been using the following formula to describe her monthly overhead costs: Overhead cost = 7,800 + 7.50 (direct labor hours) For breads and sweet rolls that were available in the bakery case each day, she applied a standard pricing system. For special orders, however, Della needed her cost formula to help her come up with an estimated cost for the personalized cake or wedding cake. To that cost, she applied a markup percentage. Lately, however, the increase in the variety of orders and the elaborateness of the wedding cakes made her wonder if a more sophisticated view of costs would help her in planning, budgeting, and pricing. After some late-night discussions with her workers, Della determined that Sweet Dreams expansion into wedding cakes and gift baskets had made special orders a more complex operation. The various shapes of the wedding cake tiers had required Dellas investing in different- sized cake pans, as well as decorating tips for icing. The different icing patterns and elaborate designs took much more time for icing, as well. In addition, while a five-year-olds birthday cake just requires that the childs name and (possibly) the superheros name are spelled correctly, a wedding cake is a once-in-a-lifetime item that must achieve perfection. (Della hated to use the term bridezilla but.) Gift baskets required Della to stock baskets, cellophane, and bows. Then when an order came in, a worker had to stop baking to arrange the muffins and breads artfully in the basket, wrap it, and tie the bow. While it seemed simple enough, this took time and thought. Thus, the number of direct labor hours was still an important variable, but so were the number of wedding cakes and gift baskets. Della rummaged through her college textbooks and found information on regression. Then, with help from one of her computer savvy workers, she ran multiple regression tables for the past 24 months of data for Sweet Dreams for three independent variables: number of direct labor hours, the number of wedding cakes, and the number of gift baskets. The following printout was obtained: Required: 1. Write out the cost equation for Sweet Dreams monthly overhead cost. 2. Suppose that next month Sweet Dreams expects to have 550 direct labor hours, 35 wedding cakes, and 20 gift baskets. What is the expected overhead? (Round to the nearest dollar.) 3. What does R2 mean in this equation? Overall, what is your evaluation of the cost equation that was developed for the cost of overhead? Suppose that Sweet Dreams charges an extra 2.50 to prepare a gift basket. This charge is in addition to the price charged for the items (e.g., muffins) that the customer chooses to put into the basket. How might Della use the results of the regression equation to see whether or not the 2.50 charge is appropriate?
Evans, Inc., has a unit-based costing system. Evanss Miami plant produces 10 different electronic products. The demand for each product is about the same. Although they differ in complexity, each product uses about the same labor time and materials. The plant has used direct labor hours for years to assign overhead to products. To help design engineers understand the assumed cost relationships, the Cost Accounting Department developed the following cost equation. (The equation describes the relationship between total manufacturing costs and direct labor hours; the equation is supported by a coefficient of determination of 60 percent.) Y=5,000,000+30X,whereX=directlaborhours The variable rate of 30 is broken down as follows: Because of competitive pressures, product engineering was given the charge to redesign products to reduce the total cost of manufacturing. Using the above cost relationships, product engineering adopted the strategy of redesigning to reduce direct labor content. As each design was completed, an engineering change order was cut, triggering a series of events such as design approval, vendor selection, bill of materials update, redrawing of schematic, test runs, changes in setup procedures, development of new inspection procedures, and so on. After one year of design changes, the normal volume of direct labor was reduced from 250,000 hours to 200,000 hours, with the same number of products being produced. Although each product differs in its labor content, the redesign efforts reduced the labor content for all products. On average, the labor content per unit of product dropped from 1.25 hours per unit to one hour per unit. Fixed overhead, however, increased from 5,000,000 to 6,600,000 per year. Suppose that a consultant was hired to explain the increase in fixed overhead costs. The consultants study revealed that the 30 per hour rate captured the unit-level variable costs; however, the cost behavior of other activities was quite different. For example, setting up equipment is a step-fixed cost, where each step is 2,000 setup hours, costing 90,000. The study also revealed that the cost of receiving goods is a function of the number of different components. This activity has a variable cost of 2,000 per component type and a fixed cost that follows a step-cost pattern. The step is defined by 20 components with a cost of 50,000 per step. Assume also that the consultant indicated that the design adopted by the engineers increased the demand for setups from 20,000 setup hours to 40,000 setup hours and the number of different components from 100 to 250. The demand for other non-unit-level activities remained unchanged. The consultant also recommended that management take a look at a rejected design for its products. This rejected design increased direct labor content from 250,000 hours to 260,000 hours, decreased the demand for setups from 20,000 hours to 10,000 hours, and decreased the demand for purchasing from 100 component types to 75 component types, while the demand for all other activities remained unchanged. Required: 1. Using normal volume, compute the manufacturing cost per labor hour before the year of design changes. What is the cost per unit of an average product? 2. Using normal volume after the one year of design changes, compute the manufacturing cost per hour. What is the cost per unit of an average product? 3. Before considering the consultants study, what do you think is the most likely explanation for the failure of the design changes to reduce manufacturing costs? Now use the information from the consultants study to explain the increase in the average cost per unit of product. What changes would you suggest to improve Evanss efforts to reduce costs? 4. Explain why the consultant recommended a second look at a rejected design. Provide computational support. What does this tell you about the strategic importance of cost management?
Bumblebee Mobiles manufactures a line of cell phones. The management has identified the following overhead costs and related cost drivers for the coming year. The following were incurred in manufacturing two of their cell phones, Bubble and Burst, during the first quarter. REQUIREMENT Review the worksheet called ABC that follows these requirements. You have been asked to determine the cost of each product using an activity-based cost system. Note that the problem information is already entered into the Data Section of the ABC worksheet.
Silven Company has identified the following overhead activities, costs, and activity drivers for the coming year: Silven produces two models of cell phones with the following expected activity demands: 1. Determine the total overhead assigned to each product using the four activity drivers. 2. Determine the total overhead assigned to each model using the two most expensive activities. The costs of the two relatively inexpensive activities are allocated to the two expensive activities in proportion to their costs. 3. Using ABC as the benchmark, calculate the percentage error and comment on the accuracy of the reduced system. Explain why this approach may be desirable.
Big Mikes, a large hardware store, has gathered data on its overhead activities and associated costs for the past 10 months. Nizam Sanjay, a member of the controllers department, believes that overhead activities and costs should be classified into groups that have the same driver. He has decided that unloading incoming goods, counting goods, and inspecting goods can be grouped together as a more general receiving activity, since these three activities are all driven by the number of receiving orders. The 10 months of data shown below have been gathered for the receiving activity. Required: 1. Prepare a scattergraph, plotting the receiving costs against the number of purchase orders. Use the vertical axis for costs and the horizontal axis for orders. 2. Select two points that make the best fit, and compute a cost formula for receiving costs. 3. Using the high-low method, prepare a cost formula for the receiving activity. 4. Using the method of least squares, prepare a cost formula for the receiving activity. What is the coefficient of determination?
Jean Sharpe decides to gather additional data to identify the cause of overhead costs and figure out which products are most profitable. She notices that $30,000 of the overhead originated from the equipment used. She decides to incorporate machine-hours into the overhead allocation base to determine the effect on product profitability. Almond Dream requires 2 machine-hours per case, Krispy Krackle requires 7 hours per case, and Creamy Crunch requires 6 hours per case. Additionally, Jean notices that the $15,000 per month spent to rent 10,000 square feet of factory space accounts for almost 22 percent of the overhead. The assignment of square feet is 1,000 to Almond Dream, 4,000 to Krispy Krackle, and 5,000 to Creamy Crunch. Jean decides to incorporate this into the allocation base for the rental costs. Because labor-hours are still an important cost driver for overhead, Jean decides that she should use labor-hours to allocate the remaining $24,500. CBI still plans to produce 1,000…
Jean Sharpe decides to gather additional data to identify the cause of overhead costs and figure out which products are most profitable. She notices that $30,000 of the overhead originated from the equipment used. She decides to incorporate machine-hours into the overhead allocation base to determine the effect on product profitability. Almond Dream requires 2 machine-hours per case, Krispy Krackle requires 7 hours per case, and Creamy Crunch requires 6 hours per case. Additionally, Jean notices that the $15,000 per month spent to rent 10,000 square feet of factory space accounts for almost 22 percent of the overhead. The assignment of square feet is 1,000 to Almond Dream, 4,000 to Krispy Krackle, and 5,000 to Creamy Crunch. Jean decides to incorporate this into the allocation base for the rental costs. Because labor-hours are still an important cost driver for overhead, Jean decides that she should use labor-hours to allocate the remaining $24,500. CBI still plans to produce 1,000…
Big Boomers makes custom clubs for golfers. Most of the work is done by hand and with small tools used by craftsmen. Customers are quoted a price in advance of their clubs being manufactured. To produce clubs at a profit, management must have a thorough understanding of product costs. Jeff Ranck, manager of the business, is using direct labor hours as the activity base for allocating overhead costs. He estimated the following amounts at the beginning of 2022: Estimated total overhead. .$190,000Estimated direct labor hou .16,000 hours The following information is available for job number 17, which was started and completed in February 2022: - Direct materials used$1200- Direct labor used$600(corresponding to 50 direct labor hours) Prepare journal entries to: a. Record all the manufacturing costs charged to job 17 . b. Record the completion of job 17. c. Record the cash sale of job 17 in its entirety at a selling price of13%of its manufacturing cost. Record in a separate entry the…
Curl is entering the professional hairdryer market. Research shows that their customers wish to pay S307 or less for each dryer. The estimated cost per unit for each dryer is $160 and the target operating income per unit is $16. The management of Curl is considering the use of the cost-plus approach rather than the target-cost approach. Cost accountants at the manufacturer have collected the following information: Direct Materials /unit 50 Direct labor/unit 30 Variable overhead 30 Fixed costs annually 206,250 Estimated production for year one 3,750 1. Do you think that it's a good idea for Curl to use the cost-plus approach to price the hairdryer? 2. What strategies could Curl's management use to make a profit if the company insisted on using the cost-plus approach to price the hairdryer?
The Write Way manufactures double sided pens- a pen on one side, a highlighteron the other. As the accounting manager, Shade is responsible for presenting three different versions of the company's income statement to the rest of the management team at year-end. Team members are very familiar with absorbtion costing, as they have been evaluating gross margin amounts and percentages for years. They are lesss keen on how fixed-MOH impacts the income statment, so Shade gathers the following current information. The information includes three possible capacity levels for calculating the fixed-MOH rate. Shade also notes there are no price or efficiency variances this period. Any fixed-MOH volume variase is written off to COGS.Theoretical level - 80,000 units Practical level - 60,000 units Normal level - 50,000 units Actual production - 65,000 units Sales Volume - 60,000 units Budgeted fixed-MOH cost - $240,000 Budgeted DM cost - $2.25 per unit Budgeted DL cost -$1.30 per unit Budgeted…
Saddle Inc. has two types of handbags: standard and custom. The controller has decided to use a plantwide overhead rate based on direct labor costs. The president has heard of activity-based costing and wants to see how the results would differ if this system were used. Two activity cost pools were developed: machining and machine setup. Presented below is information related to the company’s operations. Standard Custom Direct labor costs $40,000 $95,000 Machine hours 1,100 1,100 Setup hours 95 370 Total estimated overhead costs are $295,000. Overhead cost allocated to the machining activity cost pool is $195,000, and $100,000 is allocated to the machine setup activity cost pool. Compute the overhead rate using the traditional (plantwide) approach. (Round answer to 2 decimal places, e.g. 12.25.) Predetermined overhead rate enter the predetermined overhead rate in percentages of direct labor cost rounded to 2 decimal places % of…
The Tamarisk manufactures double-sided pens-a pen on one side, a highlighter on the other. As the accounting manager, Shade is responsible for presenting three different versions of the company's income statement to the rest of the management team at year- end. Team members are very familiar with absorption costing, as they have been evaluating gross margin amounts and percentages for years. They are less keen on how fixed-MOH impacts the income statement, so Shade gathers the following current information. The information includes three possible capacity levels for calculating the fixed-MOH rate. Shade also notes there are no price or efficiency variances this period. Any fixed-MOH volume variance is written off to COGS. Theoretical level Practical level Normal level Actual production Sales volume Budgeted fixed-MOH cost Budgeted DM cost Budgeted DL cost Budgeted variable-MOH cost Selling price (a) Theoretical Practical Normal 93,000 units $ 55,800 units Your answer is partially…