PLANTWIDE, DEPARTMENT, AND ABC INDIRECT COST RATES.Roadster Company (RC) designs and produces automotive parts. In 2020, the actual variablemanufacturing overhead is $280,000. RC's simple costing system allocates variablemanufacturing overhead to its three customers based on machine hours and prices its contractsbased on full costs. One of its customers has regularly complained of being chargednoncompetitive prices, so RC's controller Matthew Draper realizes that it is time to examine theconsumption of overhead resources more closely. He knows that there are three maindepartments that consume overhead resources: design, production, and engineering. Interviewswith the department personnel and examination of time records yield the following detailedinformation:1HomeAInsert Page Layout FormulasB2 Department3 Design4 Production5 Engineering6 TotalCost DriverCAD-design-hoursEngineering-hoursMachine-hoursDataсReviewManufacturingOverhead in 2020$ 35,00025,000220,000$280,000ViewD ▬▬▬EFUsage of Cost Drivers by CustomerContractCaesarMotorsSouthernMotors1501303002501003,700JupiterAuto1002701,000 Required1. Compute the manufacturing overhead allocated to each customer in 2020 using thesimple costing system that uses machine hours as the allocation base.2. Compute the manufacturing overhead allocated to each customer in 2020 usingdepartment-based manufacturing overhead rates.3. Comment on your answers in requirements 1 and 2. Which customer do you think wascomplaining about being overcharged in the simple system? If the new department-basedrates are used to price contracts, which customer(s) will be unhappy? How would yourespond to these concerns?4. How else might RC use the information available from its department-by-departmentanalysis of manufacturing overhead costs?5. RC's managers are wondering if they should further refine the department-by-departmentcosting system into an ABC system by identifying different activities within each department.Under what conditions would it not be worthwhile to further refine the department costingsystem into an ABC system?

(1) Single overhead rate = Total manufacturing overhead / Total machine hours (2) Department based…

Answered: PLANTWIDE, DEPARTMENT, AND ABC INDIRECT…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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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?
Automotive Products (AP) designs and produces automotive parts. In 2014, actual variable manufacturing overhead is $308,600. AP’s simple costing system allocates variable manufacturing overhead to its three customers based on machine-hours and prices its contracts based on full costs. One of its customers has regularly complained of being charged noncompetitive prices, so AP’s controller Devon Smith realizes that it is time to examine the consumption of overhead resources more closely. He knows that there are three main departments that consume overhead resources: design, production, and engineering. Interviews with the department personnel and examination of time records yield the following detailed information. Compute the manufacturing overhead allocated to each customer in 2014 using the simple costing system that uses machine-hours as the allocation base.2. Compute the manufacturing overhead allocated to each customer in 2014 using department-based manufacturing overhead…
Plant-wide, department, and ABC indirect cost rates. Roadster Company (RC) designs and produces automotive parts. In 2017, actual variable manufacturing overhead is $280,000. RC’s simple costing system allocates variable manufacturing overhead to its three customers based on machine-hours and prices its contracts based on full costs. One of its customershas regularly complained of being charged noncompetitive prices, so RC’s controller Matthew Draper realizes that it is time to examine the consumption of overhead resources more closely. He knows that there are three main departments that consume overhead resources: design, production, and engineering. Interviews with the department personnel and examination of time records yield the following detailed information:
Automotive Products (AP) designs and produces automotive parts. In 2017, actual manufacturing overhead is $317,250. AP's simple costing system allocates manufacturing overhead to its three customers based on machine-hours and prices its contracts based on full costs. One of its customers has regularly complained of being charged noncompetitive prices, so AP's controller DrewBailey realizes that it is time to examine the consumption of overhead resources more closely. He knows that there are three main departments that consume overhead resources: design, production, and engineering. Interviews with the department personnel and examination of time records yield the following detailed information: Read the requirements2. Requirement 1. Compute the manufacturing overhead allocated to each customer in 2017 using the simple costing system that uses machine-hours as the allocation base. Determine the formula needed to calculate overhead using the simple costing method and…
1. SIP Inc. (SIP) is plastic injection molding company specializing in front-end grilles. Bilchew Numbers wants to look at using an activity-based costing system. For 2021, he estimated overhead costs of $12,560,000 to be allocated using an activity-based costing system (see the table below). Bilchew also estimated that direct labour will be paid at the rate of $15 per hour. Cost Driver Activity Cost Pool Estimated Cost Total Quantity of Allocation Base (allocation base) Indirect materials $ 1,450,000 Direct materials $6,590,910 Indirect labour and 2,000,000 Direct labour 100,000 hours supervision Utilities 3,598,000 Power 20,000 kilowatt-hours (kWh) consumption Inspection 4,200,000 Inspection 15,000 inspections Depreciation 1,312,000 Machine usage 160,000 machine-hours $12,560,000 During January 2021, Bilchew worked on two jobs, which consumed the following resources: Job 2021-A1 Job 2021-A2 Direct materials cost $ 6,500 $ 22,000 Direct labour cost $42,000 $165,000 Machine-hours 1,800…
Rundle Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,300 containers follows. Unit-level materials. Unit-level labor Unit-level overhead Product-level costs* Allocated facility-level costs One-third of these costs can be avoided by purchasing the containers. Russo Container Company has offered to sell comparable containers to Rundle for $2.60 each. Required a. Calculate the total relevant cost. Should Rundle continue to make the containers? b. Rundle could lease the space it currently uses in the manufacturing process. If leasing would produce $11,600 per month, calculate the total avoidable costs. Should Rundle continue to make the containers? Answer is complete but not entirely correct. $ a. Total relevant cost a. Should Rundle continue to make the containers? b. Total avoidable cost b. Should Rundle continue to make the containers? 190.650,000 Yes $24,180,000 $ 5,200 6,100 4,000 7,800…
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Xia Co. currently buys a component part for $5 per unit. Xia believes that making the part would require $2.25 per unit of direct materials and $1.00 per unit of direct labor. Xia allocates overhead using a predetermined over head rate of 200% of direct labor cost. Xia estimates an incremental overhead rate of $0.75 per unit to make the part. Should Xia make or buy the part?
Factor Company estimates that producing a unit of product would require $8 per unit of direct materials and $24 per unit of direct labor. Factor Company normally applies overhead using a predetermined overhead rate of 150% of direct labor cost. Factor Company estimates incremental overhead of $16 per unit of product. An outside supplier offers to provide Factor Company with all the units it needs at a price of $46 per unit. Factor Company should choose to: Multiple Choice O O O Buy since the relevant cost to make it is $56. Make since the relevant cost to make it is $48. Buy since the relevant cost to make it is $48. Make since the relevant cost to make it is $32. Buy since the relevant cost to make it is $32.
Fulcrum Industries manufactures dining chairs and tables. The following information is available in December 2020: Dining Chairs Tables Total CostMachine setups 200 600 $48,000Inspections 250 470 $72,000Labor hours 2,600 2,400 Fulcrum is considering switching from one overhead rate based on labor hours to activity-based costing.InstructionsPerform the following analyses for these two components of overhead:a. Compute total machine setups and inspection costs assigned to each product, using a single overhead rate.b. Compute total machine setups and inspection costs assigned to each product, using activity-based costing.c. Comment on your findings.
Beto Company pays $3.10 per unit to buy a part for one of the products it manufactures. With excess capacity, the company is considering making the part. Making the part would cost $2.10 per unit for direct materials and $1.00 per unit for direct labor. The company normally applies overhead at the predetermined rate of 200% of direct labor cost. Incremental overhead to make the part would be 80% of direct labor cost. (a) Prepare a make or buy analysis of costs for this part. (Enter your answers rounded to 2 decimal places.) (b) Should Beto make or buy the part? (a) Make or Buy Analysis Make Buy Direct materials Direct labor Overhead Cost to buy Cost per unit Cost difference (b) Company should:
Department costing, service company. DLN is an architectural rm that designs and builds buildings. It prices each job on a cost plus 20% basis. Overhead costs in 2017 are $8,100,000. DLN’s simple costing system allocates overhead costs to its jobs based on number of jobs. There were three jobs in 2017. One customer, Chandler, has complained that the cost and price of its building in Chicago was not competitive. As a result, the controller has initiated a detailed review of the overhead allocation to determine if overhead costs should be charged to jobs in proportion to consumption of overhead resources by jobs. She gathers the following information:

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