Concept explainers
Account Analysis, Two-Stage Allocation, and Product Costing
Tiger Furnishings’s CFO believes that a two-stage cost allocation system would give managers better cost information. She asks the company’s cost accountant to analyze the accounts and assign
The analysis of overhead accounts by the cost accountant follows:
All other information is the same as in Exercise 6-39.
Required
- a. Draw the cost flow diagram that illustrates the two-stage cost allocation of overhead for Tiger Furnishings using the results of the cost accountant’s analysis of accounts.
- b. Compute the product costs per unit assuming that Tiger Furnishings uses direct labor costs and machine-hours to allocate overhead to the products.
a.
Draw the cost flow diagram that illustrates the two-stage cost allocation of overhead for Company T using the results of the cost accountant’s analysis of accounts.
Explanation of Solution
The cost flow diagram that illustrates the two-stage cost allocation of overhead for Company T using the results of the cost accountant’s analysis of accounts is as follows:
b.
Compute the product costs per unit using direct labor costs and machine-hours to allocate overhead to products.
Answer to Problem 61P
The value of cost per unit for Product Basic is $177 and for Product Dominator is $390.
Explanation of Solution
Cost per unit: The cost per unit is determined by dividing the total of variable and fixed cost with the total number of units.
Compute the cost per unit:
For Product Basic:
For Product Dominator:
Thus, the value of cost per unit for Product Basic is $177 and for Product Dominator is $390.
Working note 1:
For product Basic:
Compute the cost related to machine hours for Product Basic:
Working note 2:
Compute the cost related to direct labor cost for Product Basic:
Working note 3:
Compute the cost related to machine-hour for Product Dominator:
Working note 4:
Compute the cost related to direct-labor for Product Dominator:
Working note 5:
Compute the machine-hours rate for both the products:
Working note 6:
Compute the direct labor costs for both the products:
Working note 7:
Compute the total cost for the Product Basic:
Working note 8:
Compute the total cost of Product Dominator:
Want to see more full solutions like this?
Chapter 6 Solutions
Fundamentals Of Cost Accounting (6th Edition)
- Potterii sells its products to large box stores and recently added a retail line of products to sell directly to consumers. These estimates are to be used in determining the overhead allocation rate for ABC: What would be the predetermined rate for each cost pool?arrow_forwardUsing the data in P4-2 and Microsoft Excel: 1. Separate the variable and fixed elements. 2. Determine the cost to be charged to the product for the year. 3. Determine the cost to be charged to factory overhead for the year. 4. Determine the plotted data points using Chart Wizard. 5. Determine R2. 6. How do these solutions compare to the solutions in P4-2 and P4-3? 7. What does R2 tell you about this cost model?arrow_forwardCarltons Kitchens three cost pools and overhead estimates are as follows: Compare the overhead allocation using: A. The traditional allocation method B. The activity-based costing method (Hint: the traditional method uses machine hours as the allocation base.)arrow_forward
- Freeman Furnishings has summarized its data as shown. Direct labor hours will be used as the activity base to allocate overhead: Compute the cost of goods manufactured.arrow_forwardBounce Back Insurance Company carries three major lines of insurance: auto, workers compensation, and homeowners. The company has prepared the following report: Management is concerned that the administrative expenses may make some of the insurance lines unprofitable. However, the administrative expenses have not been allocated to the insurance lines. The controller has suggested that the administrative expenses could be assigned to the insurance lines using activity-based costing. The administrative expenses are comprised of five activities. The activities and their rates are as follows: Activity-base usage data for each line of insurance were retrieved from the corporate records as follows: a. Complete the product profitability report through the administrative activities. Determine the operating income as a percent of premium revenue, rounded to the nearest whole percent. b. Interpret the report.arrow_forwardWhich is not a step In activity-based costing? A. identify the activities performed by the organization B. identify the cost driver(s) associated with each activity C. compute a cost rate per production D. assign costs to products by multiplying the cost driver rate by the volume of the cost driver units consumed by the productarrow_forward
- Frenchys has three cost pools and an associated cost driver to allocate the costs to the product. The cost pools, cost driver, estimated overhead, and estimated activity for the cost pool are: What is the predetermined overhead rate for each activity?arrow_forwardHappy Trails has this information for its manufacturing: Â Its income statement under absorption costing is: Prepare an income statement with variable costing and a reconciliation statement between both methods.arrow_forwardInterview questions are asked to determine a. what activities are being performed. b. who performs the activities. c. the relative amount of time spent on each activity by individual workers. d. possible activity drivers for assigning costs to products. e. All of these.arrow_forward
- Caseys Kitchens three cost pools and overhead estimates are as follows: Compare the overhead allocation using: A. The traditional allocation method B. The activity based costing method (Hint: the traditional method uses machine hours as the allocation base.)arrow_forwardFor each cost pool, identify an appropriate cost driver. A. order department B. accounts receivable processing C. catering D. raw material inventoryarrow_forwardWalsh & Coggins, a professional accounting firm, collects cost information about the services they provide to their clients. Describe the types of cost data they would collect and explain the importance of analyzing this cost data.arrow_forward
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax CollegePrinciples of Cost AccountingAccountingISBN:9781305087408Author:Edward J. Vanderbeck, Maria R. MitchellPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,