Explore BrainMass
Share

Explore BrainMass

    Business problem :Activity based costing

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Chapter 22: (Exercises 22-2, and 22-3) Allocating Unit-Level, Batch-Level, and Product Line Manufacturing, Overhead Costs, Solar Salt Company has two divisions. Gross margin computations for these two divisions for 2006 are given below.
    Agricultural Products Retail Products
    Sales . . . . . . . . . . . .. ... . $1,600,000 $ 900,000
    Direct materials . . . . . . . . . (100,000) (50,000)
    Direct labor . . . . . . . . . . . . (900,000) (500,000)
    Manufacturing O.Head* . . .(450,000) (250,000)
    Gross margin . . . . . . . . . .. $ 150,000 $ 100,000
    *Manufacturing overhead is allocated to production based on the amount of direct labor cost.
    Solar Salt has determined that its total manufacturing overhead cost of $700,000 is a mixture of unit-level costs, batch-level costs, and product line costs. Solar Salt has assembled the following information concerning the manufacturing overhead costs, the annual number of units produced, production batches, and number of product lines in each division:
    Total Mfg. Overhead Costs Agricultural Products Retail Products
    Unit-level overhead . . $210,000 13,500 units 7,500 units
    Batch-level overhead . .280,000 90 batches 50 batches
    Product line overhead . .210,000 18 lines 10 lines
    $700,000
    Activity-Based Costing and Quality Management E O C Chapter 22 1251
    Problem 22-2
    Required:
    1. Prepare gross margin calculations for Solar Salt's two divisions assuming that manufacturing overhead is allocated based on the number of units, number of batches, and number of product lines.
    2. Comment on the comparison between the original overhead allocation done using direct labor cost and the manufacturing overhead allocation done in part (1).
    3. Repeat part (1), assuming the following information concerning the number of units, batches, and product lines in each division.
    Total Mfg. Overhead Costs Agricultural Products Retail Products
    Unit-level overhead . . . $210,000 13,500 units 7,500 units
    Batch-level overhead . . 280,000 50 batches 90 batches
    Product line overhead . .210,000 10 lines 18 lines
    $700,000

    Chapter 22: (Exercise 22-3) Identifying and Using Volume-Based and Activity-Based Cost Allocation Rates.
    Rane Company produces electronic fish finders. It makes two different fish finders: the standard model, which is produced in bulk and sells for $150, and the deluxe model, which comes in various configurations and sells for $300. Rane's engineering and design overhead cost for 2006 is $60,000. The following information relates to production in 2006:

    Number of different machine setups needed for a standard model production run . . . . .. 4
    Number of different machine setups needed for a deluxe model production run . . . . . . .11
    Number of standard fish finders produced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22,000
    Number of deluxe fish finders produced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8,000
    Number of engineering design changes needed on the standard model . . . . . . . . . .. 6
    Number of engineering design changes needed on the deluxe model . . . . . . . . . . . .. 2
    Average batch size per production run for standard model . . . . . . . . . . . . . . . . . . . . . 400
    Average batch size per production run for deluxe model . . . . . . . . . . . . . . . . . . . . .. . 200
    Required:
    1. Determine the engineering and design costs to be assigned to standard and deluxe fish finders using the following allocation methods:
    a. Number of units produced
    b. Number of setups required
    c. Number of engineering design changes needed
    2. Which allocation method do you believe is more equitable?

    © BrainMass Inc. brainmass.com May 20, 2020, 3:40 pm ad1c9bdddf
    https://brainmass.com/business/accounting/business-problem-activity-based-costing-137938

    Attachments

    Solution Summary

    Excel file contains answer of Activity based costing problem

    $2.19

    ADVERTISEMENT