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Brea even point, process,job & activity based costing

1. CD Players CD's Batteries
Variable product costs $62 $1.20 $0.22
Variable selling expenses 14 0.50 0.10
Variable admin expenses 3 0.05 0.03
Selling prices 140 5.00 0.05

Annual fixed manufactured overhead $110,000
Annual fixed selling expense 60,000
Annual fixed admin expenses 16,290

The firm is in a 40% income tax bracket. As the new owner of the firm you are interested in the fine tuning the performance of the company and need to devote some attention to the questions listed below:

a) What is the annual dollar breakdown point?
b) How many Cd players, CDs, and batteries are expected to be sold at the breakdown point?
c) If the firm desires a before tax profit of $114,640, how much total revenue is required and how many units of each item must be sold?
d) If the firm desires as after tax profit of $103,176, how much total revenue is required and how many units of each item must be sold?

6. (applied overhead; total cost) The Jerry Dyjopf Safety Company manufactures metal shields for various pieces of power equipment to protect machine operators. The shields are created in a 2 step process. First, materials are cut and formed in the Stamping Dept. This dept is very machine intensive and highly automated. Overhead in this dept is based in machine time ($12 per machine hour). The second dept, the finishing dept, welds materials received from the stamping dept and then applies either a paint or galvanized finish. The finishing Dept is very labor intensive, and consequently overhead is applied based on direct labor hours ($8 per direct labor hour).

During June 2008, Dykopf worked on three separate jobs. Information in the three following jobs:

Stamping Finishing

Job #8721
Direct labor hours 1,600 2,000
Machine hours 4,000 800
Direct labor cost $16,000 $18,000
Direct materials cost 88,000 4,000

Job #8722
Direct labor hours 3,600 5,000
Machine hours 9,000 1,200
Direct labor cost $36,000 $45,000
Direct materials cost 190,000 9,000

Job #8723
Direct labor hrs 400 1,300
Machine labor cost $4,000 $11,700
Direct materials cost 28,000 1,000

Jerry Dykopf Safety Company employs a job order product costing system based on normal cost. Actual overhead cost in the Stamping and Finishing Departments for the month were, respectively, $200,000 and $65,000.

a) Determine the total amount of overhead to be applied to each of the three jobs.
b) Calculate the total cost of each job
c) Calculate the difference between overhead applied to each dept and the overhead incurred in each dept.

2. (cost of product report) Ambrus Keckes Inc. Manufactures tubular steel products in a three process operation. December information on the first process, Milling, follows:

Tones in process, Dec 1 12,000
Tones started in production 90,000
Tones in process, Dec 31 10,000

All material is added at the start of the process. Work in process Inventory on Dec 1 was 40% complete as to labor and overhead. Work in process Inventory on Dec 31 was 30% complete as to labor and overhead. A summary of costs follows:

Beginning Inventory December

Material $82,980 $630,000
Labor 27,290 540,000
Manufacturing overhead 23,320 357,490

Prepare a cost of production report for the Milling Dept for Dec, assuming that Ambrus Kecskes Inc. uses a weighted average process costing system.

8.(activity based costing) The budgeted manufacturing overhead cost of West Wing Ltd. For 2007 are as follows:

Type of Cost Cost Amount
Electric power $600,000
Work Cells 3,600,000
Materials handling 1,200,000
Quality control inspectors 1,200,000
Product runs (machine setups) 600,000
Total budgeted overhead costs $7,200,000

For the last five years, the cost accounting dept has been charging overhead production costs based on machine hours. The estimated capacity for fiscal 2007 is 1,200,000 machine hours.

You have been recently attainted a seminar on activity based costing and believe that implementation of ABC might give the company an edge in pricing over its competitors. At your request, the production manager has provided the following data regarding expected activity for the cost drivers of the preceding budgeted overhead costs for fiscal 2007.

Type of Cost Activity Drivers
Electric power 120,000 kilowatt hrs
Work Hrs 720,000 square meters
Materials handling 240,000 material moves
Quality control inspections 120,000 inspections
Product runs (machine setups) 60,000 product runs

You have just received an order for 5,000 doors from a local construction company. The head of cost accounting has prepared the following cost estimate for producing the 5,000 doors.

Direct material cost $120,000
Direct Labor cost $360,000
Machine hrs 12,000
Direct labor hrs 18,000
Electric power (kilowatt hrs) 1,200
Work cells (square meters) 9,600
Number of materials handling moves 120
Number of quality control inspections 60
Number of product runs (set ups) 30

a) What is the predetermined overhead rate if the traditional measure of machine hours is used?
b) What is the manufacturing cost per door under the present cost accounting system?
c) What is the manufacturing cost per door under the proposed ABC method?
d) If the prior two costing system is preferable as a pricing policy? Why?

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Solution Summary

The answer contains solution for four problems 1.Break even point 2. Computation of total cost of the job 3. Preparation of cost of production Report by using weighted average costing method(equivalent production) and 4. the application of costs under activity based costing and traditional costing system and also analysing the advantage of using activity based costing system