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# unit cost

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Explain your answer briefly and clearly, showing any necessary calculations.
Your answer should be in an Excel file.
2. Broomfield Company budgeted \$6,000,000 of manufacturing overhead for the current year, and 50,000 hours of direct labor (cost of \$60/hour). Production of Product X (100,000 units) consumed \$200,000 of direct materials, and 8,000 direct labor hours.
a) If overhead is allocated on the basis of direct labor hours, compute the unit cost of Product X.
b) Assume instead that Broomfield uses an ABC system, with three cost drivers: machine hours, materials handling, and setups. Of the total overhead cost, 60% is in the machine hour pool (40,000 budgeted hours), 25% is in the materials pool (allocated based on \$1,500,000 of total materials budgeted to be used), and 15% in the setup pool (100 budgeted setups). In addition to the materials and labor listed above, Product X used 6,000 machine hours and 12 setups. Compute the unit cost of Product X under the ABC system. Comment briefly.

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#### Solution Preview

2. Broomfield Company budgeted \$6,000,000 of manufacturing overhead for the current year, and 50,000 hours of direct labor (cost of \$60/hour). Production of Product X (100,000 units) consumed \$200,000 of direct materials, and 8,000 direct labor hours.
a) If overhead is allocated on the basis of direct labor hours, compute the unit cost of Product X.

Predetermined Overhead rate= Total manufacturing overhead/direct labor hours
=6000000/50000
\$120.00

UNIT COST
Overheads= Predetermined Overhead rate * Allocation Base
=120*8000
960000

Direct material 200000
Direct labor ...

#### Solution Summary

This job computes unit cost of the case.

\$2.19

## BYP2-1 Managerial Accounting/ Job Costing

BYP2.1 Du Page Products Company uses a job order cost system. For a number of months
there has been an ongoing rift between the sales department and the production
department concerning a special.order product, TC.1. TC.1 is a seasonal product
that is manufactured in batches of 1,000 units. TC.1 is sold at cost plus a markup
of 40% of cost.
The sales department is unhappy because fluctuating unit production costs
significantly affect selling prices. Sales personnel complain that this has caused
excessive customer complaints and the loss of considerable orders for TC.1.
The production department maintains that each job order must be fully costed on
the basis of the costs incurred during the period in which the goods are produced.
Production personnel maintain that the only real solution to the problem is for the
sales department to increase sales in the slack periods.
Sandra Devona, president of the company, asks you as the company accountant
to collect quarterly data for the past year on TC.1. From the cost accounting system,
you accumulate the following production quantity and cost data.

Quarter
Costs 1 2 3 4
Direct materials \$100,000 \$220,000 \$80,000 \$200,000
Direct labor 60,000 132,000 48,000 120,000
Manufacturing 105,000 123,000 97,000 125,000
Total 265,000 475,000 225,000 445,000 225,000

Production in 5 11 4 10
batches
(per
batch)

Unit cost (per \$53,000 \$43,182 \$56,250 \$44,500
batch)

Instructions
With the class divided into groups, answer the following questions.
a. What manufacturing cost element is responsible for the fluctuating unit costs?
Why?
b. What is your recommended solution to the problem of fluctuating unit costs?
c. Restate the quarterly data on the basis of your recommended solution.

The problem is located in Chapter 2.

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