Low-volume product under activity-based costing

Assignment Help Financial Accounting

Reference no: EM1311210

Determine the per unit cost from the given data.

Erte, Inc., manufactures two models of high pressure steam valves, the XR7 model and the ZD5 model. Data regarding the two products follow:

Products	Direct labor-hours	Annual production	Total Direct labor-hours
XR7	0.2 DLHs per unit	20,000 units	4,000 DLHs
ZD5	0.4 DLHs per unit	40,000 units	16,000 DLHs
			20,000 DLHs

Additional information about the company follows:

a. Product XR7 requires $35 in direct materials per unit, and product ZD5 requires $25.
b. The direct labor rate is $20 per hour.
c. The company has always used direct labor-hours as the base for applying manufacturing overhead cost to products. Manufacturing overhead totals $1,480,000 per year.
d. Product XR7 is more complex to manufacture than product ZD5 and requires the use of a special milling machine.
e. Because of the special work required in (d) above, the company is considering the use of activity-based costing to apply overhead cost to products. Three activity cost pools have been identified and the first-stage allocations have been completed. Data concerning these activity cost pools appear below:

Explain why overhead cost shifted from the high-volume product to the low-volume product under activity-based costing.

Reference no: EM1311210

Questions Cloud

Decision on whether a project is accepted or rejected : Decision on whether a project is accepted or rejected using NPV and IRR and What is the internal rate of return

Find the total cost of serving : The activity-based costing system and find the total cost of serving each of the following parties of diners? a. A party of four diners who three drinks in total.

Profit maximizing behavior of natural monopoly : Compute total revenue, marginal revenue, marginal cost, and average total cost of this natural monopoly. What is the profit maximizing output and price for this natural monopoly when the government does not regulate it?

Designing a linear programming problem : Design a Linear programming problem for the flair Furniture Company and find the combination of tables and chairs that the company must produce to maximize profits.

Low-volume product under activity-based costing : Describe why overhead cost shifted from the high-volume product to the low-volume product under activity-based costing.

Determining optimal solution : If a technical breakthrough occurred that raised the profit per unit of X 1 to $3, would this affect the optimal solution?

Find the unit product cost of each product : Assume that the company decides to use activity-based costing to apply overhead cost to products. Find the unit product cost of each product.

Behavior of average product and marginal product : Describe the law of diminishing returns. Then discuss why you agree or disagree with following statements.

Computation of net present value of the project : Computation of net present value of the project and Determine the net present value of the projects based on a zero discount rate

User Account

All Pages