User Account

All Pages

manufacturing, Accounting Basics

Assignment Help:
Weston Corporation manufactures a product that is available in both a deluxe and a regular model. The company has made the regular model for years; the deluxe model was introduced several years ago to tap a new segment of the market. Since introduction of the deluxe model, the company’s profits have steadily declined. Sales of the deluxe model have been increasing rapidly.
Overhead is applied to products on the basis of direct labor-hours. At the beginning of the current year,

Management estimated that $3,080,000 in overhead costs would be incurred and the company would produce and sell 10,000 units of the deluxe model and 50,000 units of the regular model. The deluxe model requires 2.0 hours of direct labor time per unit, and the regular model requires 1.0 hours. Materials and
Labor costs per unit are given below:

Deluxe Regular
Direct materials cost per unit $50.00 $30.00
Direct labor cost per unit $30.00 $15.00

Required

a. Compute the predetermined overhead rate using direct labor-hours as the basis for allocating overhead costs to products. Compute the unit product cost for one unit of each model. An intern suggested that the company use activity-based costing to cost its products. A team was formed to investigate this idea. . It came back with the recommendation that four activity cost pools be used. These cost pools and their associated activities are listed below:

Activity Cost Pool and Activity Measure Estimated
Overhead cost Activity
Deluxe Regular Total
Purchase orders (number of orders) $ 60,000 500 1,000 1,500
Rework requests (number of requests) 280,000 800 2,000 2,800

Product testing (number of tests) 240,000 7,000 3,000 10,000
Machine-related (machine-hours) 2,500,000 4,500 8,000 12,500
$3,080,000

Required:

b. Compute the activity rate (i.e., predetermined overhead rate) for each of the activity cost pools.

c. Assume that actual activity is as expected for the year. Using activity-based costing, do the following: I. Determine the total amount of overhead that would be applied to each model for the year.
II. Compute the unit product cost for one unit of each model.

d. Can you identify a possible explanation for the company’s declining profits? If so, what is it?


2. Great Company manufactures 60, 000 units of part XL-40 each year for use on its production line. The following are the costs of making part XL-40:
Total Costs Cost per
60, 000 units unit

Direct material Br. 480, 000 Br.8
Direct labor 360, 000 6
Variable factory overhead (FOH) 180, 000 3
Fixed FOH 360, 000 6
Total manufacturing costs Br. 1, 380, 000 Br.23

Another manufacturer has offered to sell the same part to Great for Br.21 each. The fixed overhe ad consists of depreciation, property taxes, insurance, and supervisory salaries. The entire fixed overhead would continue if the Great Company bought the component except that the cost of Br. 120, 000 pertaining to some supervisory and custodial personnel could be avoided.

Instructions:

a) Should the parts be made or bought? Assume that the capacity now used to make parts internally will become idle if the pats are purchased?
b) Assume that the capacity now used to make parts will be either (i) be rented to nearby

manufacturer for Br. 60, 000 for the year or (ii) be used to make another product that will yield a profit contribution of Br. 250,000 per year. Should the company purchase them from the outside supplier?

Related Discussions:- manufacturing

What is fob destination, Q. What is FOB destination? FOB destination si...

Q. What is FOB destination? FOB destination signifies free on board at destination. The seller ships the goods to their destination with no charge to the buyer. Therefore the s

What is sweep account, A sweep account is actually a grouping of two or mor...

A sweep account is actually a grouping of two or more accounts at a bank. It is useful in managing a steady cash flow among a cash account where scheduled payments are made from an

Explain financial accounting information, Q. Explain Financial accounting i...

Q. Explain Financial accounting information? A Financial accounting information is precedent in nature that reporting on what has happened in the past. To facilitate comparison

T Accounts, Provided services on credit to Yamato P/L $5 900. How do we ap...

Provided services on credit to Yamato P/L $5 900. How do we apply this in the t accounts

Prepare the adjusting entry needed for hi-tech, Scenario Sara Jones ope...

Scenario Sara Jones opened a technical consulting business called Hi-Tech For the Future earlier in the year. So far, she has been successful in providing services and selling

What are the break-even levels of ebit, John is considering the best capita...

John is considering the best capital structure for his firm. Suppose there are two capital structures for him to choose from. Structure A would have 7,000 shares of stock and $160,

On aug 14th, On Aug 14th, One of our Partner's ( Compuville ) cash book sho...

On Aug 14th, One of our Partner's ( Compuville ) cash book showed a debit balance of $4,000.00. His bank statement showed a balance of $4,270.00. On comparison the following we

Determine the proposal''s appropriateness and economic, Determine the propo...

Determine the proposal's appropriateness and economic viability. For all scenarios, assume spending occurs on the first day of each year and benefits or savings occurs on the las

Total debt, how can i determine the total debt of a commercial bank? Which ...

how can i determine the total debt of a commercial bank? Which financial statement do i need to look?

Accounting policies for credit losses, Because of the large number of accou...

Because of the large number of accounting scandals that involved misclassification on the balance sheet, FASB has paid particular attention to classification of cash and receivable

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd