ACC 117 Lecture Notes - Lecture 15: Cost Driver, Customer Relationship Management, Gross Margin
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The following data are for the two products produced by Tadros Company.
| Product A | Product B | ||||
| Direct materials | $ | 14 per unit | $ | 24 per unit | |
| Direct labor hours | 0.6 DLH per unit | 1.5 DLH per unit | |||
| Machine hours | 0.5 MH per unit | 1.1 MH per unit | |||
| Batches | 125 batches | 250 batches | |||
| Volume | 10,000 units | 2,000 units | |||
| Engineering modifications | 10 modifications | 50 modifications | |||
| Number of customers | 500 customers | 400 customers | |||
| Market price | $ | 34 per unit | $ | 95 per unit per unit | |
The company's direct labor rate is $20 per direct labor hour (DLH). Additional information follows.
| Costs | Driver | |||
| Indirect manufacturing | ||||
| Engineering support | $ | 22,500 | Engineering modifications | |
| Electricity | 28,800 | Machine hours | ||
| Setup costs | 41,000 | Batches | ||
| Nonmanufacturing | ||||
| Customer service | 74,000 | Number of customers | ||
Required:
(Round your per unit cost answers to 2 decimal places and other answers to nearest whole number. Loss amounts should be indicated with minus sign.)
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5. Which method of product costing gives better information to managers of this company?
Departmental overhead rate method
Activity-based costing method
Plantwide overhead rate method
Smoky Mountain Corporation makes two types of hiking boots—the Xtreme and the Pathfinder. Data concerning these two product lines appear below:
| Xtreme | Pathfinder | |||||
| Selling price per unit | $ | 120.00 | $ | 92.00 | ||
| Direct materials per unit | $ | 63.50 | $ | 54.00 | ||
| Direct labor per unit | $ | 13.50 | $ | 9.00 | ||
| Direct labor-hours per unit | 1.5 | DLHs | 1.0 | DLHs | ||
| Estimated annual production and sales | 24,000 | units | 71,000 | units | ||
The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below:
| Estimated total manufacturing overhead | $ | 2,033,000 | ||
| Estimated total direct labor-hours | 107,000 | DLHs | ||
Required:
1. Compute the product margins for the Xtreme and the Pathfinder products under the company’s traditional costing system.
2. The company is considering replacing its traditional costing system with an activity-based costing system that would assign its manufacturing overhead to the following four activity cost pools (the Other cost pool includes organization-sustaining costs and idle capacity costs):
| Estimated Overhead Cost | Expected Activity | |||||
| Activities and Activity Measures | Xtreme | Pathfinder | Total | |||
| Supporting direct labor (direct labor-hours) | $ | 663,400 | 36,000 | 71,000 | 107,000 | |
| Batch setups (setups) | 572,000 | 240 | 200 | 440 | ||
| Product sustaining (number of products) | 750,000 | 1 | 1 | 2 | ||
| Other | 47,600 | NA | NA | NA | ||
| Total manufacturing overhead cost | $ | 2,033,000 | ||||
Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system.
3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.
| Smoky Mountain Corporation makes two types of hiking boots—Xtreme and the Pathfinder. Data concerning these two product lines appear below: |
| Xtreme | Pathfinder | |||||
| Selling price per unit | $ | 120.00 | $ | 87.00 | ||
| Direct materials per unit | $ | 63.30 | $ | 52.00 | ||
| Direct labor per unit | $ | 17.00 | $ | 10.00 | ||
| Direct labor-hours per unit | 1.7 | DLHs | 1.0 | DLHs | ||
| Estimated annual production and sales | 22,000 | units | 76,000 | units | ||
| The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below: |
| Estimated total manufacturing overhead | $1,927,800 | ||
| Estimated total direct labor-hours | 113,400 DLHs | ||
| Required: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1. | Compute the product margins for the Xtreme and the Pathfinder products under the company’s traditional costing system. (Do not round your intermediate calculations.)
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