2. Lennox Industries manufactures two products: A and B. Areview of the company's accounting records revealed the followingper-unit costs and the current production volumes: A B Productionvolume (units) 2,500 5,000 Direct material $ 40 $ 60 Direct labor:2 hours @ $12 per hour 24 3 hours @ $12 per hour 36 Manufacturingoverhead: 2 hours at $93 per DL hour 186 3 hours at $93 per DL hour279 Manufacturing overhead is currently computed by spreadingoverhead of $1,860,000 over 20,000 direct labor hours. Managementis considering a shift to activity-based costing in an effort toimprove the firm's accounting procedures, and the following dataare available that can be used for an Activity Based Costingsystem. All the overhead costs can be divided into three cost poolsand the budgeted costs and the associated cost driver that can beused to apply the costs to the products are shown below. CostDriver Volume Cost Pool Cost Cost Driver A B Total Setups $ 240,000Number of setups 100 20 120 General factory 1,500,000 Direct laborhours 5,000 15,000 20,000 Machine processing 120,000 Machine hours2,200 800 3,000 $1,860,000 Lennox determines selling prices byadding desired profit margin (computed as 40% of total cost) to aproduct's total cost. Required: A. Compute the per-unit cost andselling price of product B by using Lennox's current costingprocedures. (4 points) B. Compute the per-unit overhead cost ofproduct B if the company switches to activity-based costing. (3points) C. Compute the total per-unit cost and selling price forproduct B under activity-based costing. (3 points) D. Lennox hasrecently encountered significant international competition forproduct B, with considerable business being lost to very aggressivesuppliers. Will activity-based costing allow the company to be morecompetitive with product B from a price perspective? Brieflyexplain. ( 2.5 points) E. Will the cost and selling price ofproduct A likely increase or decrease if Lennox changes toactivity-based costing? Why? Hint: No calculations are necessary.(2 points)
2. Lennox Industries manufactures two products: A and B. Areview of the company's accounting records revealed the followingper-unit costs and the current production volumes: A B Productionvolume (units) 2,500 5,000 Direct material $ 40 $ 60 Direct labor:2 hours @ $12 per hour 24 3 hours @ $12 per hour 36 Manufacturingoverhead: 2 hours at $93 per DL hour 186 3 hours at $93 per DL hour279 Manufacturing overhead is currently computed by spreadingoverhead of $1,860,000 over 20,000 direct labor hours. Managementis considering a shift to activity-based costing in an effort toimprove the firm's accounting procedures, and the following dataare available that can be used for an Activity Based Costingsystem. All the overhead costs can be divided into three cost poolsand the budgeted costs and the associated cost driver that can beused to apply the costs to the products are shown below. CostDriver Volume Cost Pool Cost Cost Driver A B Total Setups $ 240,000Number of setups 100 20 120 General factory 1,500,000 Direct laborhours 5,000 15,000 20,000 Machine processing 120,000 Machine hours2,200 800 3,000 $1,860,000 Lennox determines selling prices byadding desired profit margin (computed as 40% of total cost) to aproduct's total cost. Required: A. Compute the per-unit cost andselling price of product B by using Lennox's current costingprocedures. (4 points) B. Compute the per-unit overhead cost ofproduct B if the company switches to activity-based costing. (3points) C. Compute the total per-unit cost and selling price forproduct B under activity-based costing. (3 points) D. Lennox hasrecently encountered significant international competition forproduct B, with considerable business being lost to very aggressivesuppliers. Will activity-based costing allow the company to be morecompetitive with product B from a price perspective? Brieflyexplain. ( 2.5 points) E. Will the cost and selling price ofproduct A likely increase or decrease if Lennox changes toactivity-based costing? Why? Hint: No calculations are necessary.(2 points)
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Related questions
Foster Company has determined a raw materials cost of $0.10 perpound; their loaded labor rate is $15 per hour. The Controller forFoster Company has established the following overhead cost poolsand cost drivers:
Overhead Cost Pool | Budgeted Overhead Cost | Cost Driver |
Machine setups | $150,000 | Number of setups |
Material handling | 52,500 | Pounds of raw material |
Quality control inspection | 37,500 | Number of inspections |
Other overhead costs | 90,000 | Machine hours |
Total | $330,000 | |
Overhead Cost Pool | Budgeted Level for Cost Driver | Compute ABC Overhead Rate |
Machine setups | 100 setups | |
Material handling | 50,000 pounds | |
Quality control | 1,000 inspections | |
Other overhead | 15,000 machine hours | |
Order no. 610 has been received for 1,000 units of product. Ithas the following production requirements: | ||
Direct Labor | 20 hours | |
Machine setups | 5 setups | |
Raw material | 10,000 pounds | |
Inspections | 12 inspections | |
Machine hours | 600 machine hours |
Required:
A. Compute the activity-based costing (ABC) rates for each ofthe four cost drivers; write answers in the table above. (4points)
B. Compute the total overhead that should be assigned to orderno. 610 by using activity-based costing. (4 points)
C. Suppose that Foster were to use a single, predeterminedoverhead rate based on machine hours. Compute the rate per hour andthe total overhead assigned to order no. 610. (4 points)
D. Compute the total product cost of one unitfor order no. 610, using activity-based costing rates. (4points
#6
Younan Corporation manufactures two products: Product E47F andProduct D02M. The company is considering implementing anactivity-based costing (ABC) system that allocates itsmanufacturing overhead to four cost pools. The following additionalinformation is available for the company as a whole and forProducts E47F and D02M.
Activity CostPool | ActivityMeasure | Total Cost | Total Activity | ||
Machining | Machine-hours | $ | 165,000 | 11,000 | MHs |
Machine setups | Number of setups | $ | 150,000 | 250 | setups |
Product design | Number of products | $ | 70,000 | 2 | products |
Order size | Direct labor-hours | $ | 310,000 | 10,000 | DLHs |
ActivityMeasure | ProductE47F | ProductD02M |
Machine-hours | 5,000 | 6,000 |
Number of setups | 200 | 50 |
Number of products | 1 | 1 |
Direct labor-hours | 4,000 | 6,000 |
Using the ABC system, the percentage of the total overhead costthat is assigned to Product D02M is closest to:
rev: 03_17_2018_QC_CS-119201
22.30%
49.06%
26.76%
50.00%
#7
Tomasini Corporation has provided the following data from itsactivity-based costing accounting system:
Supervisory wages | $ | 660,000 |
Factory supplies | $ | 280,000 |
Distribution of Resource Consumption across Activity CostPools:
Activity Cost Pools | BatchProcessing | Unit Processing | Other | Total | |
Supervisory wages | 20% | 70% | 10% | 100% | |
Factory supplies | 45% | 35% | 20% | 100% | |
The "Other" activity cost pool consists of the costs of idlecapacity and organization-sustaining costs that are not assigned toproducts.
How much supervisory wages and factory supplies cost would NOTbe assigned to products using the activity-based costingsystem?
Garrison 16e Rechecks 2018-07-24
$280,000
$660,000
$122,000
$0
#9
Addleman Corporation has an activity-based costing system withthree activity cost pools--Processing, Supervising, and Other. Inthe first stage allocations, costs in the two overhead accounts,equipment expense and indirect labor, are allocated to the threeactivity cost pools based on resource consumption. Data used in thefirst stage allocations follow:
Overhead costs: | |||||||
Equipment expense | $ | 73,000 | |||||
Indirect labor | $ | 1,000 | |||||
Distribution of Resource Consumption Across Activity CostPools:
Activity Cost Pools | |||||
Processing | Supervising | Other | |||
Equipment expense | 0.20 | 0.10 | 0.70 | ||
Indirect labor | 0.20 | 0.20 | 0.60 | ||
Processing costs are assigned to products using machine-hours(MHs) and Supervising costs are assigned to products using thenumber of batches. The costs in the Other activity cost pool arenot assigned to products. Activity data for the company's twoproducts follow:
Activity:
MHs(Processing) | Batches(Supervising) | |
Product W3 | 7,600 | 100 |
Product H3 | 2,400 | 900 |
Total | 10,000 | 1,000 |
Finally, the costs of Processing and Supervising are combinedwith the following sales and direct cost data to determine productmargins.
Sales and Direct Cost Data:
Product W3 | Product H3 | |||||||||
Sales (total) | $ | 159,500 | $ | 154,100 | ||||||
Direct materials (total) | $ | 66,300 | $ | 55,300 | ||||||
Direct labor (total) | $ | 77,800 | $ | 84,100 | ||||||
The activity rate for the Supervising activity cost pool underactivity-based costing is closest to:
Garrison 16e Rechecks 2018-07-24
$7.50 per batch
$74.00 per batch
$1.11 per batch
$1.00 per batch