ACCT 2230 Chapter Notes - Chapter 6: Cost Driver, Variable Cost, Fixed Cost
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43.
Consider the following production and cost data for twoproducts, L and C: |
Product L | Product C | |
Contribution marginper unit | $35 | $40 |
Machine-hours neededper unit | 7 hours | 5 hours |
The company can only perform 14,700 machine hours each period,due to limited skilled labor and there is unlimited demand for eachproduct. What is the largest possible total contribution marginthat can be realized each period? |
rev: 01_23_2015_QC_CS-5061
a. $103,340
b. $117,600
c. $132,300
d. $102,900
45.
Ollivier 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: | |
Equipmentexpense | $73,000 |
Indirect labor | $6,900 |
Distribution of Resource Consumption Across Activity Cost Pools: | |||
Activity Cost Pools | |||
Processing | Supervising | Other | |
Equipmentexpense | 0.40 | 0.40 | 0.20 |
Indirect labor | 0.40 | 0.50 | 0.10 |
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 C4 | 10,900 | 920 |
Product L7 | 1,780 | 1,430 |
Total | 12,680 | 2,350 |
What is the overhead cost assigned to Product L7 underactivity-based costing? (Round your intermediatecalculations to 2 decimal places and your final answer to nearestwhole dollar.) |
a. $24,348
b. $4,486
c. $34,326
d. $19,863
46.
HarrisCorporation produces a single product. Last year, Harrismanufactured 26,030 units and sold 20,700 units. Production costsfor the year were as follows: |
Fixed manufacturingoverhead | $494,570 |
Variablemanufacturing overhead | $210,843 |
Direct labor | $143,165 |
Directmaterials | $192,622 |
Sales were $983,250, for the year, variable selling andadministrative expenses were $120,060, and fixed selling andadministrative expenses were $161,386. There was no beginninginventory. Assume that direct labor is a variable cost. |
The contribution margin per unit would be: (Do not roundintermediate calculations.) |
a. $21.80 per unit
b. $26.50 per unit
c. $16.20 per unit
d. $20.70 per unit
Dakota Motors produces electric motors for commercial use. Until the end of 1994, only 2 models were produced, the âStandardâ modelâ and the âDeluxeâ model. The Deluxe model had more expensive components and raw materials, required more quality control and required more labor hours per unit to produce than the Standard model. Both models were produced in fairly large volume. Since 1994, in an attempt to grow its business, and in response to competitive pressures, Dakota Motors has begun producing many different varieties of electric motors, in addition to its regular models. These new models are tailor made to the needs of individual customers and are produced only on demand, and are typically low volume lines.
Dakota Motors has a simple (traditional) costing system which traces the costs of direct materials, components, and direct labor to each of its product lines. All support costs are assigned to product lines via a single plant wide overhead rate based on direct labor hours. Its volume of manufacturing activity has grown from 20,000 direct labor hours in 1994 to 30,000 direct labor hours in 1997.
Dakota Motorsâ accounting system is reporting a rapid escalation in the costs per unit of producing the Standard and Deluxe models. Management is puzzled and vexed by these cost increases, since the prices of various production inputs (such as labor, raw materials, components, engineers, supervisors, etc.) have increased only marginally during these years, and the production methods for producing the Standard and Deluxe models have not changed.
Below, is data regarding support activities, annual support costs and driver volumes:
Support Costs | |||
Support Activity | Cost driver | 1994 | 1997 |
Supervision | Direct labor hours | $144,000 | $220,000 |
Machine maintenance | Machine hours | $ 80,000 | $140,000 |
Quality control | # of inspections | $ 40,000 | $100,000 |
Machine set ups | # of setups | $ 20,000 | $120,000 |
Process engineering | Engineering hours | $ 10,000 | $150,000 |
Total support costs | $294,000 | $730,000 |
Standard | Deluxe | New Models | Total | |
Direct labor hours | 12,000 | 8,000 | 10,000 | 30,000 |
Machine hours | 14,000 | 12,000 | 14,000 | 40,000 |
# of inspections | 400 | 400 | 600 | 1400 |
# of setups | 11 | 9 | 100 | 120 |
Engineering hours | 120 | 140 | 1,740 | 2,000 |
Assume that the production quantities and driver volumes for the Standard and Deluxe models have not changed between 1994 and 1997.
Questions:
1) Determine the total support costs assigned to the Standard model and to the Deluxe model in 1994 and in 1997 under the traditional costing system.
2) Calculate the cost driver rates and determine the support costs that would be assigned to the Standard, Deluxe and New models in 1997 under an activity based costing system. Be sure to display and label all your calculations.
3) Write a paragraph explaining to top management how the traditional costing system distorts product costs in Dakota Motors. Use the data on engineering hours and direct labor hours to quantitatively support your argument.
Northstar Company has two operating divisionsâMachine Tools andSpecial Products. The company has a maintenance department thatservices the equipment in both divisions. The costs of operatingthe maintenance department are budgeted at $83,000 per month plus$0.6 per machine hour. The fixed costs of the maintenancedepartment are determined by peak-period requirements. The MachineTools Division requires 60% of the peak-period capacity, and theSpecial Products Division requires 40%. |
For October, theMachine Tools Division estimated that it would operate at 82,000machine hours of activity and the Special Products Divisionestimated that it would operate at 52,000 machine-hours ofactivity. However, due to labor unrest and an unexpected strike,the Machine Tools Division worked only 52,000 machine-hours duringthe month. The Special Products Division worked 52,000machine-hours as planned. |
Cost records inthe maintenance department show that actual fixed costs for Octobertotaled $86,000 and that actual variable costs totaled $79,400. |
Required: | |
1. | How much maintenance department cost should be charged to eachdivision for October? (Omit the "$" sign in yourresponse.) |
Machine Tools Division | SpecialProducts Division | |
Total costallocated | $ | $ |
2. | Assume that the company follows the practice of allocating allmaintenance department costs incurred each month to the divisionsin proportion to the actual machine-hours recorded in each divisionfor the month. On this basis, how much cost would be allocated toeach division for October? (Omit the "$" sign in yourresponse.) |
Machine Tools Division | Special Products Division | |
Total costallocated | $ | $ |
3. | Whether allocation method usedin part (2) above has problems? | ||||
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