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Sorce Instrument, Inc. manufactures two products: missile range instruments and space pressure gauges




Question;E4-11 (a,b)Sorce Instrument, Inc. manufactures two products: missile range instruments and space pressure gauges. During April, 50 range instruments and 300 pressure gauges were produced, and overhead costs of $89,500 were estimated. An analysis of estimated overhead costs reveals the following activities.ActivityCost DriverTotal Cost1. Materials handlingNumber of requisitions$35,0002. Machine setupsNumber of setups27,5003. Quality inspectionsNumber of inspections27,000$89,500The cost driver volume for each product was as follows.Cost DriverInstrumentsGaugesTotalNumber of requisitions4006001,000Number of setups200300500Number of inspections200400600a) Determine the overhead rate for each activity.b) Assign the manufacturing overhead costs for April to the two products using activity-based costing.P4-3A (a,c)Skaros Stairs Co. of Moore designs and builds factory-made premium wooden stairs for homes. The manufactured stair components (spindles, risers, hangers, hand rails) permit installation of stairs of varying lengths and widths. All are of white oak wood. Budgeted manufacturing overhead costs for the year 2011 are as follows.Overhead Cost PoolsAmountPurchasing$ 57,000Handling materials82,000Production (cutting, milling, finishing)210,000Setting up machines85,000Inspecting90,000Inventory control (raw materials and finished goods)126,000Utilities180,000Total budget overhead costs$830,000For the last 4 years, Skaros Stairs Co. has been charging overhead to products on the basis of machine hours. For the year 2011, 100,000 machine hours are budgeted. Anthony Morse, owner-manager of Skaros Stairs Co., recently directed his accountant, Neal Seagren, to implement the activity-based costing system that he has repeatedly proposed. At Anthony Morse's request, Neal and the production foreman identify the following cost drivers and their usage for the previously budgeted overhead cost pools.Activity Cost PoolsCost DriversExpectedUse ofCost DriversPurchasingNumber of orders600Handling materialsNumber of moves8,000Production (cutting, milling, finishing)Direct labor hours100,000Setting up machinesNumber of setups1,250InspectingNumber of inspections6,000Inventory control (raw materials and finished goods)Number of components168,000UtilitiesSquare feet occupied90,000David Hannon, sales manager, has received an order for 280 stairs from Community Builders, Inc., a large housing development contractor. At David's request, Neal prepares cost estimates for producing components for 280 stairs so David can submit a contract price per stair to Community Builders. He accumulates the following data for the production of 280 stairways.Direct materials$103,600Direct labor$112,000Machine hours14,500Direct labor hours5,000Number of purchase orders60Number of material moves800Number of machine setups100Number of inspections450Number of components16,000Number of square feet occupied8,000Compute the predetermined overhead rate using traditional costing with machine hours as the basis.(Enter answer to 2 decimal places, e.g. 10.50.)What is the manufacturing cost per stairway under traditional costing?(Use rounded amount from part (a). Round answer to 2 decimal places, e.g. 10.50.)P4-4A (a-d)Polzin Corporation produces two grades of wine from grapes that it buys from California growers. It produces and sells roughly 3,000,000 liters per year of a low-cost, high-volume product called CoolDay. It sells this in 600,000 5-liter jugs. Polzin also produces and sells roughly 300,000 liters per year of a low-volume, high-cost product called LiteMist. LiteMist is sold in 1-liter bottles. Based on recent data, the CoolDay product has not been as profitable as LiteMist. Management is considering dropping the inexpensive CoolDay line so it can focus more attention on the LiteMist product. The LiteMist product already demands considerably more attention than the CoolDay line. Greg Kagen, president and founder of Polzin, is skeptical about this idea. He points out that for many decades the company produced only the CoolDay line, and that it was always quite profitable. It wasn't until the company started producing the more complicated LiteMist wine that the profitability of CoolDay declined. Prior to the introduction of LiteMist, the company had simple equipment, simple growing and production procedures, and virtually no need for quality control. Because LiteMist is bottled in 1-liter bottles, it requires considerably more time and effort, both to bottle and to label and box than does CoolDay. The company must bottle and handle 5 times as many bottles of LiteMist to sell the same quantity as CoolDay. CoolDay requires 1 month of aging, LiteMist requires 1 year. CoolDay requires cleaning and inspection of equipment every 10,000 liters, LiteMist requires such maintenance every 600 liters. Greg has asked the Accounting department to prepare an analysis of the cost per liter using the traditional costing approach and using activity-based costing. The following information was collected.CoolDayLiteMistDirect materials per liter$0.40$1.20Direct labor cost per liter$0.25$0.50Direct labor hours per liter0.050.09Total direct labor hours150,00027,000Activity Cost PoolCost DriverEstimated OverheadExpectedUse ofCost DriversExpected Use ofCost Drivers per ProductActivity Cost PoolCost DriverEstimated OverheadExpectedUse ofCost DriversExpected Use ofCost Drivers per ProductCoolDayLiteMistGrape processingCart of grapes$145,8606,6006,000600AgingTotal months396,0006,600,0003,000,0003,600,000Bottling and corkingNumber of bottles270,000900,000600,000300,000Labeling and boxingNumber of bottles189,000900,000600,000300,000Maintain and inspect equipmentNumber of inspections240,800800350450$1,241,660Under traditional product costing using direct labor hours, compute the total manufacturing cost per liter of both products.(Round computations and final answers to 3 decimal places, e.g. 2.250.)Under ABC, prepare a schedule showing the computation of the activity-based overhead rates (per cost driver).(Enter overhead rate to 2 decimal places, e.g. 10.50.)Prepare a schedule assigning each activity's overhead cost pool to each product, based on the use of cost drivers. What is the overhead cost per liter?(Enter overhead rate to 2 decimal places, e.g. 10.50 and round overhead cost per liter to 3 decimal places, e.g. 2.250.)Compute the total manufacturing cost per liter for both products under ABC.(Round answers to 3 decimal places, e.g. 2.250.)


Paper#37921 | Written in 18-Jul-2015

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