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Managerial Accounting: Tools for Business Decision Making Exercises

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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.;Activity;Cost Driver;Total Cost;1. Materials handling;Number of requisitions;$35,000;2. Machine setups;Number of setups;27,500;3. Quality inspections;Number of inspections;27,000;$89,500;The cost driver volume for each product was as follows.;Cost Driver;Instruments;Gauges;Total;Number of requisitions;400;600;1,000;Number of setups;200;300;500;Number of inspections;200;400;600;a);Determine the overhead rate for each activity.;b);Assign the manufacturing overhead costs for April to the two;products using activity-based costing.;P4-3A (a,c);Skaros Stairs Co. of Moore designs and builds factory-made premium;wooden stairs for homes. The manufactured stair components (spindles, risers;hangers, hand rails) permit installation of stairs of varying lengths and;widths. All are of white oak wood. Budgeted manufacturing overhead costs for;the year 2011 are as follows.;Overhead Cost Pools;Amount;Purchasing;$ 57,000;Handling materials;82,000;Production (cutting, milling, finishing);210,000;Setting up machines;85,000;Inspecting;90,000;Inventory control (raw materials and finished goods);126,000;Utilities;180,000;Total budget overhead costs;$830,000;For 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 Pools;Cost;Drivers;Expected;Use of;Cost Drivers;Purchasing;Number of orders;600;Handling materials;Number of moves;8,000;Production (cutting, milling, finishing);Direct labor hours;100,000;Setting up machines;Number of setups;1,250;Inspecting;Number of inspections;6,000;Inventory control (raw materials and finished goods);Number of components;168,000;Utilities;Square feet occupied;90,000;David 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;$103,600;Direct labor;$112,000;Machine hours;14,500;Direct labor hours;5,000;Number of purchase orders;60;Number of material moves;800;Number of machine setups;100;Number of inspections;450;Number of components;16,000;Number of square feet occupied;8,000;Compute 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.;CoolDay;LiteMist;Direct materials per liter;$0.40;$1.20;Direct labor cost per liter;$0.25;$0.50;Direct labor hours per liter;0.05;0.09;Total direct labor hours;150,000;27,000;Activity Cost Pool;Cost Driver;Estimated;Overhead;Expected;Use of;Cost Drivers;Expected;Use of;Cost Drivers per Product;Activity Cost Pool;Cost Driver;Estimated;Overhead;Expected;Use of;Cost Drivers;Expected;Use of;Cost Drivers per Product;CoolDay;LiteMist;Grape processing;Cart of grapes;$145,860;6,600;6,000;600;Aging;Total months;396,000;6,600,000;3,000,000;3,600,000;Bottling and corking;Number of bottles;270,000;900,000;600,000;300,000;Labeling and boxing;Number of bottles;189,000;900,000;600,000;300,000;Maintain and inspect equipment;Number of inspections;240,800;800;350;450;$1,241,660;Under 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#45411 | Written in 18-Jul-2015

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