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Rashid [163]
3 years ago
6

Fogerty Company makes two products, titanium Hubs and Sprockets. Data regarding the two products follow: Direct Labor-Hours per

Unit Annual Production Hubs 0.60 15,000 units Sprockets 0.20 50,000 units Additional information about the company follows:
a. Hubs require $39 in direct materials per unit, and Sprockets require $18.
b. The direct labor wage rate is $12 per hour.
c. Hubs are more complex to manufacture than Sprockets and they require special equipment.
d. The ABC system has the following activity cost pools:
Estimated Activity Activity Cost Pool (Activity Measure) Overhead Cost Hubs Sprockets Total Machine setups (number of setups) $ 28,980 140 112 252 Special processing (machine-hours) $ 92,000 4,600 0 4,600 General factory (organization-sustaining) $ 89,000 NA NA NA
Required:
1. Compute the activity rate for each activity cost pool.
2. Determine the unit product cost of each product according to the ABC system. (Round intermediate calculations and final answers to 2 decimal places.)
Business
1 answer:
Phantasy [73]3 years ago
5 0

Answer:

Fogerty Company

1. Computation of the activity rate for each activity cost pool:

a. Machine setups = Total machine setups overhead costs/total machine setups

= $28,980/252 = $115 per machine set up

b. Special processing = Total special processing overhead costs/total machine hours

= $92,000/4,600 = $20 per machine hour

c. General factory = $89,000/65,000 = $1.369 per unit produced

2. Determination of the unit product cost of each product using ABC system:

                                           Hubs              Sprockets

Total production costs   $825,640         $1,101,340

Units produced                 15,000               50,000

Unit product cost =          $55.04               $22.03

Explanation:

a) Data and Calculations:

Activity Cost Pool            Overhead      Hubs       Sprockets     Total

(Activity Measure)               Costs

Machine setups

 (number of setups)         $ 28,980        140              112            252

Special processing

 (machine-hours)             $ 92,000   4,600                 0          4,600

General factory

(organization-sustaining) $ 89,000         NA               NA            NA

Direct labor-hours per unit                   0.60             0.20

Total units produced                          15,000           50,000       65,000

Direct materials required per unit         $39                $18

Direct labor wage rate per hour            $12                 $12

b) Total direct labor-hours                 9,000            10,000        19,000

c) Activity rate for each activity cost pool:

1. Machine setups = Total machine setups overhead costs/total machine setups

= $28,980/252 = $115 per machine set up

2. Special processing = Total special processing overhead costs/total machine hours

= $92,000/4,600 = $20 per machine hour

3. General factory = Total general factory overhead costs divided by total units produced

= $89,000/65,000 = $1.3692 per unit produced

d) Overhead Allocation:

                                          Hubs             Sprockets          Total

Machine setups               $16,100            $12,880        $28,980

Special processing          96,000                 0                96,000

General factory                20,540             68,460          89,000

Total overhead costs   $132,640            $81,340      $213,980

e) Total costs per product

                                          Hubs               Sprockets             Total

Direct materials costs     $585,000         $900,000         $1,485,000

Direct labor costs            $108,000          $120,000           $228,000

Total overhead costs      $132,640             $81,340            $213,980

Total production costs   $825,640         $1,101,340         $1,926,980

Units produced                 15,000               50,000

Unit product cost =          $55.04               $22.03

f) Activity based costing system (ABC) is a costing technique that accumulates according to activity pools and allocates costs based on the activities carried out.  For example, the general factory overhead costs, could be allocated based on direct labour hours, machine hours, or total units of production.  It calculates the allocation rate based on the accepted activity pool.

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Answer:

<h2>Bracey Company</h2>

1. Assuming that Bracey Company uses super-variable costing:

a. Computation of the unit product cost for the year:

Unit product cost

= unit cost of direct materials = $19

b. Bracey Company Income Statement for the year ended December 31:

Sales Revenue                                                             $990,000

Cost of goods sold                                                         342,000

Contribution                                                                 $648,000

Period Costs:

Direct labor                                                 $250,000

Fixed manufacturing overhead                   300,000

Fixed selling and administrative expenses  90,000 $640,000

Net Income                                                                       $8,000

2. Assuming Bracey Company uses a variable costing system that assigns $12,50 of direct labor cost to each unit produced:

a. Computation of the unit product cost for the year:

Unit product cost

= Direct materials $19

  Direct labor        $12.50

Total                      $31.50

b. Bracey Company Income Statement for the year ended December 31:

Sales Revenue                                                             $990,000

Cost of goods sold                                                         567,000

Contribution                                                                 $423,000

Period Costs:

Fixed manufacturing overhead                   300,000

Fixed selling and administrative expenses  90,000 $390,000

Net Income                                                                     $33,000

3. Assuming Bracey Company uses an absorption costing system that assigns $12.50 of direct labor  cost and $15.00 of fixed manufacturing overhead cost to each unit produced:

a. Computation of the unit product cost for the year:

Unit product cost:

Direct materials $19.00

Direct labor        $12.50

Overhead          $15.00

Total                  $46.50

b. Bracey Company Income Statement for the year ended December 31:

Sales Revenue                                                             $990,000

Cost of goods sold                                                         837,000

Contribution                                                                  $153,000

Period Costs:

Fixed selling and administrative expenses                    90,000

Net Income                                                                     $63,000

4. Reconciliation between super-variable costing and variable costing net operating incomes:

a.

Net operating income as per super-variable costing          $8,000

Add Ending Inventory, direct labor cost (2,000 x $12.50)  25,000

Net operating income as per variable costing                  $33,000

b.

Net operating income as per super-variable costing            $8,000

Add Ending Inventory, labor + overhead (2,000 x $27.50)  55,000

Net operating income as per absorption costing               $63,000

Explanation:

a) Data and Calculations:

Variable cost per unit:

Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $19

Fixed costs per year:

Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . $250,000

Fixed manufacturing overhead . . . . . . . . . .  $300,000

Fixed selling and administrative expenses .  $90,000

Total units produced . . . . . . . . . . . . . . . . . . . . . . 20,000

Total units sold . . . . . . . . . . . . . . . . . . . . . . . . . . .  18,000

Units in Ending Inventory  . . . . . . . . . . . . . . . . . .  2,000

Selling price per unit . . . . . . . . . . . . . . . . . . . . . . . . . $55

b) Bracey Company's super-variable costing method bases the product cost only on the cost of totally variable costs (direct materials).  This unit product cost is then applied to the cost of goods sold and the inventory.  Other variable and even manufacturing overhead costs are not charged to the ending inventory and the cost of goods sold.  They are all regarded as period costs and charged  against income during the period.  The profit produced in the early periods will be substantially less than subsequent years profits.

Bracey variable costing technique charges all variable factory costs to determine the product cost.  On the other hand, the absorption costing method charges all factory costs, whether variable or fixed to determine the product cost.

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The specific identification method is an inventory method that identifies specific inventories sold and uses their specific costs in valuing the cost of goods sold.

<h3>Data and Calculations:</h3>

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The importance of consent in business-

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The three sorts of consent that an organization may get are as follows:

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