Lionel Corporation manufactures two products, Product B and Product H. Product H is a fairly new product, having been developed as an attempt to enter a market closely related to that of Product B. Product H is the more complex of the two products, requiring 2.0 hours of direct labour time per unit to manufacture, compared to 1.0 hour of direct labour time for Product B. Product H is produced on an automated production line. Overhead is currently assigned to the products on the basis of direct labour hours. The company estimated it would incur $450,000 in manufacturing overhead costs and produce 7,500 units of Product H and 30,000 units of Product B during the current year. Unit costs for materials and direct labour are: Direct Materials Direct Labour Required: a) Compute the predetermined overhead rate under the current method of allocation, and determine the unit product cost of each product for the current year. Activity Cost Pools Machine set-ups required Product B $12 $10 b) The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below: Expected Activity Purchase orders issued Machine-hours required Maintenance requests issued Total Product H $25 $20 Estimated Overhead Costs Product B 600 500 6,800 693 $180,000 38,382 92,650 138,968 $450,000 Product H 1,200 100 10,200 907 Total 1,800 600 17,000 1,600 Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year. c) Was Product B being over-costed or under-costed under the current method? By how much in total?
Lionel Corporation manufactures two products, Product B and Product H. Product H is a fairly new product, having been developed as an attempt to enter a market closely related to that of Product B. Product H is the more complex of the two products, requiring 2.0 hours of direct labour time per unit to manufacture, compared to 1.0 hour of direct labour time for Product B. Product H is produced on an automated production line. Overhead is currently assigned to the products on the basis of direct labour hours. The company estimated it would incur $450,000 in manufacturing overhead costs and produce 7,500 units of Product H and 30,000 units of Product B during the current year. Unit costs for materials and direct labour are: Direct Materials Direct Labour Required: a) Compute the predetermined overhead rate under the current method of allocation, and determine the unit product cost of each product for the current year. Activity Cost Pools Machine set-ups required Product B $12 $10 b) The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below: Expected Activity Purchase orders issued Machine-hours required Maintenance requests issued Total Product H $25 $20 Estimated Overhead Costs Product B 600 500 6,800 693 $180,000 38,382 92,650 138,968 $450,000 Product H 1,200 100 10,200 907 Total 1,800 600 17,000 1,600 Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year. c) Was Product B being over-costed or under-costed under the current method? By how much in total?
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter4: Activity-based Costing
Section: Chapter Questions
Problem 4CE: Larsen, Inc., produces two types of electronic parts and has provided the following data: There are...
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Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Transcribed Image Text:Lionel Corporation manufactures two products, Product B and Product H. Product H is a fairly
new product, having been developed as an attempt to enter a market closely related to that of
Product B. Product H is the more complex of the two products, requiring 2.0 hours of direct
labour time per unit to manufacture, compared to 1.0 hour of direct labour time for Product B.
Product H is produced on an automated production line.
‒‒‒‒‒‒‒‒‒‒‒‒
Overhead is currently assigned to the products on the basis of direct labour hours. The
company estimated it would incur $450,000 in manufacturing overhead costs and produce
7,500 units of Product H and 30,000 units of Product B during the current year. Unit costs for
materials and direct labour are:
Required:
Direct Materials
Direct Labour
Product B
$12
$10
a) Compute the predetermined overhead rate under the current method of allocation, and
determine the unit product cost of each product for the current year.
Activity Cost Pools
Machine set-ups required
Purchase orders issued
Machine-hours required
Maintenance requests issued
Total
b) The company's overhead costs can be attributed to four major activities. These activities
and the amount of overhead cost attributable to each for the current year are given below:
Product H
$25
$20
Estimated
Overhead
$180,000
38,382
92,650
138,968
$450,000
Expected Activity
Costs Product B
600
500
6,800
693
Product H
1,200
100
10,200
907
Total
1,800
600
17,000
1,600
Using the data above and an activity-based costing approach, determine the unit product
cost of each product for the current year.
c) Was Product B being over-costed or under-costed under the current method? By how
much in total?
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