Maple Woods Inc. manufactures lounge chairs available in both a luxury and a standard model. The company has made the standard model for years; the luxury model was introduced several years ago to capture a new segment of the market. Since the introduction of the luxury model, the company's profits have steadily declined, and management has become concerned about the accuracy of its costing system. Sales of the luxury model have been increasing rapidly. Overhead is applied to products on the basis of direct labour hours. At the beginning of the current year, management estimated that $6,512,836 in overhead costs would be incurred and the company would produce and sell 6,300 units of the luxury model and 44,680 units of the standard model. The luxury model requires 3.0 hours of direct labour time per unit, and the standard model requires 2.0 hours. Materials and labour costs follow: Direct materials cost per unit. Direct labour cost per hour Predetermined overhead rate Unit product cost of Luxury Unit product cost of Standard Required: 1. Compute the predetermined overhead rate using direct labour hours as the basis for allocating overhead costs to products. Compute the unit product cost for one unit of each model. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Activity Cost Pool and Activity Measure Purchase orders (number of orders) Rework requests (number of requests) Product testing (number of tests) Machine related (machine hours) Activity Cost Pool 2. An intern suggested that the company use activity-based costing to cost its products. A team was formed to investigate this idea, and it came back with the recommendation that four activity cost pools be used. These cost pools and their associated activities follow: Purchase orders Rework requests Product testing Machine related. $ $ $ Total overhead cost Luxury $186 16 Unit product cost 60.16 per DLH 382.48 285.32 Activity Rate 239 per order 164 per request 106 per test 108 per MH Luxury Compute the activity rate (i.e., predetermined overhead rate) for each of the activity cost pools. Estimated Overhead Cost Luxury Standard $146 19 $ 574,536 327,300 1,275,000 4,336,000 $6,512,836 Luxury 1,000 800 Standard 5,000 15,000 3. Assume that actual activity is as expected for the year. Using activity-based costing, do the following: a. Determine the total amount of overhead that would be applied to each model for the year. (Do not round intermediate calculations and round your final answers to nearest whole dollar amount.) Standard Activity Standard 1,400 1,200 7,000 25,000 Total 2,400 2,000 b. Compute the unit product cost for one unit of each model. (Do not round intermediate calculations and round your answers to 2 decimal places.) 12,000 40,000

Maple Woods Inc. manufactures lounge chairs available in both a luxury and a standard model. The company has made the standard model for years; the luxury model was introduced several years ago to capture a new segment of the market. Since the introduction of the luxury model, the company's profits have steadily declined, and management has become concerned about the accuracy of its costing system. Sales of the luxury model have been increasing rapidly. Overhead is applied to products on the basis of direct labour hours. At the beginning of the current year, management estimated that $6,512,836 in overhead costs would be incurred and the company would produce and sell 6,300 units of the luxury model and 44,680 units of the standard model. The luxury model requires 3.0 hours of direct labour time per unit, and the standard model requires 2.0 hours. Materials and labour costs follow: Direct materials cost per unit. Direct labour cost per hour Predetermined overhead rate Unit product cost of Luxury Unit product cost of Standard Required: 1. Compute the predetermined overhead rate using direct labour hours as the basis for allocating overhead costs to products. Compute the unit product cost for one unit of each model. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Activity Cost Pool and Activity Measure Purchase orders (number of orders) Rework requests (number of requests) Product testing (number of tests) Machine related (machine hours) Activity Cost Pool 2. An intern suggested that the company use activity-based costing to cost its products. A team was formed to investigate this idea, and it came back with the recommendation that four activity cost pools be used. These cost pools and their associated activities follow: Purchase orders Rework requests Product testing Machine related. $ $ $ Total overhead cost Luxury $186 16 Unit product cost 60.16 per DLH 382.48 285.32 Activity Rate 239 per order 164 per request 106 per test 108 per MH Luxury Compute the activity rate (i.e., predetermined overhead rate) for each of the activity cost pools. Estimated Overhead Cost Luxury Standard $146 19 $ 574,536 327,300 1,275,000 4,336,000 $6,512,836 Luxury 1,000 800 Standard 5,000 15,000 3. Assume that actual activity is as expected for the year. Using activity-based costing, do the following: a. Determine the total amount of overhead that would be applied to each model for the year. (Do not round intermediate calculations and round your final answers to nearest whole dollar amount.) Standard Activity Standard 1,400 1,200 7,000 25,000 Total 2,400 2,000 b. Compute the unit product cost for one unit of each model. (Do not round intermediate calculations and round your answers to 2 decimal places.) 12,000 40,000

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter3: Cost Behavior

Section: Chapter Questions

Problem 34P: Kimball Company has developed the following cost formulas:...

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