MTI makes three types of lawn tractors: M3100, M4100, and M6100. In the past, it allocated overhead to products using machine-hours. Last year, the company produced 10,000 units of M3100, 17,500 units of M4100, and 10,000 units of M6100 and had the following revenues and costs: MTI Income Statement М3100 M4100 M6100 Total Sales revenue. Direct costs $9,000,000 $15,000,000 $13,500,000 $37,500,000 Direct materials. 3,000,000 600,000 4,500,000 900,000 3,300,000 10,800,000 1,800,000 Direct labor Variable overhead 3,300,000 Setting up machines Processing sales orders.. Warehousing . Operating machines Shipping . Contribution margin. Plant administration 2,400,000 1,800,000 2,400,000 1,200,000 900,000 $14,700,000 6,000,000 Gross profit . $ 8,700,000 MTI's controller has heard about activity-based costing and puts together an employee team to recommend cost allocation bases. The employee team recommends the following: Activity Cost Driver M3100 M4100 M6100 Setting up machines... Processing sales orders Warehousing... Operating machines Shipping Production runs Sales orders received 10 20 20 80 220 Units held in inventory Machine-hours 100 200 100 6,000 10,000 9,000 10,000 17,500 10,000 Units shipped The employee team recommends that plant administration costs not be allocated to products. 1) Using machine-hours to allocate overhead, how much is the POHR? 2) Using machine-hours to allocate overhead, how much is overhead allocated to M4100?
MTI makes three types of lawn tractors: M3100, M4100, and M6100. In the past, it allocated overhead to products using machine-hours. Last year, the company produced 10,000 units of M3100, 17,500 units of M4100, and 10,000 units of M6100 and had the following revenues and costs: MTI Income Statement М3100 M4100 M6100 Total Sales revenue. Direct costs $9,000,000 $15,000,000 $13,500,000 $37,500,000 Direct materials. 3,000,000 600,000 4,500,000 900,000 3,300,000 10,800,000 1,800,000 Direct labor Variable overhead 3,300,000 Setting up machines Processing sales orders.. Warehousing . Operating machines Shipping . Contribution margin. Plant administration 2,400,000 1,800,000 2,400,000 1,200,000 900,000 $14,700,000 6,000,000 Gross profit . $ 8,700,000 MTI's controller has heard about activity-based costing and puts together an employee team to recommend cost allocation bases. The employee team recommends the following: Activity Cost Driver M3100 M4100 M6100 Setting up machines... Processing sales orders Warehousing... Operating machines Shipping Production runs Sales orders received 10 20 20 80 220 Units held in inventory Machine-hours 100 200 100 6,000 10,000 9,000 10,000 17,500 10,000 Units shipped The employee team recommends that plant administration costs not be allocated to products. 1) Using machine-hours to allocate overhead, how much is the POHR? 2) Using machine-hours to allocate overhead, how much is overhead allocated to M4100?
Cornerstones of Cost Management (Cornerstones Series)
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Chapter3: Cost Behavior
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Transcribed Image Text:MTI makes three types of lawn tractors: M3100, M4100, and M6100. In the past, it allocated
overhead to products using machine-hours. Last year, the company produced 10,000 units of
M3100, 17,500 units of M4100, and 10,000 units of M6100 and had the following revenues
and costs:
MTI
Income Statement
M3100
M4100
M6100
Total
Sales revenue
Direct costs
$9,000,000 $15,000,000 $13,500,000 $37,500,000
3,000,000
600,000
Direct materials.
4,500,000
900,000
3,300,000
1,800,000
10,800,000
3,300,000
Direct labor
Variable overhead
Setting up machines
Processing sales orders..
Warehousing.
Operating machines
Shipping
Contribution margin.
Plant administration
2,400,000
1,800,000
2,400,000
1,200,000
900,000
$14,700,000
6,000,000
Gross profit..
$ 8,700,000
MTI's controller has heard about activity-based costing and puts together an employee team
to recommend cost allocation bases. The employee team recommends the following:
Activity
Cost Driver
M3100 M4100 M6100
Setting up machines .
Processing sales orders
Warehousing..
Operating machines
Shipping
Production runs
10
20
20
Sales orders received
Units held in inventory
Machine-hours
180
400
220
200
9,000 10,000
17,500 10,000
100
100
6,000
10,000
Units shipped
The employee team recommends that plant administration costs not be allocated to products.
1) Using machine-hours to allocate
overhead, how much is the POHR?
2) Using machine-hours to allocate
overhead, how much is overhead
allocated to M4100?
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