Asbury Coffee Enterprises (ACE) manufactures two models of coffee grinders: Personal and Commercial. The Personal grinders have a smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Since the introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at ACE believes that the problem might be in how the accounting system allocates costs to products. The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which is representative, manufacturing overhead totaled $1,929,000 based on production of 30,000 Personal grinders and 10,000 Commercial grinders. Direct costs were as follows: Direct materials Direct labor Cost Driver Number of production runs Quality tests performed Shipping orders processed Total overhead Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows: Required A Personal $ 1,438,600 1,022,000 Required B Personal Commercial Costs Assigned $ 915,000 788,000 226,000 $ 1,929,000 Commercial $ 538,000 585,500 Overhead Required: a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? b. How much overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? Complete this question by entering your answers in the tabs below. Total $ 1,976,600 1,607,500 Personal 50 15 150 Total Cost per Unit Activity Level Commercial 25 25 50 How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? Note: Round "Total Cost per Unit" to 2 decimal places. < Required A Total 75 40 200 Required B >

Asbury Coffee Enterprises (ACE) manufactures two models of coffee grinders: Personal and Commercial. The Personal grinders have a smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Since the introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at ACE believes that the problem might be in how the accounting system allocates costs to products. The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which is representative, manufacturing overhead totaled $1,929,000 based on production of 30,000 Personal grinders and 10,000 Commercial grinders. Direct costs were as follows: Direct materials Direct labor Cost Driver Number of production runs Quality tests performed Shipping orders processed Total overhead Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows: Required A Personal $ 1,438,600 1,022,000 Required B Personal Commercial Costs Assigned $ 915,000 788,000 226,000 $ 1,929,000 Commercial $ 538,000 585,500 Overhead Required: a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? b. How much overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? Complete this question by entering your answers in the tabs below. Total $ 1,976,600 1,607,500 Personal 50 15 150 Total Cost per Unit Activity Level Commercial 25 25 50 How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? Note: Round "Total Cost per Unit" to 2 decimal places. < Required A Total 75 40 200 Required B >

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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