CableTech Bell Corporation (CTB) operates in the telecommunications industry. CTB has two divisions: the Phone Division and the Cable Service Division. The Cable Service Division reported the following activity for the month of March: Basic Enhanced Premium Sales (units) 50,000 500,000 300,000 Price per unit $32 $60 $90 Unit costs: Directly traced $6 $18 $36 Driver traced $4 $8 $12 Allocated $20 $26 $30 The unit costs are divided as follows: 70 percent production and 30 percent marketing and customer service. Direct labor cost is the only driver used for tracing. Typically, the division uses only production costs to define unit costs. The preceding unit product cost information was provided at the request of the marketing manager and was the result of a special study. During March, the Phone Division reported the following results: Inventories: Materials, March 1 $23,000 Materials, March 31 40,000 Work in process, March 1 130,000 Work in process, March 31 45,000 Finished goods, March 1 480,000 Finished goods, March 31 375,000 Costs: Direct labor $117,000 Plant and equipment depreciation 50,000 Materials handling 85,000 Inspections 60,000 Scheduling 30,000 Power 30,000 Plant supervision 12,000 Manufacturing engineering 21,000 Sales commissions 120,000 Salary, sales supervisor 10,000 Supplies 17,000 Warranty work 40,000 Rework 30,000 During March, the Phone Division purchased materials totaling $312,000. There are no significant inventories of supplies (beginning or ending). Supplies are accounted for separately from materials. CTB's Phone Division had sales totaling $1,170,000 for March. Overhead Direct Labor Cost $360,000 $110,000 300,000 100,000 350,000 90,000 400,000 100,000 320,000 90,000 380,000 100,000 300,000 90,000 280,000 90,000 340,000 95,000 410,000 115,000 375,000 100,000 360,000 85,000 340,000 85,000 330,000 90,000 300,000 80,000 This information is provided next: Materials-Handling Cost Number of Moves $80,000 1,500 60,000 1,000 70,000 1,250 72,000 1,300 65,000 1,100 85,000 1,700 67,000 1,200 73,500 1,350 83,000 1,400 84,000 1,700 The regression results were impressive. There is no question in my mind that the number of moves is a good driver of materials-handling costs. Using the number of moves to assign materials-handling costs to products would likely be better than the cost assignment using direct labor cost. Furthermore, since small batches use the same number of moves as large batches, we have some evidence that we may be overcosting our high-volume products. Kim, you expressed the desire of reducing the costs of inspection, reworking, and warranties. In addition to the pilot study for one plant, I also collected information about these three activities for the division. For the inspection activity, we have 15 inspectors who are paid an average of $4,000 per month. Each inspector offers a practical inspection capacity of 2,000 hours per year. However, it appears that inspectors actually work only about 80 percent of those hours. Rework cost is simply the cost of replacing some faulty components and the associated direct labor. The rework cost per unit is predictable and constant per unit regardless of the product model. Warranty cost, on the other hand, involves the salaries of two technicians, with the remaining cost, the cost of replacement components, which is relatively constant per unit repaired. The technicians are paid $5,000 per month and provide 2,000 hours of service per year. Warranty service usually requires 3,600 technician hours per year. Pursuant to the request, Jacob produced the following cost and driver information: Activity Expected Cost Driver Activity Capacity Other activities $2,000,000 Direct labor dollars $1,250,000 Moving materials 900,000 Number of moves 18,000 Inspecting 720,000 Inspection hours 24,000 Reworking 380,000 Rework hours 3,800 Total overhead cost $4,000,000 Expected activity demands: Regular Model Deluxe Model Units completed 100,000 40,000 Direct labor dollars $875,000 $375,000 Number of moves 7,200 10,800 Inspection hours 6,000 18,000 Rework hours 1,900 1,900 Required: 1. Answer the following regarding the product costing system of the Cable Service Division: a. Complete the following table with the appropriate product costs for the Cable Service Division: Round the answers to two decimal places. Basic Enhanced Premium Product cost for pricing $fill in the blank 8b7572033f96fe8_1 $fill in the blank 8b7572033f96fe8_2 $fill in the blank 8b7572033f96fe8_3 Product cost for cost of services sold fill in the blank 8b7572033f96fe8_4 fill in the blank 8b7572033f96fe8_5 fill in the blank 8b7572033f96fe8_6

CableTech Bell Corporation (CTB) operates in the telecommunications industry. CTB has two divisions: the Phone Division and the Cable Service Division. The Cable Service Division reported the following activity for the month of March: Basic Enhanced Premium Sales (units) 50,000 500,000 300,000 Price per unit $32 $60 $90 Unit costs: Directly traced $6 $18 $36 Driver traced $4 $8 $12 Allocated $20 $26 $30 The unit costs are divided as follows: 70 percent production and 30 percent marketing and customer service. Direct labor cost is the only driver used for tracing. Typically, the division uses only production costs to define unit costs. The preceding unit product cost information was provided at the request of the marketing manager and was the result of a special study. During March, the Phone Division reported the following results: Inventories: Materials, March 1 $23,000 Materials, March 31 40,000 Work in process, March 1 130,000 Work in process, March 31 45,000 Finished goods, March 1 480,000 Finished goods, March 31 375,000 Costs: Direct labor $117,000 Plant and equipment depreciation 50,000 Materials handling 85,000 Inspections 60,000 Scheduling 30,000 Power 30,000 Plant supervision 12,000 Manufacturing engineering 21,000 Sales commissions 120,000 Salary, sales supervisor 10,000 Supplies 17,000 Warranty work 40,000 Rework 30,000 During March, the Phone Division purchased materials totaling $312,000. There are no significant inventories of supplies (beginning or ending). Supplies are accounted for separately from materials. CTB's Phone Division had sales totaling $1,170,000 for March. Overhead Direct Labor Cost $360,000 $110,000 300,000 100,000 350,000 90,000 400,000 100,000 320,000 90,000 380,000 100,000 300,000 90,000 280,000 90,000 340,000 95,000 410,000 115,000 375,000 100,000 360,000 85,000 340,000 85,000 330,000 90,000 300,000 80,000 This information is provided next: Materials-Handling Cost Number of Moves $80,000 1,500 60,000 1,000 70,000 1,250 72,000 1,300 65,000 1,100 85,000 1,700 67,000 1,200 73,500 1,350 83,000 1,400 84,000 1,700 The regression results were impressive. There is no question in my mind that the number of moves is a good driver of materials-handling costs. Using the number of moves to assign materials-handling costs to products would likely be better than the cost assignment using direct labor cost. Furthermore, since small batches use the same number of moves as large batches, we have some evidence that we may be overcosting our high-volume products. Kim, you expressed the desire of reducing the costs of inspection, reworking, and warranties. In addition to the pilot study for one plant, I also collected information about these three activities for the division. For the inspection activity, we have 15 inspectors who are paid an average of $4,000 per month. Each inspector offers a practical inspection capacity of 2,000 hours per year. However, it appears that inspectors actually work only about 80 percent of those hours. Rework cost is simply the cost of replacing some faulty components and the associated direct labor. The rework cost per unit is predictable and constant per unit regardless of the product model. Warranty cost, on the other hand, involves the salaries of two technicians, with the remaining cost, the cost of replacement components, which is relatively constant per unit repaired. The technicians are paid $5,000 per month and provide 2,000 hours of service per year. Warranty service usually requires 3,600 technician hours per year. Pursuant to the request, Jacob produced the following cost and driver information: Activity Expected Cost Driver Activity Capacity Other activities $2,000,000 Direct labor dollars $1,250,000 Moving materials 900,000 Number of moves 18,000 Inspecting 720,000 Inspection hours 24,000 Reworking 380,000 Rework hours 3,800 Total overhead cost $4,000,000 Expected activity demands: Regular Model Deluxe Model Units completed 100,000 40,000 Direct labor dollars $875,000 $375,000 Number of moves 7,200 10,800 Inspection hours 6,000 18,000 Rework hours 1,900 1,900 Required: 1. Answer the following regarding the product costing system of the Cable Service Division: a. Complete the following table with the appropriate product costs for the Cable Service Division: Round the answers to two decimal places. Basic Enhanced Premium Product cost for pricing $fill in the blank 8b7572033f96fe8_1 $fill in the blank 8b7572033f96fe8_2 $fill in the blank 8b7572033f96fe8_3 Product cost for cost of services sold fill in the blank 8b7572033f96fe8_4 fill in the blank 8b7572033f96fe8_5 fill in the blank 8b7572033f96fe8_6

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 2CE: Corazon Manufacturing Company has a purchasing department staffed by five purchasing agents. Each...

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CableTech Bell Corporation (CTB) operates in the telecommunications industry. CTB has two divisions: the Phone Division and the Cable Service Division.

The Cable Service Division reported the following activity for the month of March:

	Basic	Enhanced	Premium
Sales (units)		50,000		500,000	300,000
Price per unit		$32		$60	$90
Unit costs:
Directly traced		$6		$18	$36
Driver traced		$4		$8	$12
Allocated		$20		$26	$30

The unit costs are divided as follows: 70 percent production and 30 percent marketing and customer service. Direct labor cost is the only driver used for tracing. Typically, the division uses only production costs to define unit costs. The preceding unit product cost information was provided at the request of the marketing manager and was the result of a special study.

During March, the Phone Division reported the following results:

Inventories:
Materials, March 1	$23,000
Materials, March 31	40,000
Work in process, March 1	130,000
Work in process, March 31	45,000
Finished goods, March 1	480,000
Finished goods, March 31	375,000
Costs:
Direct labor	$117,000
Plant and equipment depreciation	50,000
Materials handling	85,000
Inspections	60,000
Scheduling	30,000
Power	30,000
Plant supervision	12,000
Manufacturing engineering	21,000
Sales commissions	120,000
Salary, sales supervisor	10,000
Supplies	17,000
Warranty work	40,000
Rework	30,000

During March, the Phone Division purchased materials totaling $312,000. There are no significant inventories of supplies (beginning or ending). Supplies are accounted for separately from materials. CTB's Phone Division had sales totaling $1,170,000 for March.

Overhead	Direct Labor Cost
$360,000		$110,000
300,000		100,000
350,000		90,000
400,000		100,000
320,000		90,000
380,000		100,000
300,000		90,000
280,000		90,000
340,000		95,000
410,000		115,000
375,000		100,000
360,000		85,000
340,000		85,000
330,000		90,000
300,000		80,000

This information is provided next:

Materials-Handling Cost	Number of Moves
$80,000		1,500
60,000		1,000
70,000		1,250
72,000		1,300
65,000		1,100
85,000		1,700
67,000		1,200
73,500		1,350
83,000		1,400
84,000		1,700

The regression results were impressive. There is no question in my mind that the number of moves is a good driver of materials-handling costs. Using the number of moves to assign materials-handling costs to products would likely be better than the cost assignment using direct labor cost. Furthermore, since small batches use the same number of moves as large batches, we have some evidence that we may be overcosting our high-volume products.

Kim, you expressed the desire of reducing the costs of inspection, reworking, and warranties. In addition to the pilot study for one plant, I also collected information about these three activities for the division. For the inspection activity, we have 15 inspectors who are paid an average of $4,000 per month. Each inspector offers a practical inspection capacity of 2,000 hours per year. However, it appears that inspectors actually work only about 80 percent of those hours. Rework cost is simply the cost of replacing some faulty components and the associated direct labor. The rework cost per unit is predictable and constant per unit regardless of the product model. Warranty cost, on the other hand, involves the salaries of two technicians, with the remaining cost, the cost of replacement components, which is relatively constant per unit repaired. The technicians are paid $5,000 per month and provide 2,000 hours of service per year. Warranty service usually requires 3,600 technician hours per year.

Pursuant to the request, Jacob produced the following cost and driver information:

Activity	Expected Cost		Driver	Activity Capacity
Other activities		$2,000,000		Direct labor dollars	$1,250,000
Moving materials		900,000		Number of moves	18,000
Inspecting		720,000		Inspection hours	24,000
Reworking		380,000		Rework hours	3,800
Total overhead cost		$4,000,000

Expected activity demands:

	Regular Model	Deluxe Model
Units completed		100,000	40,000
Direct labor dollars		$875,000	$375,000
Number of moves		7,200	10,800
Inspection hours		6,000	18,000
Rework hours		1,900	1,900

Required:

1. Answer the following regarding the product costing system of the Cable Service Division:

a. Complete the following table with the appropriate product costs for the Cable Service Division: Round the answers to two decimal places.

	Basic	Enhanced	Premium
Product cost for pricing		$fill in the blank 8b7572033f96fe8_1		$fill in the blank 8b7572033f96fe8_2	$fill in the blank 8b7572033f96fe8_3
Product cost for cost of services sold		fill in the blank 8b7572033f96fe8_4		fill in the blank 8b7572033f96fe8_5	fill in the blank 8b7572033f96fe8_6

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