Koontz Company manufactures two models of industrial components-a Basic model and an Advanced Model. The company considers all of its manufacturing overhead costs to be fixed and it uses plantwide manufacturing overhead cost allocation based on direct labor-hours. Koontz's controller prepared the segmented income statement that is shown below for the most recent year (he allocated selling and administrative expenses to products based on sales dollars): Advanced 10,000 Basic Total Number of units produced and sold 20,000 30,000 Sales Cost of goods sold Gross margin Selling and administrative expenses $3,000,000 2,300,000 700,000 $2,000,000 1,350,000 650,000 $5,000,000 3,650,000 1,350,000 720,000 480,000 1,200,000 $ 150,000 $ (20,000) $ 170,000 Net operating income (loss) Direct laborers are paid $20 per hour. Direct materials cost $40 per unit for the Basic model and $60 per unit for the Advanced model. Koontz is considering a change from plantwide overhead allocation to a departmental approach. The overhead costs in the company's Molding Department would be allocated based on machine-hours and the overhead costs in its Assembly and Pack Department would be allocated based on direct labor-hours. To enable further analysis, the controller gathered the following information: Assemble Molding $ 787,500 and Pack Total $ 562,500 Manufacturing overhead costs Direct labor hours: $1,350,000 Basic 20,000 10,000 5,000 30,000 15,000 Advanced Machine hours: 10,000 Basic 12,000 10,000 12,000 10,000 Advanced
Koontz Company manufactures two models of industrial components-a Basic model and an Advanced Model. The company considers all of its manufacturing overhead costs to be fixed and it uses plantwide manufacturing overhead cost allocation based on direct labor-hours. Koontz's controller prepared the segmented income statement that is shown below for the most recent year (he allocated selling and administrative expenses to products based on sales dollars): Advanced 10,000 Basic Total Number of units produced and sold 20,000 30,000 Sales Cost of goods sold Gross margin Selling and administrative expenses $3,000,000 2,300,000 700,000 $2,000,000 1,350,000 650,000 $5,000,000 3,650,000 1,350,000 720,000 480,000 1,200,000 $ 150,000 $ (20,000) $ 170,000 Net operating income (loss) Direct laborers are paid $20 per hour. Direct materials cost $40 per unit for the Basic model and $60 per unit for the Advanced model. Koontz is considering a change from plantwide overhead allocation to a departmental approach. The overhead costs in the company's Molding Department would be allocated based on machine-hours and the overhead costs in its Assembly and Pack Department would be allocated based on direct labor-hours. To enable further analysis, the controller gathered the following information: Assemble Molding $ 787,500 and Pack Total $ 562,500 Manufacturing overhead costs Direct labor hours: $1,350,000 Basic 20,000 10,000 5,000 30,000 15,000 Advanced Machine hours: 10,000 Basic 12,000 10,000 12,000 10,000 Advanced
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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:Koontz Company manufactures two models of industrial components-a Basic model and an Advanced Model. The company
considers all of its manufacturing overhead costs to be fixed and it uses plantwide manufacturing overhead cost allocation based on
direct labor-hours. Koontz's controller prepared the segmented income statement that is shown below for the most recent year (he
allocated selling and administrative expenses to products based on sales dollars):
Basic
Advanced
Total
Number of units produced and sold
20,000
10,000
30,000
$3,000,000
2,300,000
700,000
720,000
$2,000,000
1,350,000
650,000
480,000
$5,000,000
3,650,000
1,350,000
1,200,000
Sales
Cost of goods sold
Gross margin
Selling and administrative expenses
$
( 20,000)
$
170,000
$
150,000
Net operating income (loss)
Direct laborers are paid $20 per hour. Direct materials cost $40 per unit for the Basic model and $60 per unit for the Advanced model.
Koontz is considering a change from plantwide overhead allocation to a departmental approach. The overhead costs in the company's
Molding Department would be allocated based on machine-hours and the overhead costs in its Assembly and Pack Department would
be allocated based on direct labor-hours. To enable further analysis, the controller gathered the following information:
Assemble
Molding
$ 787,500
and Pack
Total
Manufacturing overhead costs
Direct labor hours:
$ 562,500
$1,350,000
30,000
15,000
Basic
10,000
5,000
20,000
10,000
Advanced
Machine hours:
12,000
10,000
Basic
12,000
10,000
Advanced
Transcribed Image Text:4. Using your activity-based cost assignments from requirement 3, prepare a contribution format segmented income statement that is
adapted from:Exhibit 4-8; (Hint: Organize all of the company's costs into three categories: variable expenses, traceable fixed expenses,
and common fixed expenses.)
5. Using your contribution format segmented income statement from requirement 4, calculate the break-even point in dollar sales for
the Advanced model.
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