Required: 1. Determine the amount of the cost pool for each of the four activities. 2. Determine the activity-driver rates for assigning factory costs to the two products. 3. Determine the activity-based unit cost for each of the products.
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EyeGuard Equipment Inc. (EEI) manufactures protective eyewear for use in commercial and home applications. The product is also used by hunters, home woodworking hobbyists, and in other applications. The firm has two main product lines—the highest-quality product is called Safe-T, and a low-cost, value version is called Safe-V. Information on the factory conversion costs for EEI is as follows:
| Salaries | $ | 846,000 | |
| Supplies | 146,000 | ||
| Factory expense | 546,000 | ||
| $ | 1,538,000 | ||
EEI uses ABC to determine the unit costs of its products. The firm uses resource consumption cost drivers based on rough estimates of the amount that each activity consumes, as shown below. EEI has four activities: job setup, assembly, inspecting and finishing, and packaging.
| Setup | Assembly | Inspecting and Finishing | Packaging | Total | |||||||||||
| Salaries | 20 | % | 60 | % | 15 | % | 5 | % | 100 | % | |||||
| Supplies | 25 | 60 | 15 | 100 | |||||||||||
| Factory expense | 90 | 10 | 100 | ||||||||||||
The activity cost drivers for the two products are summarized below.
| Activities | Activity Driver |
| Setup | Batch |
| Assembly | Units |
| Inspect and finishing | Finishing hours |
| Packaging | Packing hours |
| Safe-V | Safe-T | |||||
| Batches | 210 | 560 | ||||
| Units | 56,000 | 68,000 | ||||
| Finishing hours, per unit | 0.30 | 0.20 | ||||
| Packaging hours, per unit | 0.20 | 0.10 | ||||
| Materials per unit | $ | 4.00 | $ | 5 | ||
Required:
1. Determine the amount of the cost pool for each of the four activities.
2. Determine the activity-driver rates for assigning factory costs to the two products.
3. Determine the activity-based unit cost for each of the products.
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- Carltons Kitchens makes two types of pasta makers: Strands and Shapes. The company expects to manufacture 70,000 units of Strands, which has a per-unit direct material cost of $10 and a per-unit direct labor cost of $60. It also expects to manufacture 30.000 units of Shapes, which has a per-unit material cost of $15 and a per-unit direct labor cost of $40. It is estimated that Strands will use 140,000 machine hours and Shapes will require 60,000 machine hours. Historically, the company has used the traditional allocation method and applied overhead at a rate of $21 per machine hour. It was determined that there were three cost pools, and the overhead for each cost pool is shown: The cost driver for each cost pool and its expected activity is shown: A. What is the per-unit cost for each product under the traditional allocation method? B. What is the per-unit cost for each product under ABC costing?Zee-Drive Ltd. is a computer manufacturer. One of the items they make is monitors. Zee-Drive has the opportunity to purchase 19,000 monitors from an outside supplier for $211 per unit. One of the company's cost-accounting interns prepared the following schedule of Zee-Drive's cost to produce 19,000 monitors: Total cost of producing 19,000 monitors Unit cost Direct materials $ 2,204,000 $116 Direct labor 1,330,000 70 Variable factory overhead 665,000 35 Fixed manufacturing overhead 570,000 30 Fixed non-manufacturing overhead 722,000 38 $ 5,491,000 $ 289 You are asked to look over the intern's estimate before the information is shared with members of management who will decide to continue to make the monitors or buy them. The company's controller believes that the estimate may be incorrect because it includes costs that are not relevant. If Zee-Drive buys the monitors, the direct labor force currently employed in producing the monitors will be terminated and there would be no termination…EyeGuard Equipment Incorporated (EEI) manufactures protective eyewear for use in commercial and home applications. The product is also used by hunters, home woodworking hobbyists, and in other applications. The firm has two main product lines-the highest-quality product is called Safe-T, and a low-cost, value version is called Safe- V. Information on the factory conversion costs for EEl is as follows: Factory Costs $ 850,000 150,000 550,000 $ 1,550,000 Salaries Supplies Factory expense Total EEl uses ABC to determine the unit costs of its products. The firm uses resource consumption cost drivers based on rough estimates of the amount that each activity consumes, as shown below. EEI has four activities: job setup, assembly, inspecting and finishing, and packaging. Inspecting and Setup Assembly Finishing Packaging Total Salaries 15% 55% 20% 10% 100% Supplies Factory expense 20 60 20 100 80 20 100 The activity cost drivers for the two products are summarized below. Activities Activity…
- EyeGuard Equipment Incorporated (EEI) manufactures protective eyewear for use in commercial and home applications. The product is also used by hunters, home woodworking hobbyists, and in other applications. The firm has two main product lines—the highest-quality product is called Safe-T, and a low-cost, value version is called Safe-V. Information on the factory conversion costs for EEI is as follows: Factory Costs Salaries $ 850,000 Supplies 150,000 Factory expense 550,000 Total $ 1,550,000 EEI uses ABC to determine the unit costs of its products. The firm uses resource consumption cost drivers based on rough estimates of the amount that each activity consumes, as shown below. EEI has four activities: job setup, assembly, inspecting and finishing, and packaging. Setup Assembly Inspecting and Finishing Packaging Total Salaries 15% 55% 20% 10% 100% Supplies 20 60 20 100 Factory expense 80 20 100 The activity cost drivers for the two…Buddy Pets has recently started to manufacture talking toy pets.The cost structure to manufacture 13,700 of these toy pets is as follows: Direct materials ($32 per pet) $438,400 Direct labour ($26 per pet) 356,200 Variable overhead ($13 per pet) 178,100 Allocated fixed overhead ($24 per pet) 328,800 Total $1,301,500 Buddy Pets is approached by Maxum Inc., which offers to make the toy pets for $84 per unit.Using incremental analysis, determine whether Buddy Pets should accept this offer under each of the following independent assumptions: Please dont provide solutions image based thanxMarvel Parts, Incorporated, manufactures auto accessories.One of the company's products is a set of seat covers that can be adjusted to fit nearly any small car. The company uses a standard cost system for all of its products. According to the standards that have been set for the seat covers, the factory should work 2, 850 hours each month to produce 1,900 sets of covers. The standard costs associated with this level of production are: Total Per Set of Covers Direct materials $ 42, 560 $ 22.40 Direct labor $ 51,300 27.00 Variable manufacturing overhead (Training Training hing based on direct labor-hours) $ 6,840 3.60 $ 53.00 During August, the factory worked only 2, 800 direct labor-hours and produced 2,000 sets of covers. The following actual costs were recorded during the month: Total Per Set of Covers Direct materials (12, 000 yards) $ $ 45,600 $ 22.80 Direct labor $ 49,000 24.50 Variable manufacturing overhead $ 7,000 3.50 $ 50.80 At standard, each set of covers should require 5.6…
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