Theory of constraints, contribution margin, sensitivity analysis. Damon Furniture (DF) produces fiberglass doors in two processes: molding and finishing. DF is currently producing two models: Masoline and Aldernite. Production in the molding department is limited by the amount of materials available. Production in the finishing department is limited by the amount of trained labor available. The only variable costs are materials in the molding department and labor in the finishing department. Following are the re- quirements and limitations by model and department: Molding Materials 30 pounds per door 3 hours per door 45 pounds per door 540,000 pounds $3 per pound Selling Price $235 per door $305 per door Finishing Time Masoline Aldernite Materials/Labor Available Cost of materials and labor 4 hours per door 102,000 hours $15 per hour

Theory of constraints, contribution margin, sensitivity analysis. Damon Furniture (DF) produces fiberglass doors in two processes: molding and finishing. DF is currently producing two models: Masoline and Aldernite. Production in the molding department is limited by the amount of materials available. Production in the finishing department is limited by the amount of trained labor available. The only variable costs are materials in the molding department and labor in the finishing department. Following are the re- quirements and limitations by model and department: Molding Materials 30 pounds per door 3 hours per door 45 pounds per door 540,000 pounds $3 per pound Selling Price $235 per door $305 per door Finishing Time Masoline Aldernite Materials/Labor Available Cost of materials and labor 4 hours per door 102,000 hours $15 per hour

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter4: Activity-based Costing

Section: Chapter Questions

Problem 4CE: Larsen, Inc., produces two types of electronic parts and has provided the following data: There are...

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Theory of constraints, contribution margin, sensitivity analysis. Damon Furniture (DF) produces fiberglass doors in two processes: molding and finishing. DF is currently producing two models: Masoline and Aldernite. Production in the molding department is limited by the amount of materials available. Production in the finishing department is limited by the amount of trained labor available. The only variable costs are materials in the molding department and labor in the finishing department. Following are the requirements and limitations by model and department:
Theory of constraints, contribution margin, sensitivity analysis. Damon Furniture (DF) produces berglass doors in two processes: molding and nishing. DF is currently producing two models: Masoline and Aldernite. Production in the molding department is limited by the amount of materials available. Production in the nishing department is limited by the amount of trained labor available. The only variable costs are materials in the molding department and labor in the nishing department. Following are the requirements and limitations by model and department:
Theory of constraints, throughput margin, relevant costs. The Denver Corporation manufactures ling cabinets in two operations: machining and nishing. It provides the following information:
As you learned in the previous chapters, Current Designs has two main product lines-composite kayaks, which are handmade and very labor-intensive, and rotomolded kayaks, which require less labor but employ more expensive equipment. Current Designs' controller, Diane Buswell, is now evaluating several different methods of assigning overhead to these products. It is important to ensure that costs are appropriately assigned to the company's products. At the same time, the system that is used must not be so complex that its costs are greater than its benefits. Diane has decided to use the following activities and costs to evaluate the methods of assigning overhead. Activities Designing new models Creating and testing prototypes Creating molds for kayaks Cost $124,000 144,000 182,000 Operating oven for the rotomolded kayaks 41,000 Operating the vacuum line for the composite kayaks 28,000 Supervising production employees 168,000 Curing time (the time that is needed for the chemical processes…
The Chopin Company has decided to introduce a new product. The new product can be manufactured by either a computer-assisted manufacturing (CAM) or a labor-intensive production (LIP) system. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs for each of the two methods are as follows. CAM System: Direct Material = $5.0 Direct Labor (DLH) = 0.5 DLH X $12 = $6 Variable Overhead = 0.5DLHx$6 = $3 Fixed Iverhead* = $ 2,440,000 LIP System: Direct Material = $5.6 Direct Labor (DLH) = 0.8 DLH X $9 = $7.2 Variable Overhead = 0.8 DLH X $6 = $4.8 Fixed Overhead* = $1,320,000 *These costs are directly traceable to the new product line. They would not be incurred if the new product were not produced. The company’s marketing research department has recommended an introductory unit sales price of $30. Selling expenses are estimated to be $500,000 annually plus $2 for each unit sold. (Ignore income taxes.) Required 4. Describe the circumstances under…
Gibson Manufacturing produces two keyboards, one for laptop computers and the other for desktop computers. The production process is automated, and the company has found activity-based costing useful in assigning overhead costs to its products. The company has identified five major activities involved in producing the keyboards. Activity Materials receiving & handling Production setup Assembly Quality inspection Packing and shipping Activity measures for the two kinds of keyboards follow: Laptops Desktops Required Allocation Base Cost of material Number of setups Number of parts Inspection time Number of orders Labor Cost $ 1,190 1,080 Material Number of Number of Cost $ 5,600 7,500 Setups 31 11 Parts 47 28 Allocation Rate 2% of material cost $ 113.00 per setup $ 5.00 per part $ 1.30 per minute $ 12.00 per order Number of Inspection Time Orders 6,800 minutes 5,200 minutes 67 22 a. Compute the cost per unit of laptop and desktop keyboards, assuming that Gibson made 210 units of each…
The Chopin Company has decided to introduce a new product. The new product can be manufactured by either a computer-assisted manufacturing (CAM) or a labor-intensive production (LIP) system. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs for each of the two methods are as follows. CAM System: Direct Material = $5.0 Direct Labor (DLH) = 0.5 DLH X $12 = $6 Variable Overhead = 0.5DLHx$6 = $3 Fixed Iverhead* = $ 2,440,000 LIP System: Direct Material = $5.6 Direct Labor (DLH) = 0.8 DLH X $9 = $7.2 Variable Overhead = 0.8 DLH X $6 = $4.8 Fixed Overhead* = $1,320,000 *These costs are directly traceable to the new product line. They would not be incurred if the new product were not produced. The company’s marketing research department has recommended an introductory unit sales price of $30. Selling expenses are estimated to be $500,000 annually plus $2 for each unit sold. (Ignore income taxes.) Required: Calculate the estimated…
In a manufacturing company, overhead allocations are made for three reasons: (1) to determine the full cost of a product; (2) to encourage efficient resource usage; and (3) to compare alternative courses of action for management purposes. 1. Why must overhead be considered a product cost under generally accepted accounting principles? 2. Ayam Company makes plastic dog carriers. The manufacturing process is highly automated and the machine time needed to make any size crate is approximately the same. Ayam’s management decides to begin producing plastic lawn furniture and, to do so, two additional pieces of automated equipment are acquired. Annual depreciation on the new pieces of equipment is P38,000. Should the new overhead cost be allocated over all products manufactured by Ayam? Explain.
Lelime Precision Tools makes cutting tools for metalworking operations. It makes two types of tools: A6, a regular cutting tool, and EX4, a high-precision cutting tool. A6 is manufactured on a regular machine, but EX4 must be manufactured on both the regular machine and a high-precision machine. The following information is available: (Click to view the information.) Read the requirements. Requirement 1. What product mix - that is, how many units of A6 and EX4 - will maximize Lelime's operating income? Show your calculations. (Enter an amount in each input cell including zero balances.) Begin by calculating the benefit from only selling A6 or EX4. Contribution margin per hour of the constrained resource Hours of constrained resource X Total contribution margin Less: Lease costs of the high-precision machine Net relevant benefit A6 10 50000 500000 500000 EX4 70 50000 3500000 350000 3150000
Vaughn, Inc produces two types of gas grill: a family model and deluxe model. Vaughn’s controller has decided to use overhead rate based on direct labor costs. The president of the company recently heard of activity based on direct labor costs. The president of the company recently heard of activity- based costing and wants to see hoe the results would differ if this system were used. Two activity cost pools were developed: machine setup. Presented below is information related to the company’s operation: Family model Deluxe Model Direct Labor Cost: $78,000 $156,000 Machine Hours: 2,000 2,000 Setup Hours: 200 800 Total estimated overhead costs are $468,000. Overhead cost allocated to the machining activity cost pool is $280,800 and $187,200 is allocated to the machine setup activity cost pool. Compute the overhead rates using the activity-bases costing approach.
ExerLight produces two types of exercise treadmils: Regular and Deluxe. The exercise craze and relatod demand is such that ExerLight could use all of its available machine hours producing either model. The two models are processed through the sarne produclion department. E (Click the icon to view the data.) What product mix will maximize operating income? (Hint: Use the allocation of fixed manufacturing overhead to determine the proportion of machine hours used by each product.) Prepare the product mix analysis. Data table ExerLight Product Mix Analysis A B Doluxe Regular Per Unit Sale price per unit 1,050 600 2 Deluxe Regular 111 57 Variable cosls per unit 3 Sale price 1,050 $ 600 Contribution margin per unit 4 Less expenses: Units produced with equivalent number of machine hours 5 Direct materials 260 150 Contribution margin for equivalent number of machine hours Direct labor 80 6 178 Variable manufacturing overhead 282 94 Fixed manufacturing overhead* 144 48 Variable operating…
Perez Industries produces two electronic decoders, P and Q. Decoder P is more sophisticated and requires more programming and testing than does Decoder Q. Because of these product differences, the company wants to use activity-based costing to allocate overhead costs. It has identified four activity pools. Relevant information follows: b. Determine the overhead cost allocated to each product.