Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN: 9781305970663
Author: Don R. Hansen, Maryanne M. Mowen
Publisher: Cengage Learning
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Textbook Question
Chapter 3, Problem 14E
Vargas, Inc., produces industrial machinery. Vargas has a machining department and a group of direct laborers called machinists. Each machinist is paid $25,000 and can machine up to 500 units per year. Vargas also hires supervisors to develop machine specification plans and to oversee production within the machining department. Given the planning and supervisory work, a supervisor can oversee three machinists, at most. Vargas’s accounting and production history reveal the following relationships between units produced and the costs of direct labor and supervision (measured on an annual basis):
Required:
- 1. Prepare two graphs: one that illustrates the relationship between direct labor cost and units produced, and one that illustrates the relationship between the cost of supervision and units produced. Let cost be the vertical axis and units produced the horizontal axis.
- 2. How would you classify each cost? Why?
- 3. Suppose that the normal range of activity is between 2,400 and 2,450 units and that the exact number of machinists is currently hired to support this level of activity. Further suppose that production for the next year is expected to increase by an additional 400 units. How much will the cost of direct labor increase (and how will this increase be realized)? Cost of supervision?
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The Ramapo Company produces two products, Blinks and Dinks. They are manufactured in two departments, Fabrication and Assembly. Data for the products and departments are listed below.
Product
Number ofunits
Labor hoursper unit
Machine hoursper unit
Blinks
1,000
4
5
Dinks
2,000
2
8
All of the machine hours take place in the Fabrication department, which has an estimated overhead of $84,000. All of the labor hours take place in the Assembly department, which has an estimated total overhead of $72,000.The Ramapo Company uses a single overhead rate to apply all overhead costs based on labor hours. What is the overhead cost per unit for Dinks?
a.$39.00
b.$19.50
c.$77.00
d.$59.92
Ramapo Company produces two products, Blinks and Dinks. They are manufactured in two departments, Fabrication and Assembly. Data for the products and departments are listed below.
Product
Number ofUnits
Direct Labor HoursPer Unit
Machine HoursPer Unit
Blinks
1,000
4
5
Dinks
2,000
2
8
All of the machine hours take place in the Fabrication Department, which has an estimated overhead of $84,000. All of the labor hours take place in the Assembly Department, which has an estimated total overhead of $72,000.
Ramapo Company uses a single plantwide overhead rate to apply all factory overhead costs based on direct labor hours. The factory overhead allocated per unit of Blinks is
a.$37.45
b.$19.50
c.$56.00
d.$78.00
The Aleutian Company produces two products, Rings and Dings. They are manufactured in two departments—Fabrication and Assembly. Data for the products and departments are listed below.
Product
Number ofunits
Labor hoursper unit
Machine hoursper unit
Rings
1,000
4
6
Dings
2,000
3
9
All of the machine hours take place in the Fabrication Department, which has an estimated overhead of $90,000. All of the labor hours take place in the Assembly Department, which has an estimated total overhead of $105,000.The Aleutian Company uses departmental overhead rates. The Fabrication Department uses machine hours for an allocation base, and the Assembly Department uses labor hours.What is the overhead cost per unit for Dings?
a.$64.50
b.$65.25
c.$23.25
d.$56.75
Chapter 3 Solutions
Cornerstones of Cost Management (Cornerstones Series)
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