Loose Leaf For Fundamental Accounting Principles Format: Loose-leaf
Loose Leaf For Fundamental Accounting Principles Format: Loose-leaf
24th Edition
ISBN: 9781260158557
Author: Wild
Publisher: Mcgraw Hill Publishers
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Chapter C, Problem 2APSA

Requirement 1:

To determine

Determine the overhead cost to be assigned to each pup tent and each pop-tent using plantwide overhead rate based on direct labor hours.

Requirement 1:

Expert Solution
Check Mark

Answer to Problem 2APSA

    Product Line

    Pup Tent

    Pop-up Tent
    Overhead Cost per unit
    $46.05 per unit
    $56.68

Explanation of Solution

  Plantwide Overhead Rate = Total Overhead CostTotal Direct Labor Hours                                       = $1,130,7102,600 DLH + 1,600 DLH                                       = $269.22

    Computation of total overhead cost
    Department A
    $215,630
    Department B
    $399,480
    Support
    $515,600
    Total Overhead Cost
    $1,130,710
    Manufacturing Overhead Cost per unit

    Pup Tent

    Pop-up Tent
    Overhead Cost for Product line
    $699,972

    (2,600 DLH X $269.22 per DLH)

    $430,752

    (1,600 DLH X $269.22 per DLH)

    ÷Number of units produced
    15,200 units
    7,600 units
    Overhead Cost per unit
    $46.05
    $56.68

Requirement 2:

To determine

Compute the total cost per unit for both products if the direct materials and direct labor cost is $25 per pup tent and $32 per pop-up tent.

Requirement 2:

Expert Solution
Check Mark

Answer to Problem 2APSA

    Tents
    Pup Tent
    Pop-up Tent
    Manufacturing Cost per unit
    $71.05
    $88.68

Explanation of Solution

    Total Manufacturing Cost per Unit
    Product Lines
    Pup Tent
    Pop-up Tent
    Direct Material and Direct Labor Cost per unit
    $25
    $32
    Manufacturing Overhead Cost per unit
    $46.05
    $56.68
    Manufacturing Cost per unit
    $71.05
    $88.68

Requirement 3:

To determine

Compute the gross profit per unit for each tent if the market price of pup tent is $65 and $200 for pop-tent and determine what might management conclude about the pup tent?

Requirement 3:

Expert Solution
Check Mark

Answer to Problem 2APSA

    Gross Profit (loss) per unit
    Pup Tent
    Pop-up Tent
    $(6.05)
    $111.32

Since the manufacturing cost per unit of pup tent is more than the selling price per unit, the management might decide to eliminate the product or put some effort in decreasing the cost of pup tent.

Explanation of Solution

    Gross Profit per unit
    Product Lines
    Pup Tent
    Pop-up Tent
    Selling Price per unit
    $65
    $200
    Less: Manufacturing Cost per unit
    $71.05
    $88.68
    Gross Profit (loss) per unit
    $(6.05)
    $111.32

Requirement 4:

To determine

Compute the total cost per unit of each tent if the direct labor and direct materials cost is $25 per pup tent and $32 per pop-up tent using ABC.

Requirement 4:

Expert Solution
Check Mark

Answer to Problem 2APSA

    Tents
    Pup Tent
    Pop-up Tent
    Manufacturing Cost per unit
    $58.46
    $113.87

Explanation of Solution

    Computation of Total Manufacturing Overhead Cost
    Pup Tent
    Pop-up Tent
    Pattern alignment
    $16,100

    (140 batches x $115)

    $48,300

    (420 batches x $115)

    Cutting
    $28,700

    (7,000 MH x $4.10)

    $21,730

    (5,300 MH x $4.10)

    Moving product
    $33,600

    (800 moves x $42)

    $67,200

    (1,600 moves x $42)

    Sewing
    $202,800

    (2,600 DLH x $78)

    $124,800

    (1,600 DLH x $78)

    Inspecting
    $9,600

    (240 insp. x $40)

    $14,400

    (360 insp. x $40)

    Folding
    $31,920

    (15,200 units x $2.10)

    $15,960

    (7,600 units x $2.10)

    Designing
    $70,000

    (70 mod. x $1,000)

    $210,000

    (210 mod. x $1,000)

    Providing space
    $25,800

    (4,300 sq. ft. x $6)

    $25,800

    (4,300 sq. ft. x $6)

    Material handling
    $90,000

    (450,000 sq.yd. x $0.20)

    $94,000

    (470,000 sq.yd. x $0.20)

    Total Overhead Cost
    $508,520
    $622,190

  Manufacturing Overhead Rate = Total Overhead CostUnits Produced                                                       Pup Tent =$508,52015,200 units                  = $33.46 per unit Popup Tent= $622,1907,600 units                      = $81.87 per unit

    Total Manufacturing Cost per Unit
    Product Lines
    Pup Tent
    Pop-up Tent
    Direct Material and Direct Labor Cost per unit
    $25
    $32
    Manufacturing Overhead Cost per unit
    $33.46
    $81.87
    Manufacturing Cost per unit
    $58.46
    $113.87

Requirement 5

To determine

Using ABC results, determine the gross profit per unit of each tent if the market price is $65 per pup tent and $200 per pop-up tent and suggest whether each product line would be profitable or not.

Requirement 5

Expert Solution
Check Mark

Answer to Problem 2APSA

    Gross Profit per unit
    Pup Tent
    Pop-up Tent
    $6.54
    $87.13

Using the ABC method, both product line are profitable because the selling price of both products are greater than their manufacturing cost.

Explanation of Solution

    Gross Profit per unit
    Product Lines
    Pup Tent
    Pop-up Tent
    Selling Price per unit
    $65
    $200
    Less: Manufacturing Cost per unit
    $58.46
    $113.87
    Gross Profit per unit
    $6.54
    $87.13

Under Activity Based Costing method, the cost concerning both tent are assigned accurately according to their actual activity. The cost of pup tent is adjusted to pop-up tent thereby decreasing the cost of pup tent and increasing the cost pop-up tent.

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