Cost Accounts
Cost Accounts
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Problem 3-12A Contrasting ABC and Conventional Product Costs [LO2, LO3, LO4]
| Precision Manufacturing Inc. (PMI) makes two types of industrial component parts—the EX300 and the TX500. It annually produces 60,000 units of EX300 and 12,500 units of TX500. The company’s conventional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company’s two product lines is shown below: |
| EX300 | TX500 | Total | ||||
| Direct materials | $ | 366,325 | $ | 162,550 | $ | 528,875 |
| Direct labor | $ | 120,000 | $ | 42,500 | $ | 162,500 |
| The company is considering implementing an activity-based costing system that distributes all of itsmanufacturing overhead to four activities as shown below: |
| Activity Cost Pool (and Activity Measure) |
Manufacturing Overhead |
Activity | ||||||
| EX300 | TX500 | Total | ||||||
| Machining (machine-hours) | $ | 198,250 | 90,000 | 62,500 | 152,500 | |||
| Setups (setup hours) | 150,000 | 75 | 300 | 375 | ||||
| Product-level (number of products) | 100,250 | 1 | 1 | 2 | ||||
| General factory (direct labor dollars) | 60,125 | $ | 120,000 | $ | 42,500 | $ | 162,500 | |
| Total manufacturing overhead cost | $ | 508,625 | ||||||
| Required: |
| 1-a. | Compute the plantwide overhead rate that would be used in the company’s conventional cost system. (Round your answer to 2 decimal places.) |
| Predetermined overhead rate | $ | per DL$ |
| 1-b. | Using the plantwide rate, compute the unit product cost for each product. (Do not round intermediate calculations. Round your answers to 2 decimal places.) |
| EX300 | TX500 | |
| Unit product cost | $ | $ |
| 2-a. | Compute the activity rate for each activity cost pool. (Round your answers to 2 decimal places.) |
| Activity Cost Pools | Activity Rate | |
| Machining | $ | per MH |
| Setups | $ | per setup hr. |
| Product-level | $ | per product |
| General factory | $ | per DL$ |
| 2-b. | Using the activity rates, compute the unit product cost for each product. (Do not round intermediate calculations. Round your answers to 2 decimal places.) |
| EX300 | TX500 | |
| Unit product cost | $ | $ |
Exercise 3-7 Contrast ABC and Conventional Product Costs [LO2, LO3, LO4]
| Kunkel Company makes two products and uses a conventional costing system in which a single plantwide predetermined overhead rate is computed based on direct labor-hours. Data for the two products for the upcoming year follow: |
| Mercon | Wurcon | |||
| Direct materials cost per unit | $ | 10.00 | $ | 8.00 |
| Direct labor cost per unit | $ | 3.00 | $ | 3.75 |
| Direct labor-hours per unit | 0.20 | 0.25 | ||
| Number of units produced | 10,000 | 40,000 | ||
| These products are customized to some degree for specific customers. |
| Required: | |
| 1. | The company’s manufacturing overhead costs for the year are expected to be $336,000. Using the company’s conventional costing system, compute the unit product costs for the two products. (Do not round intermediate calculation. Round your final answers to 2 decimal places.) |
| Mercon | Wurcon | |
| Unit product cost | $ | $ |
| 2. | Management is considering an activity-based costing system in which half of the overhead wouldcontinue to be allocated on the basis of direct labor-hours and half would be allocated on the basis of engineering design time. This time is expected to be distributed as follows during the upcoming year: |
| Mercon | Wurcon | Total | |
| Engineering design time (in hours) | 4,000 | 4,000 | 8,000 |
| Compute the unit product costs for the two products using the proposed ABC system. (Do not round intermediate calculation. Round your final answers to 2 decimal places.) |
| Mercon | Wurcon | |
| Unit product cost | $ | $ |
Exercise 3-3 Compute ABC Product Costs [LO3]
| Larner Corporation is a diversified manufacturer of industrial goods. The company’s activity-based costing system contains the following six activity cost pools and activity rates: |
| Activity Cost Pool | Activity Rates | ||
| Labor-related | $ | 7.00 | per direct labor-hour |
| Machine-related | $ | 3.00 | per machine-hour |
| Machine setups | $ | 40.00 | per setup |
| Production orders | $ | 160.00 | per order |
| Shipments | $ | 120.00 | per shipment |
| General factory | $ | 4.00 | per direct labor-hour |
| Cost and activity data have been supplied for the following products: |
| J78 | B52 | |||
| Direct materials cost per unit | $ | 6.50 | $ | 31.00 |
| Direct labor cost per unit | $ | 3.75 | $ | 6.00 |
| Number of units produced per year | 4,000 | 100 | ||
| Total ExpectedActivity | |||
| J78 | B52 | ||
| Direct labor-hours | 1,000 | 40 | |
| Machine-hours | 3,200 | 30 | |
| Machine setups | 5 | 1 | |
| Production orders | 5 | 1 | |
| Shipments | 10 | 1 | |
| Required: |
| Compute the unit product cost of each product listed above. (Round your answers to 2 decimal places.) |
| J78 | B52 | |
| Unit product cost | $ | $ |
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