Managerial Accounting: Ch.2 Job Order Costing

Fickel Company has two manufacturing departments—Assembly and Testing & Packaging. The predetermined overhead rates in Assembly and Testing & Packaging are $25.00 per direct labor-hour and $21.00 per direct labor-hour, respectively. The company’s direct labor wage rate is $27.00 per hour. The following information pertains to Job N-60:

Required:

1. What is the total manufacturing cost assigned to Job N-60? (Do not round intermediate calculations.)
2. If Job N-60 consists of 10 units, what is the unit product cost for this job? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Solution

Tech Solutions is a consulting firm that uses a job-order costing system. Its direct materials consist of hardware and software that it purchases and installs on behalf of its clients. The firm’s direct labor includes salaries of consultants that work at the client’s job site, and its overhead consists of costs such as depreciation, utilities, and insurance related to the office headquarters as well as the office supplies that are consumed serving clients.

Tech Solutions computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 77,500 direct labor-hours would be required for the period’s estimated level of client service. The company also estimated $775,000 of fixed overhead cost for the coming period and variable overhead of $0.50 per direct labor-hour. The firm’s actual overhead cost for the year was $789,800 and its actual total direct labor was 83,350 hours.

Required:

1. Compute the predetermined overhead rate.
2. During the year, Tech Solutions started and completed the Xavier Company engagement. The following information was available with respect to this job:
   

   Direct materials	52,950
   Direct labor cost	30,500
   Direct labor-hours worked	320

   Compute the total job cost for the Xavier Company engagement.

Solution

1. Compute the predetermined overhead rate. (Round your answer to 2 decimal places.)
   

   Predetermined overhead rate	$10.50	per DLH

   วิธีคิด
   The estimated total overhead cost is computed as follows:

   \(Y = $775{,}000 + ($0.50 \text{ per DLH})(77{,}500 \text{ DLHs})\)

   Estimated fixed overhead cost	775,000
   Estimated variable overhead cost: $0.50 per DLH × 77,500	38,750
   Estimated total overhead cost	813,750

   The predetermined overhead rate is computed as follows:

   Estimated total overhead (a)	813,750
   Estimated total direct labor-hours (b)	77,500	DLHs
   Predetermined overhead rate (a) ÷ (b)	10.50	per DLH

2. Compute the total job cost for the Xavier Company engagement. (Round your intermediate calculations to 2 decimal places.)
   

   Direct materials	52,950
   Direct labor cost	30,500
   Direct labor-hours worked	3,360
   Total manufacturing cost	86,810

   วิธีคิด
   

   Total job cost = direct materials + direct labor + overhead applied
   ซึ่งโจทย์ให้ direct materials และ direct labor มาแล้ว แต่ไม่ได้ให้ overhead applied

   \(\begin{align*}
   \text{Overhead applied} &= \text{predetermined overhead rate} \times {activity} \\[6pt] &= \text{predetermined overhead rate} \times \text{direct labor-hours worked} \\[6pt] &= 10.5 \text{ per DLH} \times 320 \text{ DLHs} \\[6pt] &= 3{,}360
   \end{align*}
   \)

Taveras Corporation is currently operating at 50% of its available manufacturing capacity. It uses a job-order costing system with a plantwide predetermined overhead rate based on machine-hours. At the beginning of the year, the company made the following estimates:

Required:

1. Compute the plantwide predetermined overhead rate.
2. During the year, Job P90 was started, completed, and sold to the customer for $4,200. The following information was available with respect to this job:
   

   Direct materials	1,932
   Direct labor cost	1,386
   Machine-hours used	89

   Compute the total manufacturing cost assigned to Job P90.

Solution

1. Compute the plantwide predetermined overhead rate.
   

   Predetermined overhead rate

   26

   per MH

   วิธีคิด

   The estimated total overhead cost is computed as follows:

   \(Y = $6{,}000{,}000 + ($2 \text{ per MH})(250{,}000 \text{MHs})\)

   Estimated fixed overhead	6,000,000
   Estimated variable overhead: $2 per MH × 250,000 MHs	500,000
   Estimated total overhead cost	6,500,000

   The plantwide predetermined overhead rate is computed as follows:

   Estimated total overhead (a)	6,500,000
   Estimated total machine-hours (b)	250,000	MHs
   Predetermined overhead rate (a) ÷ (b)	26	per MH

2. Compute the total manufacturing cost assigned to Job P90.
   

   Direct materials	1,932
   Direct labor	1,386
   Overhead applied	2,314
   Total manufacturing cost	5,632

   วิธีคิด
   เราหา total manufacturing cost สำหรับ Job P90 ได้จากสูตร

   \(\begin{align*}
   &= \text{direct materials} + \text{direct labor} + \text{manufacturing overheads} \\[6pt] &= 1{,}932 + 1{,}386 + (\text{machine-hours used} \times \text{predetermined overhead rate}) \\[6pt] &= 1{,}932 + 1{,}386 + (89 \text{ MHs} \times 26 \text{ per MH}) \\[6pt] &= 1{,}932 + 1{,}386 + 2{,}314 \\[6pt] &= $\ 5{,}632
   \end{align*}
   \)

Kingsport Containers Company makes a single product that is subject to wide seasonal variations in demand. The company uses a job-order costing system and computes plantwide predetermined overhead rates on a quarterly basis using the number of units to be produced as the allocation base. Its estimated costs, by quarter, for the coming year are given below:

Management finds the variation in quarterly unit product costs to be confusing. It has been suggested that the problem lies with manufacturing overhead because it is the largest element of total manufacturing cost. Accordingly, you have been asked to find a more appropriate way of assigning manufacturing overhead cost to units of product.

Required:

1. Assuming the estimated variable manufacturing overhead cost per unit is $0.40, what must be the estimated total fixed manufacturing overhead cost per quarter?
2. Assuming the assumptions about cost behavior from the first three quarters hold constant, what is the estimated unit product cost for the fourth quarter?
3. What is causing the estimated unit product cost to fluctuate from one quarter to the next?
4. Assuming the company computes one predetermined overhead rate for the year rather than computing quarterly overhead rates, calculate the unit product cost for all units produced during the year.

Solution

1. Assuming the estimated variable manufacturing overhead cost per unit is $0.40, what must be the estimated total fixed manufacturing overhead cost per quarter?
   

   Fixed manufacturing overhead cost	192,000

   วิธีคิด

   The estimated total fixed manufacturing overhead can be computed using the data from any of quarters 1-3. For illustrative purposes, we’ll use the first quarter as follows:

   Total overhead cost (First quarter)	240,000
   Variable cost element ($0.40 per unit × 120,000 units)	48,000
   Fixed cost element	192,000

2. Assuming the assumptions about cost behavior from the first three quarters hold constant, what is the estimated unit product cost for the fourth quarter? (Do not round intermediate calculations and round the “Unit product cost” to 2 decimal places.)
   

   Unit product cost	5.87

   วิธีคิด

   The fixed and variable cost estimates from requirement 1 can be used to estimate the total manufacturing overhead cost for the fourth quarter as follows:

   \(Y = $192{,}000 + ($0.40 \text{ per unit})(90{,}000 \text{ units})\)

   Estimated fixed manufacturing overhead	192,000
   Estimated variable manufacturing overhead $0.40 per unit × 90,000 units	36,000
   Estimated total manufacturing overhead cost	228,000

   The estimated unit product cost for the fourth quarter is computed as follows:

   Direct materials	180,000
   Direct labor	120,000
   Manufacturing overhead	228,000
   Total manufacturing costs (a)	528,000
   Number of units to be produced (b)	90,000
   Unit product cost (rounded) (a) ÷ (b)	5.87

3. What is causing the estimated unit product cost to fluctuate from one quarter to the next?
   • The fixed portion of the manufacturing overhead cost is causing the unit product costs to fluctuate. The unit product cost increases as the level of production decreases because the fixed overhead is spread over fewer units.
   • The fixed portion of the manufacturing overhead cost is causing the unit product costs to fluctuate. The unit product cost decreases as the level of production decreases because the fixed overhead is spread over fewer units.
   • The variable portion of the manufacturing overhead cost is causing the unit product costs to fluctuate. The unit product cost increases as the level of production decreases because the variable overhead is spread over fewer units.
   • The variable portion of the manufacturing overhead cost is causing the unit product costs to fluctuate. The unit product cost decreases as the level of production decreases because the variable overhead is spread over fewer units.
4. Assuming the company computes one predetermined overhead rate for the year rather than computing quarterly overhead rates, calculate the unit product cost for all units produced during the year. (Do not round intermediate calculations and round the “Unit product cost” to 2 decimal places.)
   

   Unit product cost	6.29

   วิธีคิด

   The unit product cost can be stabilized by using a predetermined overhead rate that is based on expected activity for the entire year. The cost formula created in requirement 1 can be adapted to compute the annual predetermined overhead rate. The annual fixed manufacturing overhead is $768,000 ($192,000 per quarter × 4 quarters). The variable manufacturing overhead per unit is $0.40. The cost formula is as follows:

   \(Y = $768{,}000 + 0.40 \text{ per unit} × 300{,}000 \text{ units}\)

   Estimated fixed manufacturing overhead	768,000
   Estimated variable manufacturing overhead $0.40 per unit × 300,000 units	120,000
   Estimated total manufacturing overhead cost	888,000

   The annual predetermined overhead rate is computed as follows:

   Estimated total manufacturing overhead (a)	888,000
   Estimated total units produced (b)	300,000
   Predetermined overhead rate (a) ÷ (b)	2.96	per unit

   Using a predetermined overhead rate of $2.96 per unit, the unit product costs would stabilize as shown below:

   	Quarter
   	First	Second	Third	Fourth
   Direct materials	240,000	120,000	60,000	180,000
   Direct labor	160,000	80,000	40,000	120,000
   Manufacturing overhead: at $2.96 per unit	355,200	177,600	88,800	266,400
   Total cost (a)	755,200	377,600	188,800	566,400
   Number of units produced (b)	120,000	60,000	30,000	90,000
   Unit product cost (a) ÷ (b)	6.29	6.29	6.29	6.29

Moody Corporation uses a job-order costing system with a plantwide predetermined overhead rate based on machine-hours. At the beginning of the year, the company made the following estimates:

Required:

1. Compute the plantwide predetermined overhead rate.
2. During the year, Job 400 was started and completed. The following information was available with respect to this job:
   

   Direct materials	330
   Direct labor cost	250
   Machine-hours used	35

   Compute the total manufacturing cost assigned to Job 400.

3. If Job 400 includes 50 units, what is the unit product cost for this job?
4. If Moody uses a markup percentage of 130% of its total manufacturing cost, then what selling price per unit would it have established for Job 400?

Solution

1. Compute the plantwide predetermined overhead rate. (Round your answer to 2 decimal places.)
   

   Predetermined overhead rate	9.02	per MH

   วิธีคิด

   The estimated total manufacturing overhead cost is computed as follows:

   \(Y = $656{,}000 + ($4.70 \text{ per MH})(152{,}000 \text{ MHs})\)

   Estimated fixed manufacturing overhead	656,000
   Estimated variable manufacturing overhead: $4.70 per MH × 152,000 MHs	714,400
   Estimated total manufacturing overhead cost	1,370,400

   The plantwide predetermined overhead rate is computed as follows:

   Estimated total manufacturing overhead (a)	1,370,400
   Estimated total machine-hours (b)	152,000	MHs
   Predetermined overhead rate (a) ÷ (b)	9.02	per MH

2. Compute the total manufacturing cost assigned to Job 400 (Round your intermediate calculations to 2 decimal places and your final answer to the nearest dollar amount.)
   

   Total manufacturing cost	896	per MH

   วิธีคิด

   Total manufacturing cost assigned to Job 400:

   Direct materials	330
   Direct labor	250
   Manufacturing overhead applied ($9.02 per MH × 35 MHs)	316
   Total manufacturing cost	896

3. If Job 400 includes 50 units, what is the unit product cost for this job? (Round your intermediate calculations and final answer to the nearest whole dollar.)
   

   Unit product cost	18

   วิธีคิด

   The unit product cost of Job 400 is computed as follows:

   Total manufacturing cost (a)	896
   Number of units in the job (b)	50
   Unit product cost (a) ÷ (b)	18

4. If Moody uses a markup percentage of 130% of its total manufacturing cost, then what selling price per unit would it have established for Job 400? (Round your intermediate calculations and final answer to the nearest whole dollar.)
   

   Selling price per unit	41

   วิธีคิด

   The selling price per unit is computed as follows:

   Total manufacturing cost	896
   Markup (130% of manufacturing cost)	1,164
   Selling price for Job 400 (a)	2,060
   Number of units in Job 400 (b)	50
   Selling price per unit (a) ÷ (b)	41

White Company has two departments, Cutting and Finishing. The company uses a job-order costing system and computes a predetermined overhead rate in each department. The Cutting Department bases its rate on machine-hours, and the Finishing Department bases its rate on direct labor-hours. At the beginning of the year, the company made the following estimates:

Required:

1. Compute the predetermined overhead rate for each department.
2. The job cost sheet for Job 203, which was started and completed during the year, showed the following:
   

   	Department
   	Cutting	Finishing
   Direct labor-hours	6	12
   Machine-hours	80	4
   Direct materials	800	380
   Direct labor cost	144	288

   Using the predetermined overhead rates that you computed in requirement (1), compute the total manufacturing cost assigned to Job 203.
3. Would you expect substantially different amounts of overhead cost to be assigned to some jobs if the company used a plantwide predetermined overhead rate based on direct labor-hours, rather than using departmental rates?

Solution

1. Compute the predetermined overhead rate for each department. (Round your answers to 2 decimal places.)
   

   	Department
   	Cutting		Finishing
   Predetermined overhead rate	$7.71	per MH	$10.32	per DLH

   วิธีคิด

   Cutting Department:

   The estimated total manufacturing overhead cost in the Cutting Department is computed as follows:

   \(Y = $400{,}000 + ($2.00 \text{ per MH})(70{,}000 \text{ MHs})\)

   Estimated fixed manufacturing overhead	400,000
   Estimated variable manufacturing overhead $2.00 per MH × 70,000 MHs	140,000
   Estimated total manufacturing overhead cost	540,000

   The predetermined overhead rate is computed as follows:

   Estimated total manufacturing overhead (a)	540,000
   Estimated total machine-hours (b)	70,000	MHs
   Predetermined overhead rate (a) ÷ (b)	7.71	per MH

   Finishing Department:

   The estimated total manufacturing overhead cost in the Finishing Department is computed as follows:

   \(Y = $427{,}000 + ($3.75 \text{ per DLH})(65{,}000 \text{ DLHs})\)

   Estimated fixed manufacturing overhead	427,000
   Estimated variable manufacturing overhead $3.75 per DLH × 65,000 DLHs	243,750
   Estimated total manufacturing overhead cost	670,750

   The predetermined overhead rate is computed as follows:

   Estimated total manufacturing overhead (a)	670,750
   Estimated total direct labor-hours (b)	65,000	DLHs
   Predetermined overhead rate (a) ÷ (b)	10.32	per DLH

2. Using the predetermined overhead rates that you computed in requirement (1), compute the total manufacturing cost assigned to Job 203. (Round intermediate calculations to 2 decimal places and final answer to the nearest dollar amount.)
   

   Total manufacturing cost	2,353

   วิธีคิด

   Total manufacturing cost assigned to Job 203:
   Direct materials ($800 + $380)		1,180.00
   Direct labor ($144 + $288)		432.00
   Cutting Department (80 MHs × $7.71 per MH)	616.80
   Finishing Department (12 DLH × $10.32 per DLH)	123.84	740.64
   Total manufacturing cost		2,352.64

3. Would you expect substantially different amounts of overhead cost to be assigned to some jobs if the company used a plantwide predetermined overhead rate based on direct labor-hours, rather than using departmental rates?
   
   • Yes
   • No

   Explanation
   Yes; if some jobs require a large amount of machine time and a small amount of labor time, they would be charged substantially less overhead cost if a plantwide overhead rate based on direct labor hours were used. It appears, for example, that this would be true of Job 203 which required considerable machine time to complete, but required a relatively small amount of labor hours.

Required information
[The following information applies to the questions displayed below.]

Delph Company uses a job-order costing system and has two manufacturing departments—Molding and Fabrication. The company provided the following estimates at the beginning of the year:

During the year, the company had no beginning or ending inventories and it started, completed, and sold only two jobs—Job D-70 and Job C-200. It provided the following information related to those two jobs:

Delph had no underapplied or overapplied manufacturing overhead during the year.

Required:

1. Assume Delph uses departmental predetermined overhead rates based on machine-hours.
   1. Compute the departmental predetermined overhead rates.
   2. Compute the total manufacturing cost assigned to Job D-70 and Job C-200.
   3. If Delph establishes bid prices that are 150% of total manufacturing cost, what bid prices would it have established for Job D-70 and Job C-200?
   4. What is Delph’s cost of goods sold for the year?

Solution

1. Assume Delph uses departmental predetermined overhead rates based on machine-hours. Compute the departmental predetermined overhead rates. (Round the final answers to 2 decimal places.)
   

   	Predetermined overhead rates
   Molding Department	36.50	per MH
   Fabrication Department	11.00	per MH

   วิธีคิด
   

   Molding Department:

   Using the equation \(Y = a + bX\), the estimated total manufacturing overhead cost would be depicted as follows:

   \(Y = $780{,}000 + ($4.00 \text{ per MH})(24{,}000 \text{ MHs})\)

   Estimated fixed manufacturing overhead	780,000
   Estimated variable manufacturing overhead: $4.00 per MH × 24,000 MHs	96,000
   Estimated total manufacturing overhead cost	876,000

   The predetermined overhead rate is computed as follows:

   Estimated total manufacturing overhead (a)	876,000
   Estimated total machine-hours (b)	24,000	MHs
   Predetermined overhead rate (a) ÷ (b)	36.50	per MH

   Fabrication Department:

   Using the equation \(Y = a + bX\), the estimated total manufacturing overhead cost would be depicted as follows:

   \(Y = $300{,}000 + ($1.00 \text{ per MH})(30{,}000 \text{ MHs})\)

   Estimated fixed manufacturing overhead	300,000
   Estimated variable manufacturing overhead: $1.00 per MH × 30,000 MHs	30,000
   Estimated total manufacturing overhead cost	330,000

   The predetermined overhead rate is computed as follows:

   Estimated total manufacturing overhead (a)	330,000
   Estimated total direct labor-hours (b)	30,000	MHs
   Predetermined overhead rate (a) ÷ (b)	11.00	per MH

2. Assume Delph uses departmental predetermined overhead rates based on machine-hours. Compute the total manufacturing cost assigned to Job D-70 and Job C-200. (Round your intermediate calculations to 2 decimal places. Round your final answers to nearest whole dollar amount.)
   

   	Total manufacturing cost
   Job D-70	1,742,000
   Job C-200	1,514,000

   วิธีคิด

   Total manufacturing costs assigned to Jobs D-70 and C-200:

   	D-70	C-200
   Direct materials	690,000	540,000
   Direct labor	380,000	440,000
   Molding Department (16,000 MHs × $36.50 per MH; 8,000 MHs × $36.50 per MH)	584,000	292,000
   Fabrication Department (8,000 MH × $11.00 per MH; 22,000 MH × $11.00 per MH)	88,000	242,000
   Total manufacturing cost	1,742,000	1,514,000

3. Assume Delph uses departmental predetermined overhead rates based on machine-hours. If Delph establishes bid prices that are 150% of total manufacturing cost, what bid prices would it have established for Job D-70 and Job C-200? (Round your intermediate calculations to 2 decimal places. Round your final answers to nearest whole dollar amount.)
   

   	Bid price
   Job D-70	2,613,000
   Job C-200	2,271,000

   วิธีคิด

   Bid prices for Jobs D-70 and C-200:

   	D-70	C-200
   Total manufacturing cost (a)	1,742,000	1,514,000
   Markup percentage (b)	150 %	150 %
   Bid price (a) × (b)	2,613,000	2,271,000

4. Assume Delph uses departmental predetermined overhead rates based on machine-hours. What is Delph’s cost of goods sold for the year? (Round your intermediate calculations to 2 decimal places. Round your final answer to nearest whole dollar amount.)
   

   Cost of goods sold	3,256,000

   วิธีคิด
   Because the company has no beginning or ending inventories and only Jobs D-70 and C-200 were started, completed, and sold during the year, the cost of goods sold is equal to the sum of the manufacturing costs assigned to both jobs of $3,256,000 (=$1,742,000 + $1,514,000).

Required information
[The following information applies to the questions displayed below.]

Delph Company uses a job-order costing system and has two manufacturing departments—Molding and Fabrication. The company provided the following estimates at the beginning of the year:

During the year, the company had no beginning or ending inventories and it started, completed, and sold only two jobs—Job D-70 and Job C-200. It provided the following information related to those two jobs:

Delph had no underapplied or overapplied manufacturing overhead during the year.

2. Assume Delph chooses to combine its departmental rates from requirement 1 into a plantwide predetermined overhead rate based on machine-hours.
   1. Compute the plantwide predetermined overhead rate.
   2. Compute the total manufacturing cost assigned to Job D-70 and Job C-200.
   3. If Delph establishes bid prices that are 150% of total manufacturing costs, what bid prices would it have established for Job D-70 and Job C-200?
   4. What is Delph’s cost of goods sold for the year?

Solution

1. Assume Delph chooses to combine its departmental rates from requirement 1 into a plantwide predetermined overhead rate based on machine-hours. Compute the plantwide predetermined overhead rate. (Round your answer to 2 decimal places.)

   Predetermined overhead rates	22.33	per MH

   วิธีคิด

   The plantwide overhead rate of $22.33 per machine-hour is calculated by combining the estimated manufacturing overhead costs computed in requirement 1a for Molding and Fabrication ($876,000 + $330,000 = $1,206,000) and then dividing by the estimated total machine-hours (24,000 + 30,000 = 54,000):

   Estimated total manufacturing overhead (a)	1,206,000
   Estimated total machine-hours (MHs) (b)	54,000	MHs
   Predetermined overhead rate (a) ÷ (b)	22.33	per MH

2. Assume Delph chooses to combine its departmental rates from requirement 1 into a plantwide predetermined overhead rate based on machine-hours. Compute the total manufacturing cost assigned to Job D-70 and Job C-200. (Round your intermediate calculations to 2 decimal places.)

   	Total manufacturing cost
   Job D-70	1,605,920
   Job C-200	1,650,000

   วิธีคิด

   Total manufacturing cost assigned to Jobs D-70 and C-200:

   	D-70	C-200
   Direct materials	690,000	540,000
   Direct labor	380,000	440,000
   Manufacturing overhead applied ($22.33 per MH × 24,000 MHs; $22.33 per MH × 30,000 MHs)	535,920	669,900
   Total manufacturing cost	1,605,920	1,649,900

3. Assume Delph chooses to combine its departmental rates from requirement 1 into a plantwide predetermined overhead rate based on machine-hours. If Delph establishes bid prices that are 150% of total manufacturing costs, what bid prices would it have established for Job D-70 and Job C-200? (Round your intermediate calculations to 2 decimal places.)

   	Bid price
   Job D-70	2,408,880
   Job C-200	2,475,000

   วิธีคิด
   Bid prices for Jobs D-70 and C-200:

   	D-70	C-200
   Total manufacturing cost (a)	1,605,920	1,649,900
   Markup percentage (b)	150 %	150 %
   Bid price (a) × (b)	2,408,880	2,474,850

4. Assume Delph chooses to combine its departmental rates from requirement 1 into a plantwide predetermined overhead rate based on machine-hours. What is Delph’s cost of goods sold for the year? (Round your intermediate calculations to 2 decimal places.)

   Cost of goods sold	3,255,920

   วิธีคิด
   Because the company has no beginning or ending inventories and only Jobs D-70 and C-200 were started, completed, and sold during the year, the cost of goods sold is equal to the sum of the manufacturing costs assigned to both jobs of $3,255,820 (= $1,605,920 + $1,649,900).

Fogerty Company makes two products—Hubs and Sprockets. Data regarding the two products follow:

Additional information about the company follows:

1. Hubs require $30 in direct materials per unit, and Sprockets require $13.
2. The direct labor wage rate is $12 per hour.
3. Hubs are more complex to manufacture than Sprockets and they require special processing.
4. The company’s activity-based absorption costing system has the following activity cost pools:
   

   Activity Cost Pool (and Activity Measure)	Estimated Overhead Cost	Expected Activity
   		Hubs	Sprockets	Total
   Machine setups (number of setups)	18,720	80	64	144
   Special processing (machine-hours)	144,000	3,600	0	3,600
   General factory (Direct labor-hours)	426,400	12,800	20,000	32,800

Required:

1. Compute the activity rate for each activity cost pool.
2. Compute the unit product cost for Hubs and Sprockets using activity-based absorption costing.

Solution

1. Compute the activity rate for each activity cost pool.
   

   Activity Cost Pool	Activity Rate
   Machine setups	130	per setup
   Special processing	40	per MH
   General factory	13	per DLH

   วิธีคิด
   Activity rates are computed as follows:
   

   Activity Cost Pool	(a) Estimated Overhead Cost	(b) Expected Activity	(a) ÷ (b) Activity Rate
   Machine setups	18,720	144 setups	130 per setup
   Special processing	144,000	3,600 MHs	40 per MH
   General factory	426,400	32,800 DLHs	13 per DLH

2. Compute the unit product cost for Hubs and Sprockets using activity-based absorption costing. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

   	Hubs	Sprockets
   Direct materials	30.00	13.00
   Direct labor	9.60	4.80
   Manufacturing overhead	20.05	5.37
   Unit product cost	59.65	23.17

   วิธีคิด
   Overhead is assigned to the two products as follows:

   Hubs:
   

   Activity Cost Pool	(a) Activity Rate	(b) Activity	(a) × (b) ABC Cost
   Machine setups	130 per setup	80 setups	10,400
   Special processing	40 per MH	3,600 MHs	144,000
   General factory	13 per DLH	12,800 DLHs	166,400
   Total			320,800

   Sprockets:
   

   Activity Cost Pool	(a) Activity Rate	(b) Activity	(a) × (b) ABC Cost
   Machine setups	130 per setup	64 setups	8,320
   Special processing	40 per MH	0 MHs	0
   General factory	13 per DLH	20,000 DLHs	260,000
   Total			268,320

   Each product’s unit product cost is computed as follows:
   

   	Hubs	Sprockets
   Direct materials	30.00	13.00
   Direct labor:
   $12.00 per DLH × 0.80 DLHs per unit	9.60
   $12.00 per DLH × 0.40 DLHs per unit		4.80
   Manufacturing overhead:
   $320,800 ÷ 16,000 units	20.05
   $268,320 ÷ 50,000 units		5.37
   Unit product cost	59.65	23.17

Harrison Company makes two products and uses a traditional 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:

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 $473,000. Using the company’s traditional costing system, compute the unit product costs for the two products.
2. Management is considering an activity-based absorption costing system in which half of the overhead would continue to be allocated based on direct labor-hours and half would be allocated based on engineering design time. This time is expected to be distributed as follows during the upcoming year:
   

   	Rascon	Parcel	Total
   Engineering design time (in hours)	4,400	4,400	8,800

   Compute the unit product costs for the two products using the proposed activity-based absorption costing system.

Solution

1. The company’s manufacturing overhead costs for the year are expected to be $473,000. Using the company’s traditional costing system, compute the unit product costs for the two products. (Round your intermediate calculations and final answers to 2 decimal places.)
   

   	Rascon	Parcel
   Unit product cost	23.30	17.50

   วิธีคิด
   The unit product costs under the company’s traditional costing system would be computed as follows:

   	Rascon	Parcel	Total
   Number of units produced (a)	18,000	46,000
   Direct labor-hours per unit (b)	0.30	0.35
   Total direct labor-hours (a) × (b)	5,400	16,100	21,500

   Total manufacturing overhead (a)	473,000
   Total direct labor-hours (b)	21,500	DLHs
   Predetermined overhead rate (a) ÷ (b)	22	per DLH

   	Rascon	Parcel
   Direct materials	14.00	6.00
   Direct labor	2.70	3.80
   Manufacturing overhead:
   0.30 DLH per unit × $22 per DLH	6.60
   0.35 DLH per unit × $22 per DLH		7.70
   Unit product cost	23.30	17.50

2. Compute the unit product costs for the two products using the proposed activity-based absorption costing system. (Round your intermediate calculations and final answers to 2 decimal places.)
   

   	Rascon	Parcel
   Unit product cost	26.57	16.22

   วิธีคิด
   The unit product costs using activity-based absorption costing can be computed as follows:

   Activity Cost Pool	(a) Estimated Overhead Cost*	(b) Expected Activity	(a) ÷ (b) Activity Rate
   Labor related	236,500	21,500 direct labor-hours	11.00 per direct labor-hour
   Engineering design	236,500	8,800 engineering-hours	26.88 per engineering-hour
   	473,000

   * The total estimated manufacturing overhead cost of $473,000 is split evenly between the two activity cost pools.

   Manufacturing overhead is assigned to the two products as follows:
   

   Rascon:

   Activity Cost Pool	(a) Activity Rate	(b) Activity	(a) × (b) ABC Cost
   Labor related	11.00 per DLH	5,400 DLHs	59,400
   Engineering design	26.88 per engineering-hour	4,400 engineering-hours	118,272
   Total			177,672

   Parcel:
   

   Activity Cost Pool	(a) Activity Rate	(b) Activity	(a) × (b) ABC Cost
   Labor related	11.00 per DLH	16,100 DLHs	177,100
   Engineering design	26.88 per engineering-hour	4,400 engineering-hours	118,272
   Total			295,372

   The unit product costs combine direct materials, direct labor, and overhead costs:
   

   	Rascon	Parcel
   Direct materials	14.00	6.00
   Direct labor	2.70	3.80
   Manufacturing overhead ($177,672 ÷ 18,000 units; $295,372 ÷ 46,000 units)	9.87	6.42
   Unit product cost	26.57	16.22