Chapter 8 Demonstration Problems Page 1 Please Send Comments and Corrections to me at [email protected] Demo 8-1 Rainbow, Inc. manufactures two wigs, the Yul Brynner model and Dolly Parton model. Rainbow, Inc. manufactures wigs in two departments, Manufacturing and Styling. The total Manufacturing Overhead costs for the two departments are $200,000 for Manufacturing and $100,000 for the Styling department. It currently applies Manufacturing Overhead using a Plant-Wide Application Rate using number of units produced as the Cost Driver. King and I enthusiasts have asked Rainbow to adopt Departmental Application Rates. They suggest that the Cost Driver for the Manufacturing Department should be units produced, and Direct Labor Hours should be the Cost Driver in the Styling Department. The following information applies to the production of the two wigs: Direct Labor Hours in Styling Number of Units Yul Brynner: 10,000 5,000 Dolly Parton: 40,000 5,000 What would be the difference in the amount of Manufacturing Overhead allocated using a Plant-Wide Application Rate and Departmental Allocation Rates? Demo 8-2 Aloha Co. manufactures paint in two processes: Mixing and Cooking. Total costs incurred in the Mixing and Cooking Departments are as follows: Direct Materials Direct Labor Mixing Department: $60,000 $80,000 Cooking Department: $25,000 $50,000 Manufacturing Overhead costs were $90,000 for the Mixing Department and $180,000 for the Cooking Department. Aloha manufactures two products, Superior Paint and Deluxe Paint. Costs are allocated to these products in the following proportions: Mixing Department Cooking Department Direct Materials Direct Labor Direct Materials Direct Labor Superior: 40% 70% 50% 40% Deluxe: 60% 30% 50% 60% All Products: 100% 100% 100% 100% Manufacturing Overhead cost is allocated in proportion to the Direct Labor cost within each department. What are the total costs allocated to each product line?Chapter 8 Demonstration Problems Page 2 Please Send Comments and Corrections to me at [email protected] Demo 8-3 Specialty Products Inc. manufactures household items sold at trade shows. The items, classified as either Trinkets or Widgets, are manufactured on a common assembly line. Although different Direct Materials are used and the machinery is retooled for each product, the direct laborers are the same for each product line. The use of a Plant-Wide Overhead Rate is no longer acceptable. The production manager has heard about Activity-Based Costing (ABC) and as assembled some information for use in changing the cost system to an ABC system. With the help of the accounting department, the manager has been able to establish the following relationships between production costs and some production data for the two product lines: Activity Used In: Activity Cost Driver App. Rate Trinkets Widgets Material Handling: Number of Parts $2/ Part 700 500 Machining: Machine Hours $30/Mach.Hr. 200 100 Assembly: Units Started $3.20/Unit 600 700 Inspection: Number Tested $4/ Unit 200 600 Direct Costs: Direct Labor: $24,000 $18,000 Direct Materials: 7,610 5,000 Determine the total production cost of each of the two product lines, and the cost per unit, assuming that all of the units that were started were completed.Chapter 8 Demonstration Problems Page 3 Please Send Comments and Corrections to me at [email protected] Demo 8-4 Alpha Radio Co. manufactures radios. The information below relates to the operations of the St. Louis plant, which is the Alpha’s first plant to implement an integrated Activity-Based Costing system. The data in the table are for Job #200. Activity Cost Allocation Driver App. Rate Driver Quantity OH Applied Initialize Job No. of Radio Shells $4 A $8 Radio Insertion No. of Radio Parts Inserted 30¢ 110 B Shell Insertion No. of Shell Parts Inserted C 64 $32 Control Knob No. of Control Knobs Inserted D 30 $36 Parts Soldered No. of Boards Soldered $9 E $18 Back Connections No. of Contacts Inserted F 16 $30.40 Quality Review Budgeted Time Radio is Tested $30 1.5 G What are the correct answers for the unknowns? What is the amount of Manufacturing Overhead cost allocated to Job
View Full Document
Unlocking...