For many years, Sinclair Graphic Design has provided design and digital-printing services for indoor banners. The nylon
Question:
Management estimates that the company will incur $600,000 in overhead costs during the current year and that 10,000 indoor banners and 2,000 outdoor banners will be produced and sold.
Required:
1. Compute the predetermined overhead rate assuming that the company continues to apply overhead cost to products on the basis of direct labour-hours. Using this rate and other data from the problem, determine the unit product cost of each product.
2. Management is considering using ABC to apply overhead cost to products for external financial reports. Some preliminary work has been done, and the data that have been collected are displayed below. Using these data, calculate the predetermined overhead rate for each activity cost pool identified below:
3. Using the predetermined manufacturing overhead rates that you computed in (2) above, do the following:
a. Determine the total amount of manufacturing overhead cost that would be applied to each product using the ABC system. After you have computed these totals, determine the amount of overhead cost per unit of each product.
b. Compute the unit product cost of each product.
4. Based on your calculations in (1) through (3) above, in terms of overhead cost, what factors make the outdoor banners more costly to produce than the indoor banners? Are the out- door banners as profitable as the company thinks they are? Explain.
Step by Step Answer:
Managerial Accounting
ISBN: 978-1259024900
9th canadian edition
Authors: Ray Garrison, Theresa Libby, Alan Webb