Activity Purchasing material Receiving material Setting up equipment Machine depreciation and maintenance Ensuring regulatory compliance Shipping...

Transcribed Image Text:

Activity Purchasing material Receiving material Setting up equipment Machine depreciation and maintenance Ensuring regulatory compliance Shipping Total estimated cost Recommended Cost Driver Number of purchase orders Direct materials cost Number of production runs Machine-hours Number of inspections Number of units shipped In addition, management estimated 45,000 direct labor-hours for year 2. Assume that the following cost-driver volumes occurred in January, year 2: Estimated Cost $ 138,000 248,000 241,200 83,800 475,200 1,108,800 $ 2,295,000 Estimated Cost Driver Activity 240 purchase orders $ 3,100,000 120 runs 16,760 hours 54 inspections 616,000 units Number of units produced Direct labor-hours Number of purchase orders Silver 32,000 2,000 7 Gold Platinum 10,000 1,200 3,000 400 6 3 Direct materials costs $ 97,500 $ 60,000 $ 37,500 Number of production runs 2 3 5 Machine-hours 700 175 100 Number of inspections Units shipped 0 32,000 2 3 10,000 3,000 Labor costs are based on the contractual rate of $25 per hour. Required: a. Compute the predetermined rate for year 2 for use in the current product-costing system using direct labor-hours as the allocation base. b. Compute the per-unit production costs for each model for January using direct labor-hours as the allocation base and the predetermined rate computed in requirement (a). c. Compute the predetermined overhead rate for year 2 for each cost driver using the estimated costs and estimated cost driver units prepared by the controller's staff to be used in an ABC system. d. Compute the per unit production costs for each product for January using the cost drivers recommended by the consultant and the predetermined rates computed in requirement (c). (Note: Do not assume that total overhead applied to products in January will be the same for activity-based costing as it was for the labor-hour-based allocation.) Activity Purchasing material Receiving material Setting up equipment Machine depreciation and maintenance Ensuring regulatory compliance Shipping Total estimated cost Recommended Cost Driver Number of purchase orders Direct materials cost Number of production runs Machine-hours Number of inspections Number of units shipped In addition, management estimated 45,000 direct labor-hours for year 2. Assume that the following cost-driver volumes occurred in January, year 2: Estimated Cost $ 138,000 248,000 241,200 83,800 475,200 1,108,800 $ 2,295,000 Estimated Cost Driver Activity 240 purchase orders $ 3,100,000 120 runs 16,760 hours 54 inspections 616,000 units Number of units produced Direct labor-hours Number of purchase orders Silver 32,000 2,000 7 Gold Platinum 10,000 1,200 3,000 400 6 3 Direct materials costs $ 97,500 $ 60,000 $ 37,500 Number of production runs 2 3 5 Machine-hours 700 175 100 Number of inspections Units shipped 0 32,000 2 3 10,000 3,000 Labor costs are based on the contractual rate of $25 per hour. Required: a. Compute the predetermined rate for year 2 for use in the current product-costing system using direct labor-hours as the allocation base. b. Compute the per-unit production costs for each model for January using direct labor-hours as the allocation base and the predetermined rate computed in requirement (a). c. Compute the predetermined overhead rate for year 2 for each cost driver using the estimated costs and estimated cost driver units prepared by the controller's staff to be used in an ABC system. d. Compute the per unit production costs for each product for January using the cost drivers recommended by the consultant and the predetermined rates computed in requirement (c). (Note: Do not assume that total overhead applied to products in January will be the same for activity-based costing as it was for the labor-hour-based allocation.)