1. Lakshmi Company produces two products from stainless steel: dinner plates and flatware sets. Lakshmi uses...
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1. Lakshmi Company produces two products from stainless steel: dinner plates and flatware sets. Lakshmi uses a Product Costing System. Lakshmi has two support departments: Accounting (S1) and General Factory (S2). Lakshmi has two production departments: Grinding (P1) and Polishing (P2). Budgeted support department costs for 2020 are as follows: Department Budgeted Costs (51) (S2) $ 36,000.00 $ 100,000.00 Lakshmi allocates support department costs using the following activity drivers: Accounting (number of employees) and General Factory (square footage). Assume a support department does not provide services to itself. Budgeted 2020 support department driver consumption (by department) is as follows: Driver Number of employees Square Footage (51) (S2) (P1) (P2) Total 0 4,000 2 4 4 10 0 6,000 10,000 20,000 Each production department uses a Normal Costing System and a Traditional Costing system and allocates manufacturing overhead to products using a single overhead pool and activity driver. Grinding (P1) uses direct labor hours as the activity driver. Polishing (P2) uses machine hours as the activity driver. Actual overhead and overhead variances are recorded centrally, and all overhead variances are deemed immaterial. Budgeted direct overhead and budgeted driver unit consumption for production departments in 2020 are as follows: (P1): Budgeted Direct Overhead $24,500.00 Budgeted Driver Units 8,000 On 6/12/20, Lakshmi paid workers in (P1) for 6,000 direct labor hours at a rate of $20.00 per hour related to dinner plates. Lakshmi also paid workers in (P1) for 2,000 direct labor hours at a rate of $20.00 per hour related to flatware. On 8/18/20, (P2) finished consuming 6,000 machine hours related to dinner plates and 3,500 machine hours related to flatware sets. On 8/19/20, Lakshmi completed 4,000 dinner plates and 1,000 flatware sets. On 10/3/20, Lakshmi sold 4,000 dinner plates on account for $75 per plate and 1,000 flatware sets on account for $95 per set. On 12/31/20, Lakshmi paid the factory accountant in (S1) her salary of $36,000, paid $36,600 for insurance on its production equipment, and depreciated its production equipment in the amount of $100,000. a.) What are the pros and cons of the Direct Method and the Reciprocal Method of allocating support department costs? b.) Calculate Lakshmi's gross margin for each product for 2020. Assume the company uses the Reciprocal Method of allocating support department costs. Please show the calculations and journal entries supporting your answer. Note: You do not have to allocate the Cost of Goods Sold impact of any overhead variance to each product. c.) What operational suggestions (e.g., pricing, product mix) might you make to Lakshmi to improve its overall gross margin? d.) What are some limitations of your suggestions in Part C above? (P2): Budgeted Direct Overhead $17,000.00 Budgeted Driver Units 10,000 Lakshmi has 5,000 pounds of stainless steel in Raw Materials Inventory at a cost of $4.00 per pound at 1/1/20. Lakshmi has no Work-in-Process or Finished Goods Inventory at 1/1/20. Lakshmi uses a perpetual inventory system and a weighted-average cost flow assumption. Lakshmi engaged in the following transactions during 2020: On 3/29/20, Lakshmi placed 3,500 pounds of stainless steel into production and began production of 4,000 dinner plates. Lakshmi also placed 1,000 pounds of stainless steel into production and began production of 1,000 flatware sets. 1. Lakshmi Company produces two products from stainless steel: dinner plates and flatware sets. Lakshmi uses a Product Costing System. Lakshmi has two support departments: Accounting (S1) and General Factory (S2). Lakshmi has two production departments: Grinding (P1) and Polishing (P2). Budgeted support department costs for 2020 are as follows: Department Budgeted Costs (51) (S2) $ 36,000.00 $ 100,000.00 Lakshmi allocates support department costs using the following activity drivers: Accounting (number of employees) and General Factory (square footage). Assume a support department does not provide services to itself. Budgeted 2020 support department driver consumption (by department) is as follows: Driver Number of employees Square Footage (51) (S2) (P1) (P2) Total 0 4,000 2 4 4 10 0 6,000 10,000 20,000 Each production department uses a Normal Costing System and a Traditional Costing system and allocates manufacturing overhead to products using a single overhead pool and activity driver. Grinding (P1) uses direct labor hours as the activity driver. Polishing (P2) uses machine hours as the activity driver. Actual overhead and overhead variances are recorded centrally, and all overhead variances are deemed immaterial. Budgeted direct overhead and budgeted driver unit consumption for production departments in 2020 are as follows: (P1): Budgeted Direct Overhead $24,500.00 Budgeted Driver Units 8,000 On 6/12/20, Lakshmi paid workers in (P1) for 6,000 direct labor hours at a rate of $20.00 per hour related to dinner plates. Lakshmi also paid workers in (P1) for 2,000 direct labor hours at a rate of $20.00 per hour related to flatware. On 8/18/20, (P2) finished consuming 6,000 machine hours related to dinner plates and 3,500 machine hours related to flatware sets. On 8/19/20, Lakshmi completed 4,000 dinner plates and 1,000 flatware sets. On 10/3/20, Lakshmi sold 4,000 dinner plates on account for $75 per plate and 1,000 flatware sets on account for $95 per set. On 12/31/20, Lakshmi paid the factory accountant in (S1) her salary of $36,000, paid $36,600 for insurance on its production equipment, and depreciated its production equipment in the amount of $100,000. a.) What are the pros and cons of the Direct Method and the Reciprocal Method of allocating support department costs? b.) Calculate Lakshmi's gross margin for each product for 2020. Assume the company uses the Reciprocal Method of allocating support department costs. Please show the calculations and journal entries supporting your answer. Note: You do not have to allocate the Cost of Goods Sold impact of any overhead variance to each product. c.) What operational suggestions (e.g., pricing, product mix) might you make to Lakshmi to improve its overall gross margin? d.) What are some limitations of your suggestions in Part C above? (P2): Budgeted Direct Overhead $17,000.00 Budgeted Driver Units 10,000 Lakshmi has 5,000 pounds of stainless steel in Raw Materials Inventory at a cost of $4.00 per pound at 1/1/20. Lakshmi has no Work-in-Process or Finished Goods Inventory at 1/1/20. Lakshmi uses a perpetual inventory system and a weighted-average cost flow assumption. Lakshmi engaged in the following transactions during 2020: On 3/29/20, Lakshmi placed 3,500 pounds of stainless steel into production and began production of 4,000 dinner plates. Lakshmi also placed 1,000 pounds of stainless steel into production and began production of 1,000 flatware sets.
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