A company produces canned soups that requires 4 hours of labour time. Labour hours is considered the
Question:
A company produces canned soups that requires 4 hours of labour time. Labour hours is considered the scarce resource (bottleneck). The company’s factory is in operation for 4 days per week and 50 weeks annually. Each unit is sold for $140 and the product uses direct material valuing $20 per unit.
The total factory operating costs includes direct labour and manufacturing overheads. The average labour rate is $15 per hour and the company employs 150 employees who all work 8 hours per day.
The company uses an activity-based costing system for its production process. The estimated costs, activity levels and cost drivers are as follows:
Equipment set ups | $1,250,000 | Number of set ups | 50,000 |
Quality control | $ 750,000 | Number of inspections | 75,000 |
Machining costs | $ 500,000 | Machine hours | 250,000 |
The actual activity levels for the same period are noted below based on data provided by the production department:
Number of set ups | 65,000 |
Number of inspections | 37,500 |
Machining hours | 200,000 |
Required:
(a) Calculate the return per factory hour and the cost per factory hour.
(b) Calculate the TPAR and advise management.
(c) Assuming that the TPAR is less than 1, suggest two ways that the entity could improve the TPAR.
Expert Answer:
Calculation Of the activity based overheads 1 compute cost per unit of cost driver costcost driver v... View the full answer
