For many years, Sinclair Graphic Design has provided design and digital-printing services for indoor banners. The...

 

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For many years, Sinclair Graphic Design has provided design and digital-printing services for indoor banners. The nylon banners, which come in a standard size, are used for a variety of purposes, including trade shows, sporting events, and other promotional activities. Three years ago, the company introduced a second printing and production service for outdoor banners that has become increasingly popular. The outdoor banners are a more complex product than the indoor banners, requiring weatherproof vinyl materials and a different printing process to improve the visibility of the text and graphics content. Moreover, outdoor banners are printed in smaller production runs because of less frequent orders; the setup of the printing equipment takes longer; and, since higher durability is needed to withstand the elements, more quality inspections are needed. Under the traditional costing approach, overhead costs are assigned to the products on the basis of direct labour-hours. Despite the introduction of the new outdoor banners, profits have declined steadily over the past three years. Management is beginning to believe that the company's costing system may be at fault. Unit costs for materials and labour for the two products follow: Direct materials Direct labour ($14 per hour) Indoor Banners $9.00 $ 14 Outdoor Banners $26.00 $ 42 Management estimates that the company will incur $1,200,000 in overhead costs during the current year and that 20,000 indoor banners and 4,000 outdoor banners will be produced and sold. Predetermined overhead rate Required: 1-a. Compute the predetermined overhead rate assuming that the company continues to apply overhead cost to products on the basis of direct labour-hours. (Round your answer to 2 decimal places.) per direct labour hour 1-b. Using this rate and other data from the problem, determine the unit product cost of each product. (Round your answers to 2 decimal places.) Unit product cost 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: (Round your answers to 2 decimal places.) Activity Center Indoor Banners Order processing (orders received) Print setup (number of batches) Artwork and graphic design (labour-hours) Quality control (number of inspections) Total overhead cost Order processing Print setup Outdoor Banners Graphic design Quality control Predetermined Overhead Rate per order per setup per hour per inspection Estimated Total Overhead Costs $ 300,000 100,000 700,000 100,000 $1,200,000 Activity Measures Indoor Outdoor Banners Banners 500 500 800 200 7,000 7,000 400 400 Total 1,000 1,000 14,000 800 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. Activity Cost Pool Order processing Print set-up Graphics design Quality control Total overhead cost Number of units produced Overhead cost per unit Unit product cost Overhead Applied Indoor Indoor Banners b. Compute the unit product cost of each product. (Round your answers to 2 decimal places.) Outdoor Banners Outdoor For many years, Sinclair Graphic Design has provided design and digital-printing services for indoor banners. The nylon banners, which come in a standard size, are used for a variety of purposes, including trade shows, sporting events, and other promotional activities. Three years ago, the company introduced a second printing and production service for outdoor banners that has become increasingly popular. The outdoor banners are a more complex product than the indoor banners, requiring weatherproof vinyl materials and a different printing process to improve the visibility of the text and graphics content. Moreover, outdoor banners are printed in smaller production runs because of less frequent orders; the setup of the printing equipment takes longer; and, since higher durability is needed to withstand the elements, more quality inspections are needed. Under the traditional costing approach, overhead costs are assigned to the products on the basis of direct labour-hours. Despite the introduction of the new outdoor banners, profits have declined steadily over the past three years. Management is beginning to believe that the company's costing system may be at fault. Unit costs for materials and labour for the two products follow: Direct materials Direct labour ($14 per hour) Indoor Banners $9.00 $ 14 Outdoor Banners $26.00 $ 42 Management estimates that the company will incur $1,200,000 in overhead costs during the current year and that 20,000 indoor banners and 4,000 outdoor banners will be produced and sold. Predetermined overhead rate Required: 1-a. Compute the predetermined overhead rate assuming that the company continues to apply overhead cost to products on the basis of direct labour-hours. (Round your answer to 2 decimal places.) per direct labour hour 1-b. Using this rate and other data from the problem, determine the unit product cost of each product. (Round your answers to 2 decimal places.) Unit product cost 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: (Round your answers to 2 decimal places.) Activity Center Indoor Banners Order processing (orders received) Print setup (number of batches) Artwork and graphic design (labour-hours) Quality control (number of inspections) Total overhead cost Order processing Print setup Outdoor Banners Graphic design Quality control Predetermined Overhead Rate per order per setup per hour per inspection Estimated Total Overhead Costs $ 300,000 100,000 700,000 100,000 $1,200,000 Activity Measures Indoor Outdoor Banners Banners 500 500 800 200 7,000 7,000 400 400 Total 1,000 1,000 14,000 800 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. Activity Cost Pool Order processing Print set-up Graphics design Quality control Total overhead cost Number of units produced Overhead cost per unit Unit product cost Overhead Applied Indoor Indoor Banners b. Compute the unit product cost of each product. (Round your answers to 2 decimal places.) Outdoor Banners Outdoor

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1 a Compute the predetermined overhead rate Calculate the direct labor hours Indoor banners141420000 ... View the full answer