LGI's production managers think that the profit on Deluxe Boxes are much lower than the Intern suggested
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Question:
LGI's production managers think that the profit on Deluxe Boxes are much lower than the Intern suggested after recently attending a course at UMGC where they learned about ABC costing. They propose allocating the total fixed costs between Standard and Deluxe boxes based on the ABC method . They collected information about the cost drivers and the break up of the total fixed costs in Table 1 below. How much overhead would be allocated to Standard and Deluxe Boxes ( in total and per unit) using this method? Show all supporting calculations. Complete the grey spaces
Table 1 | ||||||||
Manufacturing overhead | $ Amount (millions) | Cost driver | Standard Box | Deluxe Box | Totals of Drivers | Portion of Fixed Cost for Standard Boxes | Portion of Fixed Cost of Deluxe Boxes | Total Cost Check (must agree to Column B7:B14) |
Depreciation | $47.00 | Square feet | 7,000 | 80,000 | 47 | $ 3.78 | $ 43.22 | $47.00 |
Maintenance | $50.00 | Direct Labour Hours | 1,000 | 9,000 | 50 | $ 5.00 | $ 45.00 | $50.00 |
Purchase order processing | $9 | Number of purchases orders | 500 | 4,500 | 9 | $ 0.90 | $ 8.10 | $9.00 |
Inspection | $34 | Number of employees | 1,000 | 6000 | 34 | $ 4.86 | $ 29.14 | $34.00 |
Indirect Materials | $5.00 | Labour Hours | 1,000 | 9,000 | 5.00 | $ 0.50 | $ 4.50 | $5.00 |
Supervision | $7.00 | #of inspections | 200 | 800 | $7.00 | $ 1.40 | $ 5.60 | $7.00 |
Supplies | $4.00 | Units manufactured | 1,000 | 9,000 | 4.00 | $ 0.40 | $ 3.60 | $4.00 |
Total Allocated costs | $156.00 | $ 16.84 | $ 139.16 | $156.00 | ||||
Number of boxes per year | 108 | 18 | ||||||
Allocated Cost per Box | $ 16.84 | $ 139.16 | ||||||
Question 1 | ||||||||
Standard Boxes | Deluxe Boxes | Total | ||||||
Revenue | $ 2,030.40 | $ 513.00 | $ 2,543.40 | |||||
Subtract: Variable Costs | $ 1,080.00 | $ 360.00 | $ 1,440.00 | |||||
Equals: Contribution | $ 950.40 | $ 153.00 | $ 1,103.40 | |||||
Subtract: Fixed Costs | $ 16.84 | $ 139.16 | $ 156.00 | |||||
Equals: Operating Profit | $ 933.56 | $ 13.84 | $ 947.40 | |||||
Operating Profit % (based on Revenue) | 45.98% | 2.7% |
Related Book For
Management Accounting
ISBN: 978-0132570848
6th Canadian edition
Authors: Charles T. Horngren, Gary L. Sundem, William O. Stratton, Phillip Beaulieu
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