Question: Looking to achieve the highest grade possible, please see below. Please indicate if this answer is correct. IF I have left a calcuation out, please
Looking to achieve the highest grade possible, please see below. Please indicate if this answer is correct. IF I have left a calcuation out, please include.
Thank you,
| The Big Bus Company manufactures two products, Product 1 and Product 2. Product 2 was developed as an attempt to enter a market closely related to that of Product 1. Product 2 is the more complex of the two products, requiring three hours of direct labour time per unit to manufacture compared to one and one-half hours of direct labour time for Product 1. Product 2 is produced on an automated production line. Overhead is currently assigned to the products on the basis of direct labour-hours. The company estimated it would incur a total of $396,000 in manufacturing overhead costs and produce 5,500 units of Product 2 and 22,000 units of Product 1 during the current year. Unit costs for materials and direct labour are: | ||||||||||||
| Product 1 | Product 2 | |||||||||||
| Direct Labour | $7 | $15 | ||||||||||
| Direct material | $9 | $20 | ||||||||||
| Required: | ||||||||||||
| a. Compute the predetermined overhead rate under the current method of allocation and determine the unit product cost of each product for the current year. (5 marks) | ||||||||||||
| Product 1 | Product 2 | Total | Allocation | |||||||||
| Direct Labour hour / unit | 1.5 | 3 | 396,000 / 49,500 | |||||||||
| units produced | 22,000 | 5,500 | 8 | |||||||||
| total labour hour | 33,000 | 16,500 | 49,500 | |||||||||
| overhead/unit | 12 | 24 | overhead/unit is calculated by direct LH x 8 | |||||||||
| Product 1 | Product 2 | |||||||||||
| Direct material | 9 | 20 | ||||||||||
| Direct labour | 7 | 15 | ||||||||||
| overhead/unit | 16 | 35 | ||||||||||
| cost/unit | 32 | 70 | ||||||||||
| b. The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below: (5 marks) | ||||||||||||
| Expected Activity | ||||||||||||
| Activity Costs Pools | Estimated Overhead Costs | Product 1 | Product 2 | Total | ||||||||
| Machine set-ups required | $170,000 | 700 | 1,000 | 1,700 | ||||||||
| Purchase orders issued | 37,000 | 300 | 200 | 500 | ||||||||
| Machine-hours required | 91,000 | 4,000 | 9,000 | 13,000 | ||||||||
| Maintenance requests issued | 98,000 | 400 | 600 | 1,000 | ||||||||
| $396,000 | ||||||||||||
| Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year. | ||||||||||||
| Total Cost | Product A | Product B | ||||||||||
| Machine Setups | 170,000 | 70,000 | 100,000 | |||||||||
| purchase order | 37,000 | 22,200 | 14,800 | |||||||||
| machine hours | 91,000 | 28,000 | 63,000 | |||||||||
| maintenance requests | 98,000 | 39,200 | 58,800 | |||||||||
| Total | 396,000 | 159,400 | 236,600 | |||||||||
| 22,000 | 5,500 | |||||||||||
| overhead /cost | 7..25 | 43..02 | ||||||||||
| product 1 | product 2 | |||||||||||
| Direct Labour | 9 | 20 | ||||||||||
| direct material | 7 | 15 | ||||||||||
| overhead / unit | 7..25 | 43.02. | ||||||||||
| Unit/ cost | 23..25 | 78.020. | ||||||||||
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