Week #5 - Chapter 4 Homework Assignment Problem 1 (Supplemental Problem #1) - Traditional Costing versus Activity-based Costing You have been hired by Casson Manufacturing to assess and make recommendations for the profitability of its Bobblehead line of products, Casson Manufacturing makes two types of Pistol Pete Bobbleheads. The Huge Bobblehead is 15 feet tall and is sold as a lawn ornament. The Tiny Bobblehead is 15 centimeters tall and is sold as a jewelry apparel item. Although Pistol Pete has been manufacturing the Huge Bobblehead for years, it only recently added the Tiny Bobblehead product line. The Tiny Bobblehead is more difficult to manufacture and requires special tooling and machine setups because it is made out of pure platinum. Casson Manufacturing has faced intense competition for both products from competing manufacturers and its sales of the Tiny Bobbleheads have recently dropped dramatically. Much of the competition is from Norman, Oklahoma-based Sooner-Goober Manufacturing and the Casson plant manager is convinced that this producer is intentionally selling the Tiny Bobblehead below its manufacturing cost. Huge Bobblehead 100,000 units S500 Tiny Bobblehead 900,000 units $50 Production Selling price Overhead per unit Direct materials cost per unit Direct labor cost per unit Direct labor hours Number of production runs Machine hours Receiving orders. Engineering hours Materials moves $100 $150 150,000 DLHs 10 runs 15.000 machine hours 40 orders 10,000 hours 40 moves $5 350.000 DLHS 190 runs 85,000 machine hours 450 orders 90,000 hours 60 moves Calculated using a plant-wide rate based on direct labor hours. This is the current way of assigning the plant's overhead to its products. Overhead Costs Setup costs Machine costs Receiving costs Engineering costs Materials handling costs Total overhead costs $ 250,000 $ 1,250,000 $ 2,000,000 $ 1,000,000 $ 500,000 $5,000,000 5,000,000 Your recommendation is to consider assigning overhead costs to each product line using Activity-based Costing (ABC). Setup costs would be assigned using Number of production runs. Machine costs would be assigned using Machine hours. Receiving costs would be assigned using Receiving orders. Engineering costs would be assigner using Engineering hours. Materials handling costs would be assigned using Materials moves. *** Problem 1 is continued on the next page *** Required (Traditional Method): 1. Using the traditional cost assignment method, calculate the plant-wide overhead rate de overhead rate: $ CL per direct labor hour 2. Under the traditional cost assignment method using the plant-wide overhead rate how much is the overhead cost per unit for the Huge Bobbleheads: $ per unit Tiny Bobbleheads: $ per unit 3. Using the traditional cost assignment method how much is the product cost per unit for the Huge Bobbleheads: $ 1 0 per unit Tiny Bobbleheads: $ . per unit 4. (Assume all overhead is variable when answering this requirement) Using the traditional cost assignment method how much is the contribution margin per unit for the: Huge Bobbleheads: $ per unit Tiny Bobbleheads: S per unit *** Problem 1 is continued on the next page *** Required (ABC Method): 5. Using the Activity-based Costing (ABC) assignment method, calculate the activity contes for the following activities: per production run per machine hour (a) Setup costs: 5 5 (b) Machine costs: $ 12.5 (c) Receiving costs: $ 1002 (d) Engineering costs: $ 0 (e) Materials handling costs: $ S per receiving order per engineering hour per materials move 6. Using the Activity-based Costing (ABC) assignment method how much is the overhead cost petit for the The Huge Bobbleheads: $ per unit Tiny Bobbleheads: 5 7. Using the Activity-based Costing (ABC) assignment method how much is the product cost per unit for the Huge Bobbleheads: S per unit Tiny Bobbleheads: S G. 8. (Assume all overhead is variable when answering this requirement) Using the Activity-based Costing (ABC assignment method how much is the contribution margin per unit for the Huge Bobbleheads: $ per unit Tiny Bobbleheads: S per unit w Outside cost consultants have room system and overhead costs are currently allocate Comuny produces only two products: reading pl. Activity-based costing versus ir cated us od on the Problem 2 (Supplemental Problem #2) - Activity-based costing verses traditional costing Lovelace Company produces only two products: reading glasses and sunglasses. The company uses a normal cost system and overhead costs are currently allocated using a plant-wide owerhead rate based on direct labor hours. Outside cost consultants have recommended that the company use activity-based costing to charge overhead to products. The company expects to produce 4,000 reading glasses and 8.000 sunglasses this year. Each pair of reading glasses requires two direct labor hours to produce and each pair of sunglasses requires one-half hour to produce The direct material and direct labor costs per unit are as follows: Reading Glasses Sunglasses Direct Material (per unit) $ 30.00 $ 17.00 Direct Labor (per unit) 16.00 400 $ $ vel Watc (a) Setup costs Estimated total factory overhead data for the year is as follows: Activity Budgeted Overhead Reading Glasses Production setups S 80.000 5 setups Material handling 70,000 1,000 lbs. Packaging and shipping $ 120,000 4,000 boxes Total factory overhead $ 270,000 Sunglasses 15 setups 4.000 lbs. 2.000 boxes Total 20 setups 5,000 lbs. 6,000 boxes Required (Traditional Method): 1. Using the traditional cost assignment method, calculate the plant-wide overhead rate: per direct labor hour Plant-wide overhead rate: S 2. Under the traditional cost assignment method using the plant-wide overhead rate, how much is the owerhead cost per unit for the: Reading glasses: per unit Sunglasses: per unit 3. Using the traditional cost assignment method how much is the product cost per unit for the Reading glasses: $ per unit Sunglasses: $_ per unit *** Problem 2 is continued on the next page *** Required (ABC Method): 4. Using the Activity-based Costing (ABC) assignment method, calculate the activity cost rates for the following activities: (a) Setup costs: 5 per production run (b) Materials handling costs: $ per materials move (c) Packaging and shipping costs: S per shipment 5. Using the Activity-based Costing (ABC) assignment method how much is the overhead cost per unit for the Reading glasses: S per unit per unit Sunglasses: $ 6. Using the Activity-based Costing (ABC) assignment method how much is the product cost per unit for the Reading glasses: 5 per unit per unit Sunglasses: $ Problem 3 (Textbook Reference: P4-4) - Activity-based costing versus traditional costing C&W Corporation manufactures travel clocks and watches. Overhead costs are currently allocated using direct labor hours, but the controller has recommended using an activity-based costing system based on the following data: Activity Level Travel Clocks Watches Activity Production setup Material handling and requisition Packaging and shipping Total overhead Cost Driver Setups Parts Units shipped Cost $100,000 $ 30,000 $ 60,000 $ 190,000 80,000 120,000 Required (Traditional Method): 1. Using the traditional cost assignment method, calculate the plant-wide overhead rate using labor-hours as the allocation base. Assume labor-hours required to assemble each unitare 0.5 hours per travel clock and 10 hour per watch, and that 80.000 travel clocks and 120,000 watches were produced Plant-wide overhead rate: S per direct labor hour 2. Under the traditional cost assignment method using the plant-wide overhead rafe, how much total overhead cost is allocated to the: Watches: 5 Travel clocks: *** Problem 3 is continued on the next page *** Required (ABC Method): 3. Using the Activity-based Costing (ABC) assignment method, calculate the activity cost rates for the following activities: (a) Setup costs: S per production run (b) Materials handling costs: $ per part (c) Packaging and shipping costs: S per shipment 4. Using the Activity-based Costing (ABC) assignment method how much total overhead cost is allocated to the: Watches: $ Travel clocks: $