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(WIP) ACC 350 Exam 1 Study Material

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Set-ups—Number of

Set-ups—Number of set-ups (batches) $220,000 / 200 set-ups = $1,100/Set-up Machine Maintenance—Machine Hours Deluxe: 5,000 units * 3 MH/u = 15,000 MHs Regular: 45,000 units * .5 MH/u = 22,500 MHs 37,500 MHs $350,000 / 37,500 MHs = $9.33/MH 4. Determine the gross margin (in total and per unit) of the regular and deluxe models using the ABC information. Deluxe Regular Total Sales (5,000 * $140/u; 45,000 * $80/u) $700,000 $3,600,000 DM (5,000 * $45/u; 45,000 * $30/u) -225,000 -1,350,000 DL (5,000 * $20/u; 45,000 * $20/u) -100,000 -900,000 OH Purchasing (600 POs * $180/PO; 400 POs * $180/PO) -108,000 -72,000 QC (100 hrs. * $2,000/hr; 25 hrs. * $2,000/hr) -200,000 -50,000 Set-up (100 Batches * $1,100/batch) -110,000 -110,000 Maint. (15,000 MHs * $9.33/MH; 22,500 * 9.33/MH -140,000 -210,000 Gross Margin $(183,000) $908,000 $725,000 Gross Margin/unit $(36.60) $20.18 5. Is the deluxe model as profitable as the company thinks it is? Why or why not? No, the deluxe model consumes more resources than was shown under the more traditional method of product costing. 6. What can Manhattan Company do to improve its profitability? Should the company drop the Deluxe model? Why or why not? • Consider increasing the price of the Deluxe model. • Emphasize (increase sales) of the Regular model and de-emphasize (reduce sales) of the Deluxe model. • Improve productivity by reducing the cost of the activities. • Reduce the activity requirements (activity quantities) associated with the Deluxe model. • It should only drop the Deluxe model if the avoidable costs associated with the Deluxe model are greater than the Deluxe model’s contribution margin.

Problem #3 – Activity Based Costing Problem Anderson Company uses a conventional cost system with overhead allocated to products on the basis of direct labor hours. The company manufactures two products, for which the following estimated information for next year is available. Standard Unique Selling Price $125 $195 Number of Units Produced 15,000 5,000 Prime Cost per Unit $85 $125 DLH per unit 2 1 # of units produced each MH 7.5 2.5 Units per batch 30 10 Hours to setup a batch 4 6 Number of moves per batch 2 3 Engineering Support Hours 1,000 2,000 Total overhead for the current year was estimated to be $402,500 from the following activities: Activity Cost Material Handling $ 30,000 Machine Set-ups $100,000 Engineering Support $150,000 Power for Machines $ 80,000 Providing Space $ 42,500 Total $402,500 If the company adopts an ABC system, they will allocate facility-level costs equally to each product line. Requirements: 1. Estimate the cost per unit of the two products using the current cost system. OH costs / DLH = $402,500/35,000 DLH = $11.50/DLH Standard Unique Prime costs (DM & DL) $85.00 $125.00 OH (2 * $11.50; 1 * $11.50) 23.00 11.50 Total $108.00 $136.50