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6-122
130.
Linger Products uses a two-stage allocation method to assign costs to its products. The
following information has been provided for March:
Product
1
Product
2
Total
Units
3,000
2,000
5,000
Machine hours
2,000
4,000
6,000
Direct labor hours
2,000
2,000
4,000
Direct materials
$60,000
$60,000
$120,000
Direct labor
45,000
45,000
90,000
Manufacturing
overhead
Utilities (machine
related)
$3,000
Supplies (labor
related)
8,000
Training (labor
related)
20,000
Supervision (labor
related)
17,000
Machine
depreciation
(machine related)
24,000
Lease on factory
(machine related)
33,000
Miscellaneous
(labor related)
5,000
Total
manufacturing
overhead
$110,000
Required:
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6-125
131.
Airborne Industries uses a two-stage allocation method to assign costs to its products.
The following information has been provided for the month:
Product
X
Product
Y
Product
Z
Total
Units
3,000
2,000
1,000
6,000
Machine hours
4,000
8,000
8,000
20,000
Direct labor
hours
2,000
3,000
5,000
10,000
Direct materials
$60,000
$60,000
$75,000
$195,000
Direct labor
45,000
80,000
175,000
300,000
Manufacturing
overhead
Utilities
(machine
related)
$13,000
Supplies
(labor related)
8,000
Training
(labor related)
20,000
Supervision
(labor related)
37,000
Machine
depreciation
(machine
related)
34,000
Lease on
factory
(machine
related)
66,000
Miscellaneous
(labor related)
15,000
Total
$193,000
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manufacturing
overhead
6-128
132.
Airborne Industries uses a two-stage allocation method to assign costs to its products.
The following information has been provided for the month:
Product
X
Product
Y
Product
Z
Total
Units
6,000
4,000
2,000
12,000
Machine hours
8,000
16,000
16,000
40,000
Direct labor
hours
4,000
6,000
10,000
20,000
Direct materials
$120,000
$120,000
$150,000
$390,000
Direct labor
90,000
160,000
350,000
600,000
Manufacturing
overhead
Utilities
(machine
related)
$26,000
Supplies
(labor related)
16,000
Training
(labor related)
40,000
Supervision
(labor related)
74,000
Machine
depreciation
(machine
related)
68,000
Lease on
factory
(machine
related)
132,000
Miscellaneous
(labor related)
30,000
Total
$386,000
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manufacturing
overhead
133.
Adolphus Instruments manufactures two models of calculators. The research model is the
RES-1 and the student model is the AS-2. Both models are assembled in the same plant
and require the same assembling operations. The difference is in the cost of the internal
components. The following data are available for February.
RES-1
AS-2
Total
Number of units
20,000
80,000
100,000
Parts costs per unit
$40
$50
Other costs:
Direct labor
$124,000
Indirect materials
35,000
Other overhead
141,000
Total
$300,000
134.
Carter Furniture manufactures three models of tables: oak, cherry, and walnut. All models
are assembled in the same plant and require the same assembling operations. The
difference is in the cost of the wood. The following data are available for July.
Oak
Cherry
Walnut
Total
Number of
units
1,200
700
900
2,800
Wood costs per
unit
$80
$120
$105
Other costs:
Direct labor
$165,000
Indirect
materials
26,000
Other
overhead
61,000
Total
$252,000
135.
136.
137.
138.
139.
140.
141.
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142.
Thompson Metal Corporation (TMC) supplies various types of machine tools to
manufacturing companies. TMC has always paid a lot of attention to the quality of its
products. Recently, an outside supplier has approached TMC to supply an important and
intricate component of one of its more advanced tools that TMC has been manufacturing
in-house. Sam Weiss, a junior accountant at TMC, has collected the following information
regarding this proposal.
The cost of manufacturing one unit of this component internally are as follows:
Direct materials:
$29,60
Direct labor:
13.00
Variable
overhead:
19.50
(@150% of direct labor
cost)
Fixed overhead:
26.00
(@200% of direct labor
cost)
Total cost:
$88.10
The outside supplier has quoted a price of $90 per unit for supplying this component. The
following is a conversation that took place among the manufacturing manager (Dana
Rice), the buyer (Emily Scanlon), and Sam Weiss.
Weiss: I think that we should continue to manufacture internally because we can save
$1.90 per unit on this component.
Rice: According to your report, we would save $1.90 per unit, but I do not agree with those
numbers.
Weiss: What do you mean? I have followed the same costing guidelines this company has
used for years. I have even cross-checked my numbers with historical data and know for
sure that the overhead rates which I have used are correct.
Rice: I am sure you have done your job thoroughly, but I think that our costing system is
archaic. This component is complex and difficult to manufacture. I believe that our
overhead allocation method does not accurately capture the production difficulties and
the additional resources that are devoted to the manufacture of this component. For
example, a significant portion of our quality problems are due to this component. We
spend close to a third of our quality inspection time on just this component alone, but that
is not reflected. These quality problems cause delays in getting this component to the
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