Problem 17-5A (45 minutes)
1. Plantwide overhead rate:
Total overhead cost = $128,250 + $268,000 + $182,000 = $578,250 .
Total volume 20,000 + 100,000 cases 120,000 cases
2.
Extra Fine Family Style
Direct materials + Direct Labor $ 6.00 $ 5.00
3.
Extra Fine Family Style
Selling price per case $18.00 $ 9.00
It appears that Family Style salsa is not profitable and the company may
Problem 17-5A (concluded)
4. Mixing & Cooking ($4,500 + $11,250)/1,500 MH $10.50/MH
Product testing $112,500/600 batches $187.50/batch
Machine calibration $250,000/400 production runs $625/run
Extra Fine Family Style
Mixing & cooking 500 MH x $10.50……….. $ 5,250 1,000 MH x $10.50..... $ 10,500
Product testing 200 batch. X $187.50... 37,500 400 batch. x $187.50. 75,000
Mach. calibration 200 runs x $625…........ 125,000 200 runs x $625......... 125,000
Labeling & defects 20,000 cases x $0.15... 3,000 100,000 cases x $0.15. 15,000
Recipe formulation 30 groups x $2,000…... 60,000 15 groups x $2,000.... 30,000
*rounded
5. Extra Fine Family Style
Selling price per case $18.00 $9.00
Manufacturing cost per case 20.02 7.98
Gross margin (loss) per case $(2.02) $1.02
6. Departmental overhead rates would be a modest improvement over the
plantwide rate because they could show differences across
PROBLEM SET B
Problem 17-1B (45 minutes)
1. Plantwide overhead rate:
Engineering support $ 56,250
Electricity 112,500
Setup costs 41,250
Standard Deluxe
Direct materials cost per unit $ 4.00 $ 8.00
Direct labor cost per unit
Standard: 4 DLH x $20/DLH 80.00
Deluxe: 5 DLH x $20/DLH 100.00
Overhead cost per unit 4.20 4.20
2. Profit per customer Standard Deluxe
Gross profit per unit $3.80 $ 12.80
x units per customer
Standard (40,000 units/1,000 cust.) x 40 units/cust.
Deluxe (10,000 units/1,000 cust.) ___________ x 10 units/cust.
Gross profit per customer $152.00 $128.00
Problem 17-1B (concluded)
3. Eng. support $56,250/(50 + 25) modifications = $750/modification
Electricity $112,500/150,000* machine hours = $0.75/machine hour
Setup $41,250/(175 + 75) batches = $165/batch
* From part 1
Standard Deluxe
Engineering 50 mods. x $750 $37,500 25 mods. x $750 $ 18,750
Electricity 120,000 MH x $0.75 90,000 30,000 MH x $0.75 22,500
Setups 175 batches x $165 28,875 75 batches x $165 12,375
Total overhead $156,375 $53,625
÷ units ÷ 40,000 ÷ 10,000
Overhead/unit $ 3.91 $ 5.36
4. Standard Deluxe
Gross profit per unit $ 4.09 $ 11.64
x units per customer* x 40 units x 10 units
Gross profit per customer $ 163.60 $ 116.40
Gross profit per customer $ 163.60 $ 116.40
5. ABC gives more appropriate information to managers because it
identifies the resources consumed by each product line, and assigns
Problem 17-2B (25 minutes)
1. The major costs of making the boxes are designing the boxes, setting
up machines to make the right cuts, cutting the cardboard, printing
the boxes, obtaining the cardboard material, labor, and utilities, and
2. Midwest has taken on more custom-made boxes for smaller-volume
customers.
3. Yes. Midwest’s old customers bought the same type of boxes over
and over, so the design costs were spread over many units. The new
4. Possibly. If ABC had been used rather than a volume-based system,
Midwest would have realized that small customers who want custom-
designed and custom-made boxes require different activities than
5. ABC gives managers information about the activities and the costs of
Problem 17-3B (45 minutes)
1. Control levels
Wrapping Unit level
Assembling Unit level
Cooking Batch level
2. Wrapping $500,000/100,000 units $5/unit
Assembling* $400,000/20,000 direct labor hours $20/DLH
* The costs of Assembling and Obtaining business licenses should NOT be combined
because they are different with respect to their control level. From part 1, assembling
is a unit level activity while obtaining business licenses is a facility level activity.
3.
Holiday Basket Executive Basket
Wrapping 8,000 units x $5………….. $ 40,000 1,000 units x $5………….. $ 5,000
Assembling 2,000 DLH x $20…..…..... 40,000 500 DLH x $20………….… 10,000
Problem 17-3B (concluded)
4. Cost per unit Holiday Basket Executive Basket
Total overhead cost $114,000 $73,900
5. Plantwide overhead rate
Wrapping ($300,000 + $200,000) $ 500,000
Assembling 400,000
Product Design 180,000
Holiday Basket
Overhead assigned (2,000 DLH x $72.50/DLH) $ 145,000
÷ units ÷8,000 units
6.
Holiday Basket Executive Basket
Activity based cost per unit $14.25 $73.90
Plantwide cost per unit $18.13 $36.25
The plantwide overhead rate assigns too much cost to the Holiday
Basket (which is a comparatively high-volume product) and understates
Problem 17-4B (30 minutes)
1. Components $495,000/(450,000 + 100,000) parts $0.90/part
Assembly labor $244,800/(15,000 + 2,000) DLH $14.40/DLH
Maintenance $100,800/(5,000 + 2,000) MH $14.40/MH
Fun with Fractions Count Calculus
Components 450,000 parts x $0.90. . $ 405,000 100,000 parts x $0.90. $ 90,000
Assembly 15,000 DLH x $14.40. . . 216,000 2,000 DLH x $14.40.... 28,800
Total cost $1,240,200 $275,760
2. Cost per unit Fun with Fractions Count Calculus
Total manufacturing cost $1,240,200 $275,760
3. Selling price of Count Calculus $59.95
Cost/unit 27.58
4. Since the cost associated with Fun with Fractions is $8.27, the price
Problem 17-5B (50 minutes)
1. Total overhead = $215,630 + $399,480 + $515,600
Total direct labor hours 2,600 DLH + 1,600 DLH
Pup Tent Pop-Up Tent
Overhead cost by product line
Pup: 2,600 DLH @ $269.22/DLH $699,972*
Pop-Up: 1,600 DLH @ $269.22/DLH $430,752*
2. Total manufacturing cost per unit:
Direct materials and direct labor $25.00 $32.00
3. Gross profit per unit
Selling price per unit $65.00 $200.00
Manufacturing cost per unit 71.05 88.68