Chapter 06 – Fundamentals of Product and Service Costing
6-20
b. The costs per patient are $114.75 per hospital patient hour and $29.44 per other
patient.
Hospital
Patients
Other
Patients
Total
Equipment hours used ……………………….….
240
120
360
Direct labor-hours ……………………………..………..
480
180
660
Direct labor costs ………………………
$38,400
$10,800
$49,200
Overhead costs ……….
Equipment-hour related overheada …….………..
11,040
5,520
16,560
Direct labor-hours related overheadb ….………..
24,000
9,000
33,000
Total cost …………………………………………………..
$73,440
$25,320
$98,760
Patients …………………………………..
÷ 640
÷ 860
1,500
Cost per patient …………………………………………..
$114.75
$29.44
a $11,040 = 240 equipment hours x $46 per equipment hour;
$5,520 = 120 equipment hours x $46 per equipment hour.
b $24,000 = 480 direct labor-hours x $50 per direct labor-hour;
$9,000 = 180 direct labor-hours x $50 per direct labor-hour.
6-46. (30 Minutes) Operations Costing: Vermont Instruments.
The unit costs are:
Fin-X: ……
$28
Sci-X: ……
$33
Sci-X
Total
Number of units …………………….
40,000
50,000
Parts cost per unit …………………
$25
$30
Costs …………………………..………
$1,200,000
$ 1,450,000
Operation costs:
Direct Labor ……………………..
62,000
Indirect materials ………………
17,500
Overhead ………………………..
70,500
Total operation cost ………
$ 150,000
Cost per unit in plant ……………..
($150,000 ÷ 50,000 units) =
$3 per unit.
Chapter 06 – Fundamentals of Product and Service Costing
Operation cost (@ $3 per unit) ..
$ 30,000a
$ 120,000b
$150,000
Material cost …………………………
250,000
1,200,000
Total cost ……………………………..
$ 280,000
$1,320,000
Number of units …………………….
÷ 10,000
÷ 40,000
Unit cost ………………………………
$28
$33
a $30,000 = 10,000 units x $3 per unit.
b $120,000 = 40,000 units x $3 per unit.
6-47. (45 Minutes) Account Analysis, Two-Stage Allocation, and Product
Costing: Tiger Furnishings.
Chapter 06 – Fundamentals of Product and Service Costing
6-22
6-47. (continued)
b.
Basic
$188
Dominator
$400
Basic
Dominator
Total
Units Produced …………………………………….
1,000
250
1,250
Machine hours ……………………………………..
4,000
2,000
6,000
Direct labor hours …………………………………
3,000
2,000
5,000
Direct materials…………………………………….
$10,000
$3,750
$ 13,750
Direct labor ………………………………………….
64,500
35,500
100,000
Manufacturing Overhead
Machine-hour
related
Direct labor
cost related
Utilities ……………………………………………
$1,800
$0
$1,800
Supplies ………………………………………….
0
5,000
5,000
Training ………………………………………….
0
10,000
10,000
Supervision ……………………………………..
0
25,800
25,800
Machine depreciation ……………………….
32,000
0
32,000
Plant depreciation …………………………….
14,200
0
14,200
Miscellaneous ………………………………….
0
85,300
85,300
Total ………………………………………….
$48,000
$126,100
174,100
Total Costs ………………………………………….
$287,850
Burden Rates
Machine hour rate …………………………….
($48,000 ÷ 6,000 hours) =
$8.00
Direct labor cost rate ………………………..
($126,100 ÷ $100,000) =
126.1%
Chapter 06 – Fundamentals of Product and Service Costing
6-23
6-47. (continued)
Product Costing
Direct material …………………………………..
$ 10,000
$ 3,750
$ 13,750
Direct labor ……………………………………….
64,500
35,500
100,000
Overhead
Machine-related (@$8 per machine-hour) ..….
32,000a
16,000b
48,000
Labor-related (@126.1% direct labor cost)
81,335c
44,765d
126,100
Total overhead …………………………………
$113,335
$60,765
$174,100
Total cost …………………………………………….
$187,835
$100,015
$287,850
÷ Units produced ………………………………….
÷ 1,000
÷ 250
1,250
= Unit cost (rounded) …………………………...
= $188
= $400
6-48. (45 Minutes) Product Costing, Cost Estimation, and Decision Making: Dolan
Products.
Overhead rate
=
Total overhead
÷
Total direct labor hours
=
$750,000
÷
(5,000 x 2.0 + 10,000 x 1.0 + 20,000 x 0.5)
=
$750,000
÷
30,000 hours
=
$25 per direct labor hour
Chapter 06 – Fundamentals of Product and Service Costing
6-24
The product costs are:
Red
Yellow
Green
Direct materials ………………………….
$70.00
$50.00
$30.00
Direct labor (@$20)……………………..
40.00
20.00
10.00
Manufacturing overhead (@$25) …..
50.00
25.00
12.50
Product cost …………………………..
$160.00
$95.00
$52.50
The product margins are:
Red
Yellow
Green
Price …………………………………………
$150.00
$100.00
$75.00
Product cost ……………………………….
160.00
95.00
52.50
Product margin ……………………….
$(10.00)
$5.00
$22.50
6-48. (continued)
b. To determine product costs and margins, first calculate the Year 2 overhead rate:
Overhead rate
=
Total overhead
÷
Total direct labor hours
=
$650,000
÷
(10,000 x 1.0 + 20,000 x 0.5)
=
$650,000
÷
20,000 hours
=
$32.50 per direct labor hour
Chapter 06 – Fundamentals of Product and Service Costing
6-25
The product costs are:
Yellow
Green
Direct materials ………………………………..
$50.00
$30.00
Direct labor (@$20) …………………………..
20.00
10.00
Manufacturing overhead (@$32.50) …....
32.50
16.25
Product cost ………………………………...
$102.50
$56.25
The product margins are:
Yellow
Green
Price …………………………………………
$100.00
$75.00
Product cost ……………………………….
102.50
56.25
Product margin ……………………….
$(2.50)
$18.75
6-48. (continued)
c. Dolan should not drop Yellow.
The problem is that some of the manufacturing overhead is fixed and when a
Chapter 06 – Fundamentals of Product and Service Costing
Variable cost =
Cost at highest activity – cost at lowest activity
Highest activity – lowest activity
$750,000 – $650,000
Fixed costs
=
Total costs – variable costs
Fixed costs
=
$650,000 – ($10.00 x 20,000)
Chapter 06 – Fundamentals of Product and Service Costing
6-27
First, compute the plant-wide overhead rates used to allocate manufacturing
overhead. (Note that the corporate administration overhead is irrelevant in the
product-costing question. It is used for performance evaluation only.)
Moncton
Fredericton
Estimated plant overhead ……..
$1,000,000
$600,000
÷ Estimate production …………..
÷ 100,000 labor hours
÷ 150,000 labor hours
= Overhead rate ………………….
= $10 / labor hour
=$4 / labor hour
The reported product costs of P28 in each plant can then be determined as follows:
Moncton
Fredericton
Direct material …………………….
$25
$25
Direct labor …………………………
3 hrs. @ $9 = 27
4 hrs @ $10 = 40
Manufacturing overhead ……….
3 hrs @ $10 = 30
4 hrs @ $4 = 16
Total ……………………………..
$82
$81
b.
Based on the reported product costs, it appears that Fredericton is the plant where
P28 should be produced. However, the Moncton plant is more efficient (it requires