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
Direct material
4.00
8.00
Direct labor
80.00
100.00
Mfg. cost/unit
$ 87.91
$ 113.36
Selling price
$ 92.00
$ 125.00
Mfg. cost/unit
87.91
113.36
Gross profit/unit
$ 4.09
$ 11.64
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
5. ABC gives more appropriate information to managers because it
identifies the resources consumed by each product line, and assigns
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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
smaller number of units.
Midwest might have been using inaccurate cost information in setting
its selling prices.
5. ABC gives managers information about the activities and the costs of
Problem 17-3B (45 minutes)
1. Control levels
Wrapping Unit level
2. Wrapping $500,000/100,000 units $5/unit
Assembling* $400,000/20,000 direct labor hours $20/DLH
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
Product design
40 design hrs x$60 ……..
2,400
40 design hrs x$60 ……..
2,400
Obtaining Lic.
2,000 DLH x $5……………
10,000
500 DLH x $5 ……………..
2,500
Cooking
80 batches x $270 ………
21,600
200 batches x $270 …….
54,000
Total ovhd. cost
$114,000
$73,900
Problem 17-3B (concluded)
4. Cost per unit Holiday Basket Executive Basket
5. Plantwide overhead rate
Wrapping ($300,000 + $200,000) $ 500,000
Assembling 400,000
Product Design 180,000
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
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
Total cartons 1,900 cartons
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
Maintenance
5,000 MH x $14.40 ……
72,000
2,000 MH x $14.40 ……
28,800
Packaging
150,000 boxes x $2.88
432,000
10,000 boxes x $2.88 .
28,800
Shipping
1,500 cartons x $14.40
21,600
400 cartons x $14.40 .
5,760
Set-ups
52 set-ups x $1,800 ….
93,600
52 set-ups x $1,800 …
93,600
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
4. Since the cost associated with Fun with Fractions is $8.27, the price
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Problem 17-5B (50 minutes)
1. Total overhead = $215,630 + $399,480 + $515,600
Total direct labor hours 2,600 DLH + 1,600 DLH
= $1,130,710 = $269.22/DLH (rounded)
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
Problem 17-5B (continued)
4. Pattern alignment $64,400/560 batches $115/batch
Cutting $50,430/12,300 machine hours $4.10/MH
Moving product $100,800/2,400 moves $42/move
Material handling $184,000/920,000 square yards $0.20/sq. yd.
Pup Tent
Pop-Up Tent
Pattern alignment
140 batches x $115 …..…..
$ 16,100
420 batches x $115 ……….
$ 48,300
Cutting
7,000 MH x $4.10 …………..
28,700
5,300 MH x $4.10 ……….….
21,730
Moving product
800 moves x $42 …………..
33,600
1,600 moves x $42 …….….
67,200
Sewing
2,600 DLH x $78 ……….…..
202,800
1,600 DLH x $78 ………..….
124,800
Inspecting
240 insp. x $40 ……………..
9,600
360 insp. x $40 ………….….
14,400
Folding
15,200 units x $2.10 ….…..
31,920
7,600 units x $2.10 …….….
15,960
Designing
70 mods. x $1,000 …….…..
70,000
210 mods. x $1,000 ……….
210,000
Providing space
4,300 sq. ft. x $6 ……….…..
25,800
4,300 sq. ft. x $6 ………..….
25,800
Material handling
450,000 sq.yd. x $0.20 …….
90,000
470,000 sq.yd. x $0.20 ……..
94,000
Total overhead
$508,520
$622,190
÷ units
÷ 15,200
÷ 7,600
Overhead per unit*
$ 33.46
$ 81.87
DM and DL per unit
25.00
32.00
Mfg. cost per unit
$ 58.46
$ 113.87
*rounded
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Problem 17-5B (concluded)
5.
Pup Tent Pop-Up Tent
Selling price $65.00 $200.00
Manufacturing cost per unit 58.46 113.87
overhead rate bases cost assignment on volume-related factors.
6. Departmental overhead rates based on direct labor hours and machine
hours are still volume-based measures and would not improve the