Atkinson, Solutions Manual t/a Management Accounting, 6E
Direct labor and material costs
$32.000
Overhead costs:
Casting (1 $10.833)
$10.833
Assembly (0.5 $9.889)
4.944
15.777
Unit cost
$47.777
Number of units per month
1,000.000
Total manufacturing costs per month
$47,777.000
Mark up (25%)
$11,944.250
Bid price (per month)
$59,721.250
(c)
M P
P M
$750, .
$450, .
000 01
000 04
Therefore,
Chapter 4: Accumulating and Assigning Costs to Products
– 131 –
Cost driver rate: Casting
$ ,
,
$ .
871 875
80 000
10 8984 per machine hour
Cost driver rate: Assembly
$ ,
,
$ .
588 125
60 000
9 8021 per labor hour
Direct labor and material costs
$32.0000
Overhead costs:
Casting (1 $10.8984)
$10.8984
Assembly (0.5 $9.8021)
4.9011
15.7995
Unit cost
$47.7995
Number of units per month
1,000.0000
Total manufacturing costs per month
$47,799.5000
Mark up (25%)
$11,949.8750
Bid price (per month)
$59,749.3750
CASES
+320) = $25.00 per direct labor hour
Unit gross margins:
A
B
C
D
Selling Price
$ 15.00
$18.00
$20.00
$ 22.00
Materials Cost
4.00
5.00
6.00
7.00
Labor Cost
7.20
5.40
3.60
2.40
Overheada
6.00
4.50
3.00
2.00
Total Cost
$ 17.20
$14.90
$12.60
$ 11.40
Gross Margin
$ (2.20)
$ 3.10
$ 7.40
$ 10.60
a $25 per direct labor hour
Atkinson, Solutions Manual t/a Management Accounting, 6E
– 132 –
Total gross margins:
A
B
C
D
Total
Selling Price
$ 150,000
$ 144,000
$120,000
$88,000
$502,000
Materials Cost
40,000
40,000
36,000
28,000
144,000
Labor Cost
72,000
43,200
21,600
9,600
146,400
Overhead
60,000
36,000
18,000
8,000
122,000
Total Cost
172,000
119,200
75,600
45,600
412,400
Gross Margin
$ (22,000)
$ 24,800
$ 44,400
$42,400
$ 89,600
(b) After dropping product A, the plantwide cost driver rate is
$122,000/(1,440 + 720 +320) = $49.1935 per direct labor hour
Unit gross margins:
B
C
D
Selling Price
$18.00
$20.00
$ 22.00
Materials Cost
5.00
6.00
7.00
Labor Cost
5.40
3.60
2.40
Overheada
$ 8.85
$ 5.90
$ 3.94
Total Cost
$19.25
$15.50
$ 13.34
Gross Margin
$ (1.25)
$ 4.50
$ 8.66
a $49.1935 per direct labor hour
Total gross margins:
B
C
D
Total
Selling Price
$ 144,000
$120,000
$88,000
$352,000
Materials Cost
40,000
36,000
28,000
104,000
Labor Cost
43,200
21,600
9,600
74,400
Overhead
70,839
35,419
15,742
122,000
Total Cost
154,039
93,019
53,342
300,400
Gross Margin
$ (10,039)
$ 26,981
$34,658
$ 51,600
Chapter 4: Accumulating and Assigning Costs to Products
– 133 –
$122,000/(720 +320) = $117.3077 per direct labor hour
Unit gross margins:
C
D
Selling Price
$20.00
$ 22.00
Materials Cost
6.00
7.00
Labor Cost
3.60
2.40
Overheada
$14.08
$ 9.38
Total Cost
$23.68
$ 18.78
Gross Margin
$ (3.68)
$ 3.22
a $117.3077 per direct labor hour
Total gross margins:
C
D
Total
Selling Price
$120,000
$88,000
$208,000
Materials Cost
36,000
28,000
64,000
Labor Cost
21,600
9,600
31,200
Overhead
84,462
37,538
122,000
Total Cost
142,062
75,138
217,200
Gross Margin
$ (22,062)
$ 12,862
$ (9,200)
labor hour
Atkinson, Solutions Manual t/a Management Accounting, 6E
– 134 –
Unit gross margin for product D, the only remaining product:
D
Selling Price
$ 22.00
Materials Cost
7.00
Labor Cost
2.40
Overheada
$ 30.50
Total Cost
$ 39.90
Gross Margin
$(17.90)
a $381.25 per direct labor hour
D
Selling Price
$88,000
Materials Cost
28,000
Labor Cost
9,600
Overhead
122,000
Total Cost
159,600
Gross Margin
$(71,600)
appeared profitable.
This situation would likely have been avoided if Youngsborough had
used practical capacity direct labor hours in the denominator for the
developing new profitable products. Chapter 5 addresses activity–
Chapter 4: Accumulating and Assigning Costs to Products
– 135 –
based cost systems, which can more accurately assign overhead costs
require.
4-52 (a) Let salaries be denoted as follows: M = manager, S =senior mechanic,
and J = junior mechanic. The estimated total conversion (labor and
overhead) costs are:
Estimated total number of hours on customer jobs
8 1 750 95% 13 300, ,
hours
Therefore, the cost driver rate
hourper 46$
hours 300,13
800,611$
Furthermore,
46
100
106.51
x
so x = 11.
(b)
Class A Repairs
Class B Repairs
Estimated
total
conversion
costs
611800 60% 080,$367,
611800 40% 720,$244,
Estimated
total
hours on
customer
jobs
13 300 1
26650, ,
13 300 1
26650, ,
Conversion
cost
per
customer
job hour
367,080
6650 20 per hou
,$55.r
244,720
6650 80 per hou
,$36.r
Price per
hour
$55. . $61.2 111 27 per hour
$36. . $40.8 111 85 per hour
(c) Job 101:
4 5 15. .A B
Job 102:
2B
(Note:
A
Class A repair hours,
B
Class B repair hours)
Chapter 4: Accumulating and Assigning Costs to Products
– 137 –
decrease because of the price change.
(e) The current costing system is simple to administer and results in
pricing at a uniform labor rate (that includes coverage of overhead