Problem 4-45 Name:
Insert your answers into the gray-shaded cells. If an answer is incorrect,
the word “wrong” will appear.
a. Umbrella:
Overhead per unit of umbrellas 24$
Overhead rate per hour
÷30$
Percent of overhead 80%
Minutes in an hour x 60
Direct labor time to produce an umbrella 48
Gazebo:
Direct labor cost per gazebo 180$
Overhead rate per hour
÷30$
Direct labor hours per gazebo 6.00
Chaise Lounge:
Direct labor cost per chaise lounge 60$
Overhead rate per hour
÷30$
Direct labor hours per gazebo 2.00
b. Overhead
Units x per Unit
Umbrellas 300,000 24.00$ 7,200,000$
Gazebos 30,000 180.00$ 5,400,000
Chaise lounge 90,000 60.00$ 5,400,000
Total 18,000,000$
c. Allocation rates:
Cost
÷Volume =Rate
Quality control 630,000$ 420,000 1.50$
Setups 600,000$ 3,000 200.00$
Mat. handling 1,800,000$ 6,000,000 0.30$
Equip. operation
14,970,000$ 3,000,000 4.99$
Overhead Cost allocation:
Units x Rate
Umbrellas Gazebos Chaise Lounge
Quality control:
300,000 x 1.50$ 450,000$
Solution
30,000 x 1.50$ 45,000$
90,000 x 1.50$ 135,000$
Setups:
600 x 200$ 120,000
1,300 x 200$ 260,000
1,100 x 200$ 220,000
Materials handling:
1,200,000 x 0.30$ 360,000
3,000,000 x 0.30$ 900,000
1,800,000 x 0.30$ 540,000
Equipment operations:
600,000 x 4.99$ 2,994,000
1,100,000 x 4.99$ 5,489,000
1,300,000 x 4.99$ 6,487,000
Total overhead 3,924,000$ 6,694,000$ 7,382,000$
÷ Number of units 300,000 30,000 90,000
OH cost per unit 13.08$ 223.13$ 82.02$
Cost per unit:
Umbrellas Gazebos Chaise Lounge
Direct materials 12.00$ 120.00$ 12.00$
Direct labor 18.00 135.00 45.00
Overhead 13.08 223.13 82.02
Total 43.08$ 478.13$ 139.02$
d.
If prices are set based on product costs, activity-based costing would generate lower prices for
umbrellas and higher prices for the other two products.
minutes
DLHs
DLHs
per unit
per setup
per lb.
per MH
Chaise Lounge
If prices are set based on product costs, activity–based costing would generate lower prices for
umbrellas and higher prices for the other two products.