6-49. (30 min.) Operations Costing: Howrley-David, Inc.
The unit costs are:
Fatboy: …………
$4,000
Screamer: …….
$5,000
Fatboy
Screamer
Total
Number of units …………………….
2,000
4,000
6,000
Materials cost per unit ……………
$2,000
$3,000
Costs …………………………………..
$ 4,000,000
$12,000,000
$16,000,000
Conversion costs:
Direct Labor ……………………..
$ 6,000,000
Indirect materials ………………
1,800,000
Other overhead ………………..
4,200,000
Total operation cost ………
$12,000,000
Conversion cost per unit in plant
($12,000,000 ÷ 6,000 units) =
$2,000 per unit.
$12,000,000
Material cost …………………………
Total cost ……………………………..
Number of units …………………….
6-50. (30 Minutes) Operations Costing: S. Lee Enterprises.
The unit costs are:
SL1: …………….
$2,200
SL2: …………….
$2,700
SL1
SL2
Total
Number of units …………………….
1,300
1,800
3,100
Materials cost per unit ……………
$900
$1,400
Costs …………………………………..
$ 1,170,000
$2,520,000
$3,690,000
Conversion costs:
Conversion cost per unit in plant
($4,030,000 ÷ 3,100 units) =
$1,300 per unit.
Operation cost
(@ $1,300 per unit) ……………….
$1,690,000a
$2,340,000b
$4,030,000
Material cost …………………………
1,170,000
2,520,000
Total cost ……………………………..
$2,860,000
$4,860,000
Number of units …………………….
÷ 1,300
÷ 1,800
Unit cost ………………………………
$2,200
$2,700
6-51. (30 Minutes) Operations Costing: Organic Grounds.
The unit costs are:
$10.60
$12.60
Star
Bucks
Total
Number of pounds ……………
5,000
20,000
25,000
Materials cost per pound …..
$4.00
$6.00
Costs ……………………………..
$20,000
$120,000
$ 140,000
Conversion costs:
Direct Labor ………………..
$ 50,000
Indirect materials …………
15,000
Other overhead …………..
100,000
Total operation cost …
$165,000
Cost per pound in plant …….
($165,000 ÷ 25,000 pounds) =
$6.60 per pound.
Material cost ……………………
Total cost ………………………..
Number of pounds ……………
Solutions to Problems
6-52. (30 Minutes) Product Costing: Tiger Furnishings.
The unit costs are: Basic: $187.38 (rounded) and Dominator: $405.50
Basic
Dominator
Total
Direct materials ……………………………………………..
$10,000
$3,750
$13,750
Direct labor ……………………………………………………
64,500
35,500
100,000
Manufacturing overhead
(@175% of Direct labor cost)a ………………………..
112,875
62,125
175,000
Total costs …………………………………………………….
$187,375
$101,375
$288,750
Units produced ………………………………………………
÷ 1,000
÷ 250
Unit cost …………………………..…………………………..
$187.38
$405.50
6-53. (30 Minutes) Product Costing: Tiger Furnishings.
The unit costs are: Basic: $187 and Dominator: $407
Basic
Dominator
Total
Direct materials …………………………………….
$ 10,000
$3,750
$13,750
Direct labor …………………………………………..
64,500
35,500
100,000
Total costs ……………………………………………
Units produced ……………………………………..
Unit cost …………………………..………………….
6-54. (30 Minutes) Product Costing—Ethical Issues: Tiger Furnishings.
a. The unit costs are different because the two products use the machine hours and
direct labor costs in different proportions. The Basic model is more machine
intensive (it uses relatively more machine hours than labor compared to the
Dominator model). This means that when the company moves to machine hours to
allocate costs, the Basic model will be assigned more overhead costs resulting in
higher reported product costs.
6-55. (30 Minutes) Two-Stage Allocation and Product Costing: Donovan &
Parents.
a. The overhead rates are $18 per machine hour and 45% of direct-materials cost.
Account
Machine-Hour
Related
Materials
Related
Utilities …………………………. ……………..
$ 48,000
Supplies …………………………………………….
$33,600
Machine depreciation and maintenance …
105,600
Purchasing and storing materials ………….
38,400
Miscellaneous ……………………………………..
40,800
________________________________
÷ Total machine hours ………………………….
÷ Total materials cost …………………………...
b. The cost per unit of output is $8.75 for jerseys and $12.40 for shorts.
Jerseys
Shorts
Total
Machine hours used …………………….
6,000
4,800
10,800
Direct materials costs ………………….
$96,000
$64,000
$160,000
Direct labor costs ………………………
32,800
19,200
52,000
Manufacturing overhead costs ……….
Machine-hour related overheada ….
108,000
86,400
194,400
Materials-related overheadb ………..
43,200
28,800
72,000
Total cost …………………………………..
$280,000
$198,400
$478,400
Units produced ………………………..
÷ 32,000
÷ 16,000
Cost per unit ……………………………….
$8.75
$12.40
6-56. (30 Minutes) Two-Stage Allocation and Product Costing: Owl-Eye
Radiologists.
a. The overhead rates are $46 per equipment hour and $50 per direct labor hour.
Account
Equipment-
Hour Related
Direct-Labor
Hour Related
Utilities …………………………. ………………..
$ 4,800
Supplies ……………………………………………….
$12,600
Indirect labor and supervision ………………….
20,400
Equipment depreciation and maintenance …
8,400
Miscellaneous ………………………………………..
3,360
________________________________
÷ Total equipment hours ………………………….
÷ Total labor hours ………………………………….
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
Labor costs ………………………
$38,400
$10,800
$49,200
Overhead costs ……….
Total cost ………………………………………
$98,760
Patients …………………………………..
a $11,040 = 240 equipment hours $46 per equipment hour;
$5,520 = 120 equipment hours $46 per equipment hour.
b $24,000 = 480 direct labor-hours $50 per direct labor-hour;
$9,000 = 180 direct labor-hours $50 per direct labor-hour.
6-57. (30 Minutes) Predetermined Overhead Rates and Product Profitability:
Social Media, Inc.
a. $7.50 per engineering hour and $15 per user.
Predetermined rate
=
Engineering-hour
related costs
÷
Engineering hours
=
$120,000
÷
16,000
=
$7.50 per engineering-hour
Predetermined rate
=
User related costs
÷
Users
=
$360,000
÷
24,000
=
$15 per user
b.
6-58. (30 Minutes) Predetermined Overhead Rates and Product Profitability:
Social Media, Inc.
a. $7.50 per engineering hour, $8.75 per user, and 7.5% of revenue.
Predetermined rate
=
Engineering-hour
related costs
÷
Engineering hours
=
$120,000
÷
16,000
=
$7.50 per engineering-hour
=
÷
Users
=
$210,000
÷
24,000
=
$8.75 per user
=
Revenue-related costs
÷
Revenue
=
$150,000
÷
$2,000,000
=
7.5% of revenue
b.
Toot!
TiX
Revenues …………………………
$1,200,000
$800,000
Engineering costs ………………
240,000
360,000
Administrative costs:
Engineering-hour related ….
75,000
(a)
45,000
(b)
User-related …………………..
78,750
(c)
131,250
(d)
Revenue-related
90,000
(e)
60,000
(f)
Profit ………………………………..
$716,250
$203,750
a. (= $7.50 10,000 engineering
hours)
6-59. (30 Minutes) Operations Costing: Vermont Instruments.
The unit costs are:
Fin-X: ……
$28
Sci-X: ……
$33
Fin-X
Sci-X
Total
Number of units …………………….
10,000
40,000
50,000
Parts cost per unit …………………
$25
$30
Costs …………………………………..
$250,000
$1,200,000
$ 1,450,000
Operation costs:
62,000
17,500
Cost per unit in plant ……………..
($150,000 ÷ 50,000 units) =
$3 per unit.
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
6-60. (30 Minutes) Operation Costing: DiDonato Supplies.
The unit costs are:
Basic: ……
$17.75
Laser: ……
$30.75
Basic
Laser
Total
Number of units ………………….
250,000
60,000
310,000
Parts cost per unit ………………
$12
$25
Costs ………………………………..
$3,000,000
$1,500,000
$ 4,500,000
Operation costs:
744,000
Cost per unit in plant …………..
($1,782,500 ÷ 310,000 units) =
$5.75 per unit.
Operation cost (@ $5.75 per unit)
$1,437,500a
$ 345,000b
$150,000
Material cost …………………….
3,000,000
1,500,000
Total cost …………………………
$4,437,500
$1,845,000
Number of units ………………..
÷ 250,000
÷ 60,000
Unit cost ………………………….
$17.75
$30.75
6-61. (45 Minutes) Account Analysis, Two-Stage Allocation, and Product
Costing: Tiger Furnishings.
a. Cost Flow Diagram
Overhead
Machine-Related
Overhead
Direct Labor Cost
Related
First Stage
6-61. (continued)
b.
Basic
$187
Dominator
$406
Basic
Dominator
Total
Units Produced …………………………………….
1,000
250
1,250
Machine hours ……………………………………..
4,500
2,500
7,000
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
10,600
10,600
Supervision ……………………………………..
0
25,800
25,800
Machine depreciation ……………………….
32,100
Plant depreciation …………………………….
14,400
Miscellaneous ………………………………….
0
85,300
85,300
Total ………………………………………….
Burden Rates
Machine hour rate …………………………….
$6.90
Direct labor cost rate ………………………..
6-61. (continued)
Product Costing
Direct material …………………………………..
$ 10,000
$ 3,750
$ 13,750
Direct labor ……………………………………….
64,500
35,500
100,000
Overhead
Machine-related (@$6.90 per machine-
hour) …………………………………………………..
31,050a
17,250b
48,300
Labor-related (@126.7% direct labor cost)
81,722c
44,978d
126,700
Total overhead …………………………………
$112,772
$62,228
$175,000
Solutions to Integrative Cases
6-62. (45 Minutes) Product Costing, Cost Estimation, and Decision Making: Dolan
Products.
a. To determine product costs and margins, first calculate the Year 1 overhead rate:
Overhead rate
=
Total overhead
÷
Total direct labor hours
=
$750,000
÷
(5,000 x 2.0 + 10,000 1.0 + 20,000 0.5)
=
$750,000
÷
30,000 hours
=
$25 per direct labor hour
The product costs are:
Red
Yellow
Green
Direct materials …………………….
Direct labor (@$20)………………..
Manufacturing overhead (@$25)
The product margins are:
Red
Yellow
Green
Price ……………………………………
Product cost ………………………….
6-62. (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 0.5)
=
$650,000
÷
20,000 hours
=
$32.50 per direct labor hour
The product costs are:
Yellow
Green
Direct materials ………………………….
$30.00
Direct labor (@$20) …………………….
Manufacturing overhead (@$32.50)
The product margins are:
Yellow
Green
Price ……………………………………
$100.00
$75.00
Product cost ………………………….
6-62. (continued)
c. Dolan should not drop Yellow.
The problem is that some of the manufacturing overhead is fixed and when a
product is dropped, that cost is not avoided, but added to the overhead allocated to
the remaining products. We know that not all the overhead is fixed, however,
because overhead declined from $750,000 to $650,000 when Dolan dropped Red.
Cost at highest activity – cost at lowest activity
$750,000 – $650,000
Fixed costs
=
Total costs – variable costs
=
$750,000 – ($10.00 30,000)
=
$450,000
or
Fixed costs
=
$650,000 – ($10.00 20,000)
=
$450,000
6-63. (45 Minutes) Product Costing and Decision Making: Brunswick Parts.
a.
The reported product costs include direct materials, direct labor, and manufacturing
overhead.
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.)
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
only 3 hours of direct labor compared to 4 hours at Fredericton). The distortion is
caused by the fact that the Fredericton plant is almost fully depreciated whereas the
Moncton plant is new and probably much more automated.