Two-Stage ABC for Manufacturing: Reassigning Costs to Cost

Two-Stage ABC for Manufacturing: Reassigning Costs to Cost ObjectivesNational Technology, LTD. has developed the following activity cost information for its manufacturing activities:Activity Activity CostMachine setup $65.00 per batchMovement 17.00 per batch0.10 per poundDrilling 3.00 per holeWelding 5.00 per inchShaping 27.00 per hourAssembly 18.00 per hourInspection 2.00 per unitFilling an order for a batch of 50 fireplace inserts that weighed 150 pounds each required the following:• Three batch moves• Two sets of inspections• Drilling five holes in each unit• Completing 80 inches of welds on each unit• Thirty minutes of shaping for each unit• One hour of assembly per unitDetermine the activity cost of converting the raw materials into 50 fireplace inserts.Fireplace InsertsActivity CostSet-up $AnswerMovementBatch $AnswerWeight AnswerInspection AnswerDrilling AnswerWelding AnswerShaping AnswerAssembly Answer________________________________________Total $Answer________________________________________Stage 1 ABC For Machine Shop: Assigning Costs to ActivityAs the chief engineer of a small fabrication shop, Brenda Tolliver refers to herself as a “jack-of-all-trades.” When an order for a new product comes in, Brenda must do the following:1. Design the product to meet customer requirements.2. Prepare a bill of materials (a list of materials required to produce the product).3. Prepare an operations list (a sequential list of the steps involved in manufacturing the product).Each time the foundry manufactures a batch of the product, Brenda must perform these activities:1. Schedule the job.2. Supervise the setup of machines that will work on the job.3. Inspect the first unit produced to verify that it meets specifications.Brenda supervises the production employees who perform the actual work on individual units of product. She is also responsible for employee training, ensuring that production facilities are in proper operating condition, and attending professional meetings. Brenda’s estimates (in percent) of time spent on each of these activities last year are as follows:Designing product 12%Preparing bills of materials 5%Preparing operations lists 12%Scheduling jobs 15%Supervising setups 5%Inspecting first units 2%Supervising production 20%Training employees 18%Maintaining facility 7%Attending professional meetings 4%100%Assuming Brenda Tolliver’s salary is $121,000 per year, determine the dollar amount of her salary assigned to unit-, batch-, product-, and facility-level activities. (You may need to review Chapter 2 before answering this question.)% of Time Spent on Activity Assignment of SalaryUnit level:AnswerAnswerMark 0.00 out of 1.00%________________________________________Total AnswerMark 0.00 out of 1.00% $AnswerMark 0.00 out of 1.00Batch level:Job scheduling AnswerMark 0.00 out of 1.00%AnswerAnswerMark 0.00 out of 1.00%AnswerAnswerMark 0.00 out of 1.00%________________________________________Total AnswerMark 0.00 out of 1.00% AnswerMark 0.00 out of 1.00Product level:Product design AnswerMark 0.00 out of 1.00%AnswerAnswerMark 0.00 out of 1.00%AnswerAnswerMark 0.00 out of 1.00%________________________________________Total AnswerMark 0.00 out of 1.00% AnswerMark 0.00 out of 1.00Facility level:Employee training AnswerMark 0.00 out of 1.00%AnswerAnswerMark 0.00 out of 1.00%AnswerAnswerMark 0.00 out of 1.00%________________________________________Total AnswerMark 0.00 out of 1.00%________________________________________ AnswerMark 0.00 out of 1.00________________________________________Grand total AnswerMark 0.00 out of 1.00%________________________________________ $AnswerMark 0.00 out of 1.00________________________________________Relevant Range and High-Low MethodThe following selected data relate to the major cost categories experienced by Shaw Company at varying levels of operating volumes. Assuming that all operating volumes are within the relevant range, calculate the appropriate costs in each column in which blanks appear:Total Cost (@ 3,000 Units) Total Cost (@ 4,000 units) Variable Cost per Unit Total Fixed Cost Total Cost (@ 5,000 units)Direct labor (variable) $63,000 $84,000 $Answer$Answer$AnswerFactory supervision (semi-variable) 50,000 65,000 $Answer$Answer$AnswerFactory depreciation (fixed) 33,000 33,000 $Answer$Answer$AnswerCost-Volume Profit AnalysisHailstorm Company sells a single product for $22 per unit. Variable costs are $14 per unit and fixed costs are $65,000 at an operating level of 7,000 to 12,000 units.a. What is Hailstorm Company’s break-even point in units?Answer unitsb. How many units must be sold to earn $12,000 before income tax?Answer unitsc. How many units must be sold to earn $13,000 after income tax, assuming a 35% tax rate?Answer unitsBreak-Even CalculationsCompute the break-even point in units for each of the following independent situations:Unit Selling Price Unit Variable Cost Total Fixed Costa. $10 $7 $180,000b. 12 9 288,000c. 5 3 108,000a. Answer unitsb. Answer unitsc. Answer unitsVariable and Absorption CostingDuring its first year, Walnut, Inc., showed an $36 per-unit profit under absorption costing but would have reported a total profit $32,000 less under variable costing. If production exceeded sales by 500 units and an average contribution margin of 62.5% was maintained, what is the apparent:a. Fixed cost per unit?$Answer per unitb. Sales price per unit?$Answer per unitc. Variable cost per unit?$Answer per unitd. Unit sales volume if total profit under absorption costing was $198,000?Answer unitsVariable and Absorption CostingChandler Company sells its product for $109 per unit. Variable manufacturing costs per unit are $48, and fixed manufacturing costs at the normal operating level of 12,000 units are $240,000. Variable selling expenses are $18 per unit sold. Fixed administrative expenses total $104,000. Chandler had no beginning inventory in 2016. During 2016, the company produced 12,000 units and sold 9,000. Would net income for Chandler Company in 2016 be higher if calculated using variable costing or using absorption costing?Calculate reported income using each method.Do not use negative signs with any answers.Absorption Costing Income StatementSales $AnswerCost of Goods Sold:Beginning Inventory AnswerVariable Costs AnswerFixed Costs AnswerLess: Ending Inventory Answer________________________________________Cost of Goods Sold Answer________________________________________AnswerAnswerAnswerAnswerAdministrative expense Answer________________________________________Net Income $Answer________________________________________Variable Costing Income StatementSales $AnswerCost of Goods Sold:Beginning Inventory AnswerVariable Costs AnswerAnswerAnswer________________________________________Variable cost of goods sold AnswerAnswerAnswer________________________________________AnswerAnswerFixed costs:AnswerAnswerAdministrative Expense Answer________________________________________Total Fixed Cost Answer________________________________________Net Income $Answer________________________________________Total Manufacturing Cost, Income Statement, Unit Cost, and Selling PriceTwo inventors, recently organized as Innovation, Inc., consult you regarding a planned new product.They have estimates of the costs of materials, labor, overhead, and other expenses for 2016 but need to know how much to charge for each unit to earn a profit in 2016 equal to 15% of their estimated total long-term investment of $800,000 (ignore income taxes).Their plans indicate that each unit of the new product requires the following:Direct Material 4 lb. of a material costing $10 per lb.Direct labor 2 hrs. of a metal former’s time at $22 per hr.0.6 hr. of an assembler’s time at $16 per hr.Major items of production overhead would be annual rent of $92,920 for a factory building, $57,320 rent for machinery, and $43,400 of indirect material. Other production overhead is estimated to be $466,560. Selling expenses are an estimated 30% of total sales, and non-factory administrative expenses are 20% of total sales.The consensus at Innovation is that during 2016 10,000 units of product should be produced for selling and another 2,000 units should be produced for the next year’s beginning inventory. Also, an extra 3,000 pounds of material will be purchased as beginning inventory for the next year. Because of the nature of the manufacturing process, all units started must be completed, so work in process inventories are negligible.Requireda. Incorporate the above data into a schedule of estimated total manufacturing costs and compute the unit production cost for 2016.Do not use negative signs with any of your answers.Estimated Total Manufacturing CostFor the Year Ended December 31,2016Direct material:Beginning materials inventory $AnswerAnswerAnswer________________________________________Cost of material available AnswerLess: AnswerAnswer________________________________________Total materials used AnswerLess: AnswerAnswer________________________________________Direct materials used $AnswerDirect labor AnswerManufacturing overheadIndirect material AnswerBuilding rent AnswerMachinery rent AnswerAnswerAnswer________________________________________Total manufacturing overhead Answer________________________________________Total manufacturing costs $Answer________________________________________Round answer to two decimal places.Product cost per unit $Answerb. Prepare an estimated income statement that would provide the target amount of profit for 2016.Income StatementFor the Year Ended December 31,2016Answer$AnswerAnswerAnswer________________________________________Gross profit on sales AnswerOperating expenses:Answer$AnswerAnswerAnswer________________________________________ Answer________________________________________AnswerAnswer________________________________________c. What unit sales price should Innovation charge for the new product?$AnswerCalculate and Use Manufacturing Overhead RateDuring the coming accounting year, Ester Manufacturing, Inc., anticipates the following costs, expenses, and operating data:Direct material (15,000 lb.) $ 90,000Direct labor (@ $12/hr.) 240,000Indirect material 14,000Indirect labor 24,000Sales commissions 36,000Factory administration 26,000Non factory administrative expenses 28,000Other manufacturing overhead* 56,000*Provides for operating 75,000 machine hours.a. Calculate the predetermined manufacturing overhead rate for the coming year for each of the following application bases: (1) direct labor hours, (2) direct labor costs, and (3) machine hours.Round direct labor hours and machine hours answers to two decimal places, when applicable. Round direct labor costs to two decimal places, when applicable (example: 76.25%).Application base Manufacturingoverhead rateDirect labor hours $AnswerDirect labor costs Answer %Machine hours $Answerb. For each item in requirement a, determine the proper application of manufacturing overhead to Job 128, to which 18 direct labor hours, $200 of direct labor cost, and 64 machine hours have been charged.Round answers to two decimal places, when applicable.Application base Manufacturingoverhead rateDirect labor hours $AnswerDirect labor costs $AnswerMachine hours $AnswerBreak-Even with Multiple ProductsWarner Company has $228,000 of total fixed costs and sells products A and B with a product mix of 40% A and 60% B. Selling prices and variable costs for A and B result in contribution margins per unit of $12 and $8, respectively. Compute the break-even point.Enter product mix answers in decimal form. Round weighted average unit contribution margin to two decimal places, if applicable.Product Product Mix Contribution Margin per unit Weighted average unit contribution marginA Answer$Answer$AnswerB Answer$Answer$Answer________________________________________$Answer________________________________________________________________________________Break-even point = Answer unitsVariable and Absorption CostingGrant Company sells its product for $57 per unit. Variable manufacturing costs per unit are $35, and fixed manufacturing costs at the normal operating level of 18,000 units are $90,000. Variable selling expenses are $5 per unit sold. Fixed administrative expenses total $155,000. Grant had 7,000 units at a per-unit cost of $40 in beginning inventory in 2016. During 2016, the company produced 18,000 units and sold 20,000. Would net income for Grant Company in 2016 be higher if calculated using variable costing or using absorption costing?Calculate reported income using each method.Do not use negative signs with any answers.Absorption Costing Income StatementSales $AnswerCost of Goods Sold:Beginning Inventory AnswerVariable Costs AnswerFixed Costs AnswerLess: Ending Inventory Answer________________________________________Cost of Goods Sold Answer________________________________________AnswerAnswerAnswerAnswerAdministrative expense Answer________________________________________Net Income $Answer________________________________________Variable Costing Income StatementSales $AnswerCost of Goods Sold:Beginning Inventory AnswerVariable Costs AnswerAnswerAnswer________________________________________Variable cost of goods sold AnswerAnswerAnswer________________________________________AnswerAnswerFixed costs:AnswerAnswerAdministrative Expense Answer________________________________________Total Fixed Cost Answer________________________________________Net Income $Answer________________________________________