Boise State University Operations And Supply Chain Management Assignment Help - Making Exercises
Question - 1.
2. E4-11 (a,b)
Sorce Instrument, Inc. manufactures two products: missile range instruments and space pressure
gauges. During April, 50 range instruments and 300 pressure gauges were produced, and overhead
costs of $89,500 were estimated. An analysis of estimated overhead costs reveals the following
Activity Cost Driver Total Cost
1. Materials handling Number of requisitions $35,000
2. Machine setups Number of setups 27,500
3. Quality inspections Number of inspections 27,000
The cost driver volume for each product was as follows.
Cost Driver Instruments Gauges Total
Number of requisitions 400 600 1,000
Number of setups 200 300 500
Number of inspections 200 400 600
a) Determine ...Read More the overhead rate for each activity.
b) Assign the manufacturing overhead costs for April to the two products using activity-based costing.
Skaros Stairs Co. of Moore designs and builds factory-made premium wooden stairs for homes. The
manufactured stair components (spindles, risers, hangers, hand rails) permit installation of stairs of
varying lengths and widths. All are of white oak wood. Budgeted manufacturing overhead costs for the
year 2011 are as follows.
Overhead Cost Pools Amount
Purchasing $ 57,000
Handling materials 82,000
Production (cutting, milling, finishing) 210,000
Setting up machines 85,000
Inventory control (raw materials and finished goods) 126,000
Total budget overhead costs $830,000
For the last 4 years, Skaros Stairs Co. has been charging overhead to products on the basis of
machine hours. For the year 2011, 100,000 machine hours are budgeted.
Anthony Morse, owner-manager of Skaros Stairs Co., recently directed his accountant, Neal Seagren,
to implement the activity-based costing system that he has repeatedly proposed. At Anthony Morse's
request, Neal and the production foreman identify the following cost drivers and their usage for the
previously budgeted overhead cost pools.
Activity Cost Pools Cost
Purchasing Number of orders 600
Handling materials Number of moves 8,000
Production (cutting, milling, finishing) Direct labor hours 100,000
Setting up machines Number of setups 1,250
Inspecting Number of inspections 6,000
Inventory control (raw materials and finished
Utilities Square feet occupied 90,000
David Hannon, sales manager, has received an order for 280 stairs from Community Builders, Inc., a
large housing development contractor. At David's request, Neal prepares cost estimates for producing
components for 280 stairs so David can submit a contract price per stair to Community Builders. He
accumulates the following data for the production of 280 stairways.
Direct materials $103,600
Direct labor $112,000
Machine hours 14,500
Direct labor hours 5,000
Number of purchase orders 60
Number of material moves 800
Number of machine setups 100
Number of inspections 450
Number of components 16,000
Number of square feet occupied 8,000
Compute the predetermined overhead rate using traditional costing with machine hours as the
basis. (Enter answer to 2 decimal places, e.g. 10.50.)
What is the manufacturing cost per stairway under traditional costing? (Use rounded amount from
part (a). Round answer to 2 decimal places, e.g. 10.50.)
Polzin Corporation produces two grades of wine from grapes that it buys from California growers. It
produces and sells roughly 3,000,000 liters per year of a low-cost, high-volume product called
CoolDay. It sells this in 600,000 5-liter jugs. Polzin also produces and sells roughly 300,000 liters per
year of a low-volume, high-cost product called LiteMist. LiteMist is sold in 1-liter bottles. Based on
recent data, the CoolDay product has not been as profitable as LiteMist. Management is considering
dropping the inexpensive CoolDay line so it can focus more attention on the LiteMist product. The
LiteMist product already demands considerably more attention than the CoolDay line.
Greg Kagen, president and founder of Polzin, is skeptical about this idea. He points out that for many
decades the company produced only the CoolDay line, and that it was always quite profitable. It
wasn't until the company started producing the more complicated LiteMist wine that the profitability of
CoolDay declined. Prior to the introduction of LiteMist, the company had simple equipment, simple
growing and production procedures, and virtually no need for quality control. Because LiteMist is
bottled in 1-liter bottles, it requires considerably more time and effort, both to bottle and to label and
box than does CoolDay. The company must bottle and handle 5 times as many bottles of LiteMist to
sell the same quantity as CoolDay. CoolDay requires 1 month of aging; LiteMist requires 1 year.
CoolDay requires cleaning and inspection of equipment every 10,000 liters; LiteMist requires such
maintenance every 600 liters.
Greg has asked the Accounting department to prepare an analysis of the cost per liter using the
traditional costing approach and using activity-based costing. The following information was collected.
Direct materials per liter $0.40 $1.20
Direct labor cost per liter $0.25 $0.50
Direct labor hours per liter 0.05 0.09
Total direct labor hours 150,000 27,000
d Use of
d Use of
grapes $145,860 6,600 6,000 600
bottles 270,000 900,000 600,000 300,000
bottles 189,000 900,000 600,000 300,000
240,800 800 350 450
Under traditional product costing using direct labor hours, compute the total manufacturing cost per
liter of both products. (Round computations and final answers to 3 decimal places, e.g. 2.250.)
Under ABC, prepare a schedule showing the computation of the activity-based overhead rates (per
cost driver).(Enter overhead rate to 2 decimal places, e.g. 10.50.)
Prepare a schedule assigning each activity's overhead cost pool to each product, based on the use of
cost drivers. What is the overhead cost per liter? (Enter overhead rate to 2 decimal places, e.g.
10.50 and round overhead cost per liter to 3 decimal places, e.g. 2.250.)
Compute the total manufacturing cost per liter for both products under ABC. (Round answers to 3
decimal places, e.g. 2.250.)
3. ...Read Less
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