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P3-12A Contrasting ABC and Conventional Product Costs (LO2,

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P3-12A Contrasting ABC and Conventional Product Costs (LO2, LO3, LO4)

For many years, Zapro Company manufactured a single product called a mono-relay. Then three years ago, the company automated a portion of its plant and at the same time introduced a second product called a bi-relay that has become increasingly popular. The bi-relay is a more complex product, requiring one hour of direct labor time per unit to manufacture and extensive machining in the automated portion of the plant. The mono-relay requires only 0.75 hour of direct labor time per unit and only a small amount of machining. Manufacturing overhead costs are currently assigned to products on the basis of direct labor-hours.


Despite the growing popularity of the company's new bi-relay, profits have been declining steadily. Management is beginning to believe that there may be a problem with the company's costing system. Material and labor costs per unit are as follows:


Mono-Relay Bi-Relay
Direct materials $ 30 $ 57
Direct labor (0.75 hours @ $12 per hour and
1.0 hours @ $12 per hour)
$ 9 $ 12

--------------------------------------------------------------------------------


Management estimates that the company will incur $927,000 in manufacturing overhead costs during the current year and 40,000 units of the mono-relay and 10,000 units of the bi-relay will be produced and sold.


references
Section Break P3-12A Contrasting ABC and Conventional Product Costs (LO2, LO3, LO4)




2.value:
6 points P3-12A Requirement 1

Requirement 1:
Compute the predetermined manufacturing overhead rate assuming that the company continues to apply manufacturing overhead cost on the basis of direct labor-hours. Using this rate and other data from the problem, determine the unit product cost of each product. (Round your answer to 2 decimal places. Omit the "$" sign in your response.)


Predetermined manufacturing overhead rate $ per DLH
Unit product cost of Mono-Relay $
Unit product cost of Bi-Relay $

eBook Links (3)references
Worksheet P3-12A Requirement 1





3.value:
6 points P3-12A Requirement 2

Requirement 2:
Management is considering using activity-based costing to apply manufacturing overhead cost to products for external financial reports. The activity-based costing system would have the following four activity cost pools:


Activity Cost Pool Activity Measure Estimated
Overhead Cost
Maintaining parts inventory Number of part types $ 217,000
Processing purchase orders Number of purchase orders 190,000
Quality control Number of tests run 50,000
Machine related Machine-hours 470,000

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

$ 927,000

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------


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Expected Activity
Activity Measure Mono-Relay Bi-Relay Total
Number of part types 75 150 225
Number of purchase orders 800 200 1,000
Number of tests run 2,500 3,250 5,750
Machine-hours 4,000 6,000 10,000

--------------------------------------------------------------------------------


Determine the activity rate (i.e., predetermined overhead rate) for each of the four activity cost pools. (Round your answer to 2 decimal places. Omit the "$" sign in your response.)


Activity Cost Pool Activity Rate
Maintaining inventory $ per part type
Processing purchase orders $ per order
Quality control $ per test
Machine-related $ per MH

--------------------------------------------------------------------------------


eBook Links (3)references
Worksheet P3-12A Requirement 2





4.value:
6 points P3-12A Requirement 3

Requirement 3:
Using the activity rates you computed in Requirement 2 above, do the following
(a) Determine the total amount of manufacturing overhead cost that would be applied to each product using the activity-based costing system. After these totals have been computed, determine the amount of manufacturing overhead cost per unit of each product. (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Overhead per unit of Mono-Relay $
Overhead per unit of Bi-Relay $

(b) Compute the unit product cost of each product. (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Unit product cost for Mono-Relay $
Unit product cost for Bi-Relay $

eBook Links (3)references
Worksheet P3-12A Requirement 3










''




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Chapter 3 Homework (worth 30 points)close window from Professor Karen Varnell:This assignment is graded and counts as a % of your course grade in accordance with the syllabus. You can save the assignment and then come back to it. However, once you SUBMIT the assignment it will be final graded and you will not be allowed to access the assignment again. Assignment Feedback will be provided one day after due date.
due date: 02/13/2012 at 11:59 PM attempts: 1 of 1 attempts Policies in place at the START of this assignment attempt will be in effect as you take it. If your instructor makes any policy edits while you are in the middle of an assignment attempt, the new policies will only apply to subsequent assignment attempts.

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Category: Multiple Problems
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