60.1K

Verified Solution

Link Copied!

You are the Cost Manager for Precision Manufacturing Inc The company is currently using a volume-based costing system for applying Factory Overhead cost to the two products that it manufactures The net income for the Company has not been good the past few months and the CEO of the company has asked you as the Cost Accounting Manager to find out whyl" Product IND-1000 is sold to private industry customers at a competitive market price Product GOV-2000 is sold to the US Government on a markup of 25% of fully absorbed product cost As the Cost Manager you have been concerned for some time that the cost of the products may not be correct due to the current volume based method of applying Factory Overhead costs. Under this volume based method Factory Overhead is applied to the products using a company wide POHR using direct labor hours for the allocation You decide to evaluate implementing an Activity Based Costing (ABC) system to better assign factory overhead cost to the products. You have done extensive analysis to determine the activity cost poois, the activity consumption cost drivers and the activities incurred in the production of each of the two products. The data and all relevant information for the month of February is below To analyze the cost difference between the Volume-based method and the ABC method you need to complete a calculation of the Total Per Unit Product Cost under each of the methods Information used for both Costing Methods Units Produced & Sold Selling Price per Unit Direct matenals cost per unit Direct labor wage per hour Product IND 1000 15,000 $ 205.00 $ 55.00 $ 22.00 Product GOV 2000 12 000 188.13 70.00 $ 2200 Information for application of Factory Overhead under Volume-based Costing Product IND-1000 4.00 Product GOV 2000 3.00 Direct labor hours per unit Total Estimated Factory Overhead $ 720,000 Total Estimated Direct Labor Hours 96,000 The POHR needs to be cakulated using the allocation base of DLHS Information for application of Factory Overhead under Activity Based Costing Factory Activity Activity Resource Cost Pool Overhead Consumption Activity Consumption by product Cost Cost Driver Product IND 1000 Product GOV 2000 Machine setup for batch runs $ 165,000 275 setups 100 175 Quality Control $ 162,500 250 batches 100 150 Production Facility Costs $ 392,500 10,000 sq feet) 3,750 6,250 Total Estimated Overhead $ 720,000 REQUIRED: Complete the template below. If you do not want to use this template to solve you need to transfer your solutions to each of the boxes. You need to include an answer for all of the boxes that are shaded in grey. 1) Calculation of Per Unit Product Cost under Volume Based Method Calculation of the POHR: formula amount POHR = Volume-Based: Per Unit Product Cost: Product IND 1000 Product GOV 2000 Product Cost Direct Material - per unit Direct Labor - per unit Applied Factory O/H per unit Total Product Costs - per unit 2) ABC Costing Method Step #1 ABC Method: Determining Activities to allocate Factory Overhead Activity Resource (Cost Pools) Estimated Cost per Activity Resource Activity Consumption Cost Driver Total Cost of Activities - Factory Overhead Step #2 ABC Method: Determining Cost per Activities Consumption Drivers Activity Consumption Cost Driver Estimated Cost Activity per Cost Driver Consumption Cost per Activity (Application Rate) Total Cost of Activities - Factory Overhead Step #3 ABC Method: Assignment of cost Activity Consumption Cost Driver Total Activity Consumption Cost per Activity (Application Rate) Total FOH assigned FOH Cost Applied Per Unit Produced Product IND 1000 units produced Total Factory Overhead for IND 1000 Product GOV 2000 uns produced = Total Factory Overhead for GOV 2000 Total of Factory Overhead Assigned to Both Products H Step #4 ABC Method: Per Unit Product Cost Product Cost Product IND-1000 Product GOV-2000 Direct Material - per unit Direct Labor - per unit Applied Factory O/H - per unit Total Product Costs - per unit 3) Differences: Volume Based vs. ABC Method Product IND-1000 Product GOV-2000 Total Product Cost Per Unit for Volume-based Total Product Cost Per Unit for ABC Method Difference in Total Product Cost Per Unit Answer the following: Product IND 1000 Product GOV-2000 Without any change to the Selling Price what is the Gross Margin $ per unit under the Volume-based costing method? Without any change to the Selling Price what is the current Gross Margin unit under the ABC Costing method? 5 per Bonus Points below ( each worth 2 points, for a total of 4 points) If the ABC method is used to determine product cost what is the REVISED selling price of Product GOV-2000 at a 25% markup of cost? IF the Company revised the Selling Price for Product GOV-2000 to be based on a 25% markup of the product cost using the ABC method what would be the INCREMENTAL Net Income that Company would earn for the month

Answer & Explanation Solved by verified expert

See Answer