Munoz Sporting Equipment manufactures baseball bats and tennis rackets. Department B produces the baseball bats and Department T produces the tennis rackets. Munoz currently uses plantwide allocation to allocate its overhead to all products. Direct labor cost is the allocation base. The rate used is 200 percent of direct labor cost. Last year revenue materials and direct labor were as follows:Baseball BatsTennis Rackets Sales revenue$1 640 000$900 000 Direct labor360 000180 000 Direct materials550 000284 000Required:(a)Compute the profit for each product using plantwide allocation.(b)Maria the manager of Department T was convinced that tennis rackets were really more profitable than baseball bats. She asked her colleague in accounting to break down the overhead costs for the two departments. She discovered that had department rates been used Department B would have had a rate of 150 percent of direct labor cost and Department T would have had a rate of 200 percent of direct labor cost. Recompute the profits for each product using each department’s allocation rate (based on direct labor cost). 2.value:10.00 pointsRodent Corporation produces two types of computer mice wired and wireless. The wired mice are designed as low-cost reliable input devices. The company only recently began producing the higher-quality wireless model. Since the introduction of the new product profits have been steadily declining. Management believes that the accounting system is not accurately allocating costs to products particularly because sales of the new product have been increasing. Management has asked you to investigate the cost allocation problem. You find that manufacturing overhead is currently assigned to products based on their direct labor costs. For your investigation you have data from last year. Manufacturing overhead was $1 337 000 based on production of 290 000 wired mice and 87 000 wireless mice. Direct labor and direct materials costs were as follows:WiredWirelessTotal Direct labor$1 029 000$406 000$1 435 000 Materials730 000701 0001 431 000Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows:Activity Level Cost DriverCosts AssignedWiredWirelessTotal Number of production runs$605 000401555 Quality tests performed600 000131730 Shipping orders processed132 0008040120 Total overhead$1 337 000Required:(a)How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? (Round “Total Cost Per Unit” to 2 decimal places.)(b)How much overhead will be assigned to each product if direct labor cost is used to allocate overhead?What is the total cost per unit produced for each product? (Do not round intermediate calculations. Round “Overhead” to the nearest whole dollar and “Total Cost Per Unit” to 2 decimal places.) 3.value:10.00 pointsWe-Clean Inc. is a home-cleaning service. It originally specialized in serving small residential clients but recently started contracting for work in large apartment and office buildings. Julie Lodge the owner believes that the commercial sector has more growth opportunities and is considering dropping the residential service. Twenty cleaning employees worked a total of 34 000 hours last year 23 000 on residential jobs and 11 000 on commercial jobs. Wages were $15 per hour for all work done. Any materials used are included in overhead as supplies. All overhead is allocated on the basis of labor-hours worked which is also the basis for customer charges. Because of increased competition for commercial accounts Julie can charge $34 per hour for residential work but only $28 per hour for commercial work.Required:(a)If overhead for the year was $121 540 what were the profits of the commercial and the residential services using labor-hours as the allocation base? (Do not round intermediate calculations. Round “Profit” to the nearest whole dollar.)(b)Overhead consists of costs of traveling using equipment and using supplies which can be traced as follows:Cost Driver Volume ActivityCost DriverCostCommercialResidential Traveling Number of clients served$14 74013 42 Using equipment Equipment hours40 8003 900 2 100 Using supplies Area serviced in square yards66 000120 000 80 000 Total overhead$121 540Recalculate profits for commercial and residential services based on these activity bases.(Do not round intermediate calculations. Round “Profit” to the nearest whole dollar.)Bob’s Baskets Inc. manufactures and sells two types of baskets deluxe and standard. Last year Bob’s Baskets had the following costs and revenues:BOB’S BASKETS INC.Income StatementDeluxeStandardTotal Revenue$147 000$163 000$310 000 Direct materials22 00020 00042 000 Direct labor74 00046 000120 000 Overhead costs Administration18 000 Production setup40 920 Quality control18 870 Distribution14 420 Operating profit$55 790Bob’s Baskets currently uses labor costs to allocate all overhead but is considering implementing an activity-based costing system. After interviewing the sales and production staff management decides to allocate administrative costs on the basis of direct labor costs but to use the following bases to allocate the remaining overhead:Activity Level ActivityCost DriverDeluxeStandard Setting upNumber of production runs9 22 Performing quality controlNumber of inspections37 37 DistributionNumber of units shipped80 000 126 000 Required:(a)Complete the income statement using the preceding activity bases.(Do not round intermediate calculations.)(c)Restate the income statement for Bob’s Baskets using direct labor costs as the only overhead allocation base.(Do not round intermediate calculations. Round “Overhead costs” to the nearest dollar.) 5.value:10.00 pointsMTI makes three types of lawn tractors: M3100 M4100 and M6100. In the past it allocated overhead to products using machine-hours. Last year the company produced 9 000 units of M3100 15 500 units of M4100 and 9 000 units of M6100 and had the following revenues and costs: MTIIncome StatementM3100M4100M6100Total Sales revenue$9 300 000$15 200 000$12 900 000$37 400 000 Direct costs Direct materials3 100 0004 900 0003 200 00011 200 000 Direct labor600 000950 000 1 810 000 3 360 000 Variable overhead Setting up machines2 303 000 Processing sales orders1 848 000 Warehousing2 223 000 Operating machines1 275 000 Shipping804 000 Contribution margin$14 387 000 Plant administration5 500 000 Gross profit$8 887 000 MTI’s controller has heard about activity-based costing and puts to gether an employee team to recommend cost allocation bases. The employee team recommends the following: ActivityCost DriverM3100M4100M6100 Setting up machinesProduction runs1219 18 Processing sales ordersSales orders received 190 380200 WarehousingUnits held in inventory120 190 80 Operating machinesMachine-hours6 5009 800 8 700 ShippingUnits shipped9 00015 500 9 000 The employee team recommends that plant administration costs not be allocated to products. Required:(a)Using machine-hours to allocate overhead complete the income statement for MTI. Do not allocate plant administrative costs to products. (Do not round intermediate computations.) (b)Complete the income statement using the activity-based costing method suggested by the employee team.
