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Q1) Venable Inc. manufactures golf carts.  One of its plants in South Carolina makes two versions of carts: a basic model and deluxe model. Deluxe model has sturdier frame, a higher horsepower engine, bigger tires, and softer seats.  At the starting of the year, the following data were made by controller's office for this SC plant:

  Basic Cart  Deluxe Cart
Expected Quantity to Produce 20,000 10,000
Selling Price $1,800 $3,600
Direct Material and Direct Labor Costs $800 $1,600
Machine Hours 5,000 5,000
Direct Labor Hours 10,000 10,000
Engineering Support (Hours) 1,500 4,500
Receiving (Orders Processed) 300 500
Material Handling (Number of Moves) 2,000 4,000  
Purchasing (Number of Requisitions) 100 200
Maintenance (Hours Used) 1,000 3,000
Paying Suppliers (Invoices Processed) 250 500
Setting up Batches (Number of Setups) 20 60

Additionally, following overhead activity center costs are reported:

Maintaining Equipment $1,140,000
Engineering Support 1,200,000
Material Handling 1,200,000
Setting Up Equipment 960,000
Purchasing Materials 600,000
Receiving Goods 400,000
Paying Suppliers 300,000
Providing Facility Space 200,000
Total $6,000,000

Providing facility-level costs are assigned on basis of machine hours.  This gives a measure of time facility is used by each product.

1. Compute cost per cart using direct labor hours to allocate overhead costs.

2. Determine the gross margin on deluxe golf cart?

3. Using ABC how much engineering overhead costs would be assigned to basic cart?

4. Using ABC would amount of purchasing overhead costs allocated to each kind of cart be more or less for deluxe than basic?  Give quantitative support for answer.

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  • Category:- Accounting Basics
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