Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Accounting Basics Expert

Make-or-Buy Decision ABC Corporation is beginning in manufacture Z Mint, a new mouthwash in a small spray container. Product will be sold to wholesalers and large drugstore chains in packages of 30 containers for $18 per package. Management allots $200,000 of sited manufacturing overhead costs to Z Mint. Manufacturing cost per package of 30 containers of expected production of 100,000 packages is as follows;

Direct material                                    $6.50
Direct labor                                             3.5
Overhead (fixed and variable)                   3
Total                                                 $13.00

                                 Model 501        Model 541            Model 599
Selling price                   $5,000           $10,000                  $13,000

Unit cost:
Material                        1,050                 4,500                      6,000
Direct labor                     500                 2,000                      4,000
Overhead                        769                3,077                      6,154
Unit profit (loss)           $2,681               $423                     ($3,154)

Basically, all overhead costs are fixed. Some of the fixed overhead costs are direct costs to particular models and others are common fixed costs.

Estimated total overhead

                                 Model 501          Model 541            Model 599              Total
Direct fixed            $4,000,000           $1,500,000          $500,000           $6,000,000
Common fixed                                                                                            4,000,000
Total                                                                                                       $10,000,000

Sam allocates overhead costs to products using single overhead rate developed as follows. Estimated total overhead is divided by estimated direct labor cost. This output in the overhead rate per labor dollar. This rate is used to allocate standard over-head to products. Estimates of sales and direct labor are given below. These values simply the overhead rate of $1.5385 per labor dollar ($10,000,000 ÷ $6,500,000).

                                           Model 501        Model 541        Model 599                Total
Estimated unit sales              1,000                2,000                  500                     3,500
Estimated labor                $500,000          $4,000,000        $2,000,000         $6,500,000

problem 1)

Since it is showing a loss, the controller of Sam has asked you to analyze whether Model 599 must be dropped. You must suppose that direct fixed costs will be avoided if a model is dropped but common fixed costs will not be model is dropped.

Describe why the method used to allocate costs at Sam results in “unreasonably high” charges to the Model 599 pump.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M99308

Have any Question? 


Related Questions in Accounting Basics

Accountingnorthwest fur co started 2016 with 114000 of

Accounting Northwest Fur Co. started 2016 with $114,000 of merchandise inventory on hand. During 2016, $410,000 in merchandise was purchased on account with credit terms of 2/15, n/45. All discounts were taken. Purchases ...

In the wake of the accounting and finance scandals of the

In the wake of the accounting and finance scandals of the early 2000s, the regulatory environment for businesses changed dramatically to create more accountability and transparency. Agencies like the Securities and Excha ...

Question 1ryan withdrew cash from the business to pay his

Question 1 Ryan withdrew cash from the business to pay his personal cell phone bill. The expanded accounting equation changes include __________. A. increase in both cash and withdrawal B. decrease in both cash and withd ...

Company name bhp billiton - report 2000-2200

Company Name BHP Billiton - Report (2000-2200) words Introduction Approach of research study What they have done wrong which results in the crisis Issues in sustainability report Issues in what they claim of doing but th ...

Accounting questions1 if cash is 2345 in 20x2 and 3671 in

Accounting Questions 1. If Cash is $2,345 in 20X2 and $3,671 in 20X1, what is the percentage of increase or (decrease) from 20X1 to 20X2? A. 56.55%******* B. (56.55%) C. 36.12% D. (36.12%) 2. Gross profit by department a ...

A tractor acquired on january 4 of the current year at a

A tractor acquired on January 4 of the current year at a cost of $100,000 has an estimated life of 10 years. Assuming that it has a residual value of $10,000, determine the depreciation expense in the current year using ...

Question 1under the allowance method bad debt expense is

Question 1 Under the allowance method, Bad Debt Expense is recorded A. as an estimate. B. when an individual account is written off. C. several times during the year as needed. D. None of the above Question 2 Which amoun ...

Question 1the company you work for has a large amount of

Question 1 The company you work for has a large amount of disposable cash and very little debt on its books. The board of directors has expressed an interest in taking this money and investing in equity and debt securiti ...

Assignment lasa ipo presentation amp myaccountinglab

Assignment: LASA: IPO Presentation & MyAccountingLab Post-Tests This assignment will consist of two parts. Part I: IPO Presentation: You work for a medium sized privately held electronics firm which is considering transi ...

Decide upon an initiative you want to implement that would

Decide upon an initiative you want to implement that would increase sales over the next five years, (for example, market another product, corporate expansion, and so on). Using the sample financial statements, create pro ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen