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

Assignmentattn ashok -find the interest rate on a loan

Assignment Attn: Ashok -Find the interest rate on a loan charging $912 simple interest on a principal of $4750 after 6 years. Find the principal of a loan at 6.2% if the simple interest after 5 years 6 months is $2387. H ...

Task1 create journal entries for the following

Task: 1. Create journal entries for the following transactions. 2. Draw up a T-accounts for each account affected by transactions. 3. Calculate ending balances for all T-accounts. Transactions: March, 1: Student Corp. re ...

Assignmentpart iexplain what you learn about the

Assignment PART I Explain what you learn about the disclosures of your SEC 10-K company relating to Income Taxes. Your comments should relate to net income or loss as well as to the balance sheet treatment and disclosure ...

After reading the article ernst amp youngs liability for

After reading the article "Ernst & Young's Liability for Lehman Larger Than Claimed," Discuss Ernst & Young's "going-on" liability after their 2007 arbitrary cutoff of responsibility from Lehman Brothers financial statem ...

Accountingthe accepted microsoft office versions for this

Accounting The accepted Microsoft Office versions for this assignment are Microsoft Office 2013 (for PC) and Microsoft Office for Mac 2011 (for Macintosh). Students may use a more recent version if available. Select a pe ...

Study guide1 what is the beta of a firm whose equity has an

STUDY GUIDE 1. What is the beta of a firm whose equity has an expected return of 21.30%, the risk-free rate is 7%, and the expected return on the stock market is 18%? 2. Two reasons for the agency problem in modern corpo ...

Accounting assignmentthis project requires you to select a

Accounting Assignment This project requires you to select a business and analyze part of its accounting information system. You will focus on a selected business process, develop conclusions from your observations, and a ...

Joint venture accountingquestion joe and faith were partner

Joint venture accounting Question: joe and faith were partner partners in the following scheme, joe to take five ninths, and faith fourth ninths of the profits. They agree to guarantee the subscription at 85000 shares of ...

Assignmenttravel-r-us inc travel is a publicly-traded

Assignment Travel-R-Us, Inc. (Travel) is a publicly-traded company with annual revenue of $370 million and a fiscal year ending May 31. Travel owns and operates three cruise ships serving Alaska, the Mediterranean, and t ...

Company name is chevronapply ifrs 1 adopting ifrs and rev

Company name is Chevron Apply IFRS 1, "Adopting IFRS" and "Rev Rec" to your U.S. company used in the "Comparison Project" for the final effort in class which is to develop a plan for the transition to both IFRS and Rev R ...

  • 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