Instructions:
Using the information provided below, complete the following two tabs in this MS Excel Workbook:
- MOH Cost Allocation - Traditional Methodology
- MOH Cost Allocation - Activity-based Costing (ABC) Methodology (complete partially completed analysis)
The background paper, Management Accounting Concepts, provides useful guidance for completing this assignment.
Compare the results you obtained in these two tabs. Describe briefly below the likely effects of management's decision to adopt the traditional method, rather than the ABC method, of allocating MOH costs to products. (In formulating your response, it may be helpful to review pages 43 - 44 of the background paper, Management Accounting Concepts.) Limit the length of your response to 150 words.
Replace this text with your response.
Company information:
A division of Premium Products Company operates from a single plant located in the midwestern U.S.
The division makes and sells 3 products. Shown below for each product is management's fiscal year ending (FYE) Dec. 31, 20X2 plans for:
| |
Product |
| |
A-199 |
B-299 |
C-399 |
| |
- Units of production and sales |
10,000 |
10,000 |
10,000 |
| |
- Production batch size (units in each production run) |
25 |
40 |
100 |
| |
- Product unit selling price |
mce_markernbsp; 197.00 |
mce_markernbsp; 170.00 |
mce_markernbsp; 148.00 |
Management organized the plant to operate in the nine service and production departments listed below. For each department listed is shown:
- The normal, expected MOH costs (obtained from the approved production plan and operating budget for the FYE Dec. 31, 20X2)
- The MOH allocation base selected by management, which adopted the traditional MOH allocation method (see next tab in this workbook)
- The planned (i) total value of each MOH allocation base and (ii) consumption of each base by each production department
|
|
$US
|
MOH allocation base
|
Casting
|
Machining
|
Assembly
|
Packing
|
Total
|
|
Production scheduling
|
151,000
|
Machine hours (MHs)
|
Unit-related
|
9,000
|
22,500
|
9,000
|
4,500
|
45,000
|
|
Quality inspection
|
313,000
|
Batches
|
Unit-related
|
75
|
300
|
225
|
150
|
750
|
|
M&E* setup
|
83,000
|
M&E setups hours
|
Batch-related
|
980
|
2,450
|
980
|
490
|
4,900
|
|
M&E* maintenance
|
502,000
|
M&E Maint. Dept. hours
|
Unit-related
|
4,500
|
9,000
|
2,700
|
1,800
|
18,000
|
|
Building and admin.
|
522,000
|
Full-time employees
|
Plant-related
|
8
|
12
|
10
|
10
|
40
|
|
Casting
|
125,000
|
MHs
|
Unit-related
|
9,000
|
22,500
|
9,000
|
4,500
|
45,000
|
|
Machining
|
250,000
|
MHs
|
Unit-related
|
9,000
|
22,500
|
9,000
|
4,500
|
45,000
|
|
Assembly
|
106,000
|
Direct labor hours (DLHs)
|
Unit-related
|
4,100
|
17,000
|
10,500
|
10,400
|
42,000
|
|
Packing
|
71,000
|
DLHs
|
Unit-related
|
4,100
|
17,000
|
10,500
|
10,400
|
42,000
|
|
Total
|
2,123,000
|
|
* M&E: machinery and equipment
The company's engineering department determined the following standard per-unit requirements of:
- MHs and DLHs in each production department
- Direct material and direct labor cost
| |
Product
|
|
|
Per-unit requirements
|
A-199
|
B-299
|
C-399
|
|
|
|
MHs in each production department:
|
|
|
|
Casting
|
0.3
|
0.3
|
0.3
|
|
|
|
|
Machining
|
0.9
|
0.7
|
0.6
|
|
|
|
|
Assembly
|
0.4
|
0.3
|
0.2
|
|
|
|
|
Packing
|
0.2
|
0.2
|
0.1
|
|
|
|
|
Total
|
1.8
|
1.5
|
1.2
|
|
|
|
DLHs in each production department:
|
|
|
|
Casting
|
0.2
|
0.2
|
0.2
|
|
|
|
|
Machining
|
1.0
|
0.6
|
0.2
|
|
|
|
|
Assembly
|
0.5
|
0.4
|
0.3
|
|
|
|
|
Packing
|
0.3
|
0.3
|
0.3
|
|
|
|
|
Total
|
2.0
|
1.5
|
1.0
|
|
|
Cost per unit:
|
|
|
Direct material
|
$ 28.00
|
$ 25.00
|
$ 22.00
|
|
|
|
Direct labor (including "fringe")
|
$ 38.00
|
$ 33.00
|
$ 28.00
|
|