Problem - The new president of the Wernecke Company was stumped. Why had profits gone down? He had directed the sales department to push the product with the highest contribution margin, and the sales department had come through with flying colors. The percent of flams sold had increased from 25% of units sold to 37.5% of units sold. So what happened?
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Flims
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Flams
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Sales Price per Unit
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$150
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$500
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Direct Materials per Unit
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$75
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$200
|
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Direct Labor Cost per Hour
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$25
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$25
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Direct Labor Hours per Unit
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1 hour per unit
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5 hours per unit
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|
Number of Units Produced
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25,000
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15,000
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The variable overhead for the coming year is estimated to be $3,000,000.
Required:
It has been suggested to the president to consider the use of an ABC costing system to allocate manufacturing overhead. Engineering studies have revealed the following information about estimated manufacturing activities for the coming year.
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Activity Cost Pool
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Estimated Overhead Cost
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Expected Activity Level
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|
Setups
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$850,000
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200 setups
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Scrap
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$350,000
|
500 units
|
|
Testing
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$200,000
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5,000 tests
|
|
Machine related
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$1,600,000
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100,000 Mhrs
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|
Total
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$3,000,000
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|
Calculate the separate predetermined overhead rates for each of the activities listed above.
NOTE: It is expected that this problem will be completed using an Excel spreadsheet using formulas. Please see the Excel Tutorial that is available under the course home tab.