Question 1:
Hackerott Camera is considering eliminating Model AE1 from its camera line because of losses over the past quarter. The past three months of information for model AE1 is summarized below:
| Sales (1,000 units) |
$250,000 |
| Manufacturing costs: |
|
| Direct materials |
140,000 |
| Direct labor ($15 per hour) |
30,000 |
| Support |
100,000 |
| Operating loss |
($20,000) |
Support costs are 70% variable and the remaining 30% is depreciation of special equipment for model AE1 that has no resale value.
Should Hackerott Camera eliminate Model AE1 from its product line? Why or why not?
Question 2:
Silver Lake Cabinets is approached by Ms. Jenny Zhang, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. The following per unit data apply for sales to regular customers:
| Direct materials |
$100 |
| Direct labor |
125 |
| Variable manufacturing support |
60 |
| Fixed manufacturing support |
75 |
| Total manufacturing costs |
360 |
| Markup (60%) |
216 |
| Targeted selling price |
$576 |
Silver Lake Cabinets has excess capacity. Ms. Zhang wants the cabinets in cherry rather than oak, so direct material costs will increase by $30 per unit.
Required:
a. For Silver Lake Cabinets, what is the minimum acceptable price of this one-time-only special order?
b. Other than price, what other items should Silver Lake Cabinets consider before accepting this one-time-only special order?
c. How would the analysis differ if there was limited capacity?
Question 3:
Hill Manufacturing uses departmental cost driver rates to apply manufacturing overhead costs to products. Manufacturing overhead costs are applied on the basis of machine-hours in the Machining Department and on the basis of direct labor-hours in the Assembly Department. At the beginning of 20X5, the following estimates were provided for the coming year:
|
Machining |
Assembly |
| Direct labor-hours |
10,000 dlh |
90,000 dlh |
| Machine-hours |
100,000 mh |
5,000 mh |
| Direct labor cost |
$ 80,000 |
$720,000 |
| Manufacturing overhead costs |
$250,000 |
$360,000 |
The accounting records of the company show the following data for Job #846:
|
Machining |
Assembly |
| Direct labor-hours |
50 dlh |
120 dlh |
| Machine-hours |
170 mh |
10 mh |
| Direct material cost |
$2,700 |
$1,600 |
| Direct labor cost |
$ 400 |
$ 900 |
Required:
a. Compute the manufacturing overhead allocation rate for each department.
b. Compute the total cost of Job #846.
c. Provide possible reasons why Hill Manufacturing uses two different cost allocation rates.
Question 4:
Cocoa Pet Corporation manufactures two models of grooming stations, a standard and a deluxe model. The following activity and cost information has been compiled:
| Product |
Number of Setups |
Number of Components |
Number of Direct Labor Hours |
| Standard |
3 |
30 |
650 |
| Deluxe |
7 |
50 |
150 |
|
|
|
|
| Overhead costs |
$20,000 |
$60,000 |
|
Assume a traditional costing system applies the $80,000 of overhead costs based on direct labor hours.
a. What is the total amount of overhead costs assigned to the standard model?
b. What is the total amount of overhead costs assigned to the deluxe model?
Assume an activity-based costing system is used and that the number of setups and the number of components are identified as the activity-cost drivers for overhead.
c. What is the total amount of overhead costs assigned to the standard model?
d. What is the total amount of overhead costs assigned to the deluxe model?
e. Explain the difference between the costs obtained from the traditional costing system and the ABC system. Which system provides a better estimate of costs? Why?