Questions - Answer the following questions using the information below:
Q1. Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is analysed as follows:
|
T-SHIRTS
|
SWEATSHIRTS
|
|
Production and sales volume
|
60,000 units
|
35,000 units
|
|
Selling price
|
$16.00
|
$29.00
|
|
Direct material
|
$2.00
|
$5.00
|
|
Direct labour
|
$4.50
|
$7.20
|
|
Manufacturing overhead
|
$2.00
|
$3.00
|
|
GROSS PROFIT
|
$7.50
|
$13.80
|
|
Selling and administrative
|
$4.00
|
$7.00
|
|
OPERATING PROFIT
|
$3.50
|
$6.80
|
Tiger Pride's managers have decided to revise their current assignment of overhead costs to reflect the following ABC cost information:
|
Activity
|
Activity Cost
|
Activity-cost driver
|
|
Supervision
|
$100,920
|
Direct labour hours (DLH)
|
|
Inspection
|
$124,000
|
Inspections
|
Activities demanded:
|
T-SHIRTS
|
SWEATSHIRTS
|
|
0.75 DLH/unit
|
1.2 DLH/unit
|
|
45,000 DLHs
|
42,000 DLHs
|
|
60,000 inspections
|
17,500 inspections
|
Under the revised ABC system, overhead costs per unit for the Sweatshirts will be:
$2.19 per unit
$1.60 per unit
$1.39 per unit
$2.47 per unit
Q2. Gregory Enterprises has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year:
|
Cost Pool
|
Overhead Costs
|
Cost driver
|
Activity level
|
|
Supervision of direct labour
|
$320,000
|
Direct labour hours
|
800,000
|
|
Machine maintenance
|
$120,000
|
Machine-hours
|
960,000
|
|
Facility rent
|
$200,000
|
Square feet of area
|
100,000
|
|
Total overhead costs
|
$640,000
|
|
|
The accounting records show the Mossman Job consumed the following resources:
|
Cost driver
|
Actual level
|
|
Direct labour-hours
|
200
|
|
Machine-hours
|
1,600
|
|
Square feet of area
|
50
|
Using direct labour-hours as the only overhead cost driver, what is the amount of overhead costs allocated to the Mossman Job?
$160
$125
$240
$120