Question

Drivers and Product-Costing Accuracy McCourt Company produces two types of leather purses: standard and handcrafted. Both purses use equipment for cutting and stitching. The equipment also has the capability of creating standard designs. The standard purses use only these standard designs. They are all of the same size to accommodate the design features of the equipment. The handcrafted purses can be cut to any size because the designs are created manually. Many of the manually produced designs are in response to specific requests of retailers. The equipment must be specially configured to accommodate the production of a batch of purses that will receive a handcrafted design. McCourt Company assigns overhead using direct labor dollars. Muggs Clark, sales manager, is convinced that the purses are not being costed correctly. To illustrate his point, he decided to focus on the expected annual setup and machine-related costs, which are as follows: Setup equipment $45,000 Depreciation 50,000 - Operating costs 55,000 * Computed on a straight-line basis; book value at the beginning of the year was $250,000. The machine has the capability of supplying 250,000 machine hours over its remaining life. Muggs also collected the expected annual prime costs for each purse, the machine hours, and the expected production (which is the normal output for the company). Handcrafted Purse $90,000 Direct labor Direct materials Units Standard Purse $30,000 $30,000 7,500 45,000 $30,000 7,500 Machine hours 5,000 Number of setups Setup time 1,000 hrs. 500 hrs.

Answer 1

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particulars Amount setup.costs 45,000 Depreciation 50,000 operating costs. Total aucthcad. Do you think that these casts and traced accurately to Each www wasa 551000 150.000 2 Purse hand crafted 01_applied faceliwirty bomb Rale 30,00.00 1500 | 30 | 44,500 5,000 21 ou apkoed. |15.000. standard activity docell Ralı Setup 1,000. 30 machinc. 45.000 Total ot applied I production, on.col.pero wanit care apare L 10.500 104.500 251500 2,500 3.500 1 6.60 T L 3.40

machine 105,000 estimated-total overhead estimated.cost drive.com Overhead tate communion setup 45,000 1,500 -30m 501000 2:10 cost druve commande set up hours machine hours. *In choosing a driver to assign the setup costs did you use number of sclups / etup hours o [ setup hours * - Do you think machinic costs are traced accurately to each type de purse (4) which de the following is the best answer": The correct answer is, :: Deluxe mowers are under costed, and recular mowers are: OVOrcosta. 3 . The comecet spion is@] The core option

because, As machine hours 'is used as the allocation base foi the precde termined overhcad vate, delue mousers are undercosted (clopate consuming 1,000 hans d setup and 500 hours of inspection) since as compared to 1500 machine hour's consumed by the regular mowers, they consume only zoo machine hours. - o