Question

Koontz Company manufactures two models of industrial components-a Basic model and an Advanced Model. The company considers all of its manufacturing overhead costs to be fixed and it uses plantwide manufacturing overhead cost allocation based on direct labor-hours. Koontz's controller prepared the segmented income statement that is shown below for the most recent year (he allocated selling and administrative expenses to products based on sales dollars): Basic 20,000 Advanced 10,000 Total 30,000 Number of units produced and sold Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income (loss) $3,080,800 2,380,000 780, 720, eee $ (20,000) $2,800,000 1,350,880 650,eee 480,00 $ 170,000 $5,000,000 3 ,650,880 1,350,000 1. 209.989 $ 150,00 Direct laborers are paid $20 per hour. Direct materials cost $40 per unit for the Basic model and $60 per unit for the Advanced model. Koontz is considering a change from plantwide overhead allocation to a departmental approach. The overhead costs in the company's Molding Department would be allocated based on machine-hours and the overhead costs in its Assembly and Pack Department would be allocated based on direct labor-hours. To enable further analysis, the controller gathered the following information: Molding $ 787,500 Assemble and Pack $ 562,580 Total $ 1,358,980 Manufacturing overhead costs Direct labor hours: Basic Advanced Machine hours: Basic Advanced 10, eee 5, eee 20, eee 10,80 30, eee 15,000 12,800 10, eee 12.989 10,00

Answer 1

Activity Cost Pool Manufacturing Overhead Activity Measure Calculations Volume Activity Rate Machining 12000+10000 22000 18.98 Assembly and Pack 417500 Machine hours in Molding 282500 Direct labor hours and Assemble and Pack 230000 Number of Customer Orders 20000+10000 30000 9.42 Order Processing (20000/400)+(10000/50) 250 920.00 (20000*1/400)+(10000*3/50) Setups 340000 Setup Hours 650 523.08