Question

1. Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost accountants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters.

Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $328,800. During that time, the company produced 14,300 units of the M-008 and 2,500 units of the M-123. The direct costs of production were as follows:

	M-008		M-123		Total
Direct materials	$	114,400	$	100,000	$	214,400
Direct labor		114,400		50,000		164,400

Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows:

			Activity Level
Cost Driver		Costs		M-008		M-123		Total
Number of machine-hours	$	140,800		8,000		2,000		10,000
Number of production runs		90,000		20		20		40
Number of inspections		98,000		25		35		60
Total overhead	$	328,800

Required:

a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product?(Round your intermediate calculations and final answers to 2 decimal places.)

b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? (Round "Total unit cost" to 2 decimal places.)

2. Marigold Corp. includes one coupon in each bag of dog food it sells. In return for eight coupons, customers receive a leash. The leashes cost Marigold $5 each. Marigold estimates that 40 percent of the coupons will be redeemed. Data for 2020 and 2021 are as follows:

		2020		2021
Bags of dog food sold		480000		610000
Leashes purchased		19000		21000
Coupons redeemed		120000		140000

The premium liability at December 31, 2020 is

a

$77000.

b

$55000.

c

$45000.

d

$65000.

3. Crane Company includes one coupon in each bag of dog food it sells. In return for eight coupons, customers receive a leash. The leashes cost Crane $3 each. Crane estimates that 60percent of the coupons will be redeemed. Data for 2020 and 2021 are as follows:

		2020		2021
Bags of dog food sold		520000		580000
Leashes purchased		16000		21000
Coupons redeemed		110000		160000

The premium expense for 2020 is

a

$110500.

b

$195000.

c

$70500.

d

$117000.

Answer 1

Answer to Q#1 (First question in the list): Activity Cost Pool Number of machine-hours Number of production runs Number of inspections Total Total Cost Total Activity Activity Rate $140,800 10,000 hours $14.08 $90,000 40 runs $2,250.00 $98,000 60 inspections $1,633.33 $328,800 ($140800 / 10000] ($90000 / 40] ($98000 / 60) Overhead costs assigned to a M-008: Activity Cost Pool Total Activity Activity Rate Cost Assigned Number of machine-hours 8,000 hours $14.08 $112,640.00 [8000 hours x $14.08] Number of production runs 20 runs $2,250.00 $45,000.00 [20 runs x $2250] Number of inspections 25 inspections $1,633.33 $40,833.25 [25 inspections x $1633.33] Total costs assigned to M-008 $198,473.25 Overhead costs assigned to a M-123: Activity Cost Pool Total Activity Activity Rate Cost Assigned Number of machine-hours 2,000 hours $14.08 $28,160.00 [2000 hours x $14.08] Number of production runs 20 runs $2,250.00 $45,000.00 [20 runs x $2250] Number of inspections 35 inspections $1,633.33 $57,166.55 [35 inspections x $1633.33] Total costs assigned to M-123 $130,326.55

b) Total overhead cost Total direct labor cost Predetermined overhead rate per direct labor cost $328,800 $164,400 $2.00 [$328800 / $164400] Therefore, Overhead costs assigned to a M-008: Overhead costs assigned to a M-123: $228,800 ($114400 x $2.00] $100,000 ($50000 x $2.00]