Question

California Circuits Company (3C) manufactures a variety of components. Its Valley plant specializes in two electronic components used in circuit boards. These components serve the same function and perform equally well. The difference in the two products is the raw material. The XL-D chip is the older of the two components and is made with a metal that requires a wash prior to assembly. Originally. the plant released the wastewater directly into a local river. Several years ago, the company was ordered to treat the wastewater before its release, and it installed relatively expensive equipment. While the equipment is fully depreciated, annual operating expenses of $243.000 are still incurred for wastewater treatment Two years ago, company scientists developed an alloy with all of the properties of the raw materials used in XL-D that generates no wastewater. Some prototype components using the new material were produced and tested and found to be indistinguishable from the old components in every way relating to their fitness for use. The only difference is that the new alloy is more expensive than the old raw material. The company has been test marketing the newer version of the component, referred to as XL-C, and is currently trying to decide its fate. Manufacturing of both components begins in the Production Department and is completed in the Assembly Department. No other products are produced in the plant. The following provides information for the two components: HOT XL-D Xuie Units produced 100,000 25.000 Raw material costs per unit $11.30 $13.30 Direct labor-hours per unit-Production Direct labor-hours per unit-Assembly Direct labor rate per hour all labor $16.50 Machine hours per unit-Production Machine-hours per unit-Assembly Testing hours per unit (all in production) Shipping weight per unit (pounds) Wastewater generated per unit (gallons) Annual overhead costs for the two departments follow Superviston Moterlol handling Production Assembly Departeent Departsent $ 93,000 $23,000 39,500 36.500 14R. < Prev 11 of 13 Iii Next >

Answer 1

a.	Single plant wide rate=Total overhead cost of the two departments/Total direct labor cost of the two departments
	Total overhead cost=967800+475500=$ 1443300
						XL-D	XL-C	Total
	Units produced				a	100000	25000
	Direct labor-hours per unit- Production				b	0.1	0.1
	Direct labor-hours per unit- Assembly				c	0.4	0.4
	Total direct labor-hours per unit				d=b+c	0.5	0.5
	Total direct labor-hours				e=a*d	50000	12500	62500
	Direct labor rate per hour				f	16.5	16.5
	Total direct labor cost				g=e*f	825000	206250	1031250
	Single plant wide rate=1443300/1031250=$ 1.40 per direct labor cost
	Product cost:
						XL-D		XL-C
	Raw material						11.3		13.3
	Direct labor-Production					1.65		1.65
						(0.1*16.5)		(0.1*16.5)
	Direct labor-Assembly					6.6		6.6
						(0.4*16.5)	8.25	(0.4*16.5)	8.25
	Overhead						11.55		11.55
							(8.25*1.40)		(8.25*1.40)
	Total						31.1		33.1
b.	Overhead allocation rates;
						Production	Assembly
	Total overhead cost				a	967800	475500
	Total Machine hours			(Note:1)	b	250000
	Total Labor hours			(Note:2)			62500
	Overhead allocation rate				a/b	3.87	7.61
	Note:1
	Total Machine hours
						XL-D	XL-C	Total
	Units produced				a	100000	25000
	Machine hours per unit-production				b	1.6	1.6
	Machine hours per unit-assembly				c	0.4	0.4
	Total machine hours per unit				d=b+c	2	2	4
	Total Machine hours				e=a*d	200000	50000	250000
	Note:2
	Total labor hours
						XL-D	XL-C	Total
	Units produced				a	100000	25000
	Direct labor hours per unit-production				b	0.1	0.1
	Direct labor hours per unit-assembly				c	0.4	0.4
	Total direct labor hours per unit				d=b+c	0.5	0.5	1
	Total direct labor hours				e=a*d	50000	12500	62500
	Product cost:
						XL-D		XL-C
	Raw material						11.3		13.3
	Direct labor-Production					1.65		1.65
						(0.1*16.5)		(0.1*16.5)
	Direct labor-Assembly					6.6		6.6
						(0.4*16.5)	8.25	(0.4*16.5)	8.25
	Overhead						15.48		7.61
	(Total machine hours per unit*Overhead allocation rate)						(4*3.87)
	(Total direct labor hours per unit*Overhead allocation rate)								(1*7.61)
	Total						35.03		29.16
d.	Activity rates for production department:
	Overhead item			$	Driver	$	Activity rate
				a		b	a/b
	Supervision			93000	Direct labor-hours	62500	1.49	Per direct labor hour
	Material handling			89500	Material cost	1462500	0.06	Per material cost
						(Note:3)
	Testing			143000	Testing hours	375000	0.38	Per Testing hour
						(Note:4)
	Wastewater treatment			243000	Wastewater generated	1000000	0.24	Per wastewater generated
						(Note:5)
	Depreciation on equipment			393000	Machine-hours	250000	1.57	Per machine hour
	Shipping			6300	Weight	140000	0.05	Per weight
						(Note:6)