Question

Siegel Company manufactures a product that is available in both a deluxe model and a regular model. The company has manufactured the regular model for years. The deluxe model was introduced several years ago to tap a new segment of the market. Since introduction of the deluxe model, the company's profits have steadily declined and management has become increasingly concerned about the accuracy of its costing system. Sales of the deluxe model have been increasing rapidly. Manufacturing overhead is assigned to products on the basis of direct labor-hours. For the current year, the company has estimated that it will incur $7,060,750 in manufacturing overhead cost and produce 25,000 units of the deluxe model and 128,000 units of the regular model. The deluxe model requires 1.0 hours of direct labor time per unit, and the regular model requires 0.5 hour. Material and labor costs per unit are as follows: Model Deluxe Regular $ 146 $ 117 $ 10 $ 5 Direct materials Direct labor

Answer 1

1a)	Siegel Company
Calculation of expected total direct labor hours
	(A)	(B)			(A)*(B)
	Units	Dirct labor hour per unit			Units*Direct labor hour per unit
Deluxe Model	25000	$                             1.00		Per Unit	$              25,000.00
Regular Model	128000	$                             0.50		Per Unit	$              64,000.00
Total Direct Labor Hours					$              89,000.00
Predermined Overhead Rate
Estimated Overhead cost/Estimated Direct Labor Hours
Estimated Overhead cost=(A)	7060750
Estimated Direct Labor Hours=(B)	$               89,000.00
Predermined Overhead Rate=(A)/(B)	$                       79.33	Per Direct Labor Hours
1b)
Unit Product cost of each model
	Deluxe Model	Regular Model
Direct Material	$                     146.00	$                        117.00
Direct Labor	$                       10.00	$                             5.00
Manufacturing Overhead
$79.33 per direct labor Hours*1 per unit	$                       79.33
$79.33 per Direct Labor Hours* .50 per unit		$                          39.67
Total Unit Product Cost	$                     235.33	$                        161.67
2)
	(A)	(B)		(A)/(B)
Activity Cost Pool	Estimated Overhead cost	Expected Activity		Activity Rate
Purchasing	260850	1110	Purchasing	$                       235.00	Per purchase order
Processing	4037500	47500	Machine Orders	$                          85.00	Per machine hours
Scrap/Rework	761400	1000	Orders	$                       761.40	per order
Shipping	2001000	17000	Shipment	$                       117.71	per shipment
	7060750
3a)
		Activity Based Costing
	(A)		(B)		(C )		(A)*(B)	(A)*(C )
Activity	Activity Rate		Cost driver quantity incurred		Cost driver quantity incurred		Overhead cost allocated (Deluxe)	Overhead cost allocated (Basic)
			Deluxe		Regular		Deluxe	Regular
Purchasing	$                     235.00	Per purchase order	370	Per purchase order	740	Per purchase order	$               86,950.00	$   1,73,900.00
Processing	$                       85.00	Per machine hours	19000	Per machine hours	28500	Per machine hours	$         16,15,000.00	$ 24,22,500.00
Scrap/Rework	$                     761.40	per order	600	per order	480	per order	$            4,56,840.00	$   3,65,472.00
Shipping	$                     117.71	per shipment	6960	per shipment	10440	per shipment	$            8,19,232.94	$ 12,28,849.41
							$                               -	$                      -
Total Overhead Cost assigned=(D)							$         29,78,022.94	$ 41,90,721.41
Production volume(Units)=(E)							25000	128000
Average overhead cost per unit=(D)/(E)							$                     119.12	$               32.74	Per unit
3b)
Unit Product cost of each model
	Deluxe Model	Regular Model
Direct Material	$                     146.00	$                        117.00
Direct Labor	$                       10.00	$                             5.00
Manufacturing Overhead	$                     119.12	$                          32.74
Total Unit Product Cost	$                     275.12	$                        154.74