Zany Brainy Corp. manufactures two types of lamps, Home size and Industry size lamps. Company produces...
Zany Brainy Corp. manufactures two types of lamps, Home size and Industry size lamps. Company produces 15,000 Home size lamp and 5,000 Industry size lamps. Following is the data provided about these two products:
|
Home size lamp |
Industry size lamp |
Total |
|
|
Direct Materials per unit |
$7 |
$12 |
|
|
Direct manufacturing labour rate per unit |
$12.00 |
$12.00 |
|
|
Direct labour hours per unit |
0.50 |
0.6 |
|
|
Set up costs |
$120,000 |
||
|
Lamps produced per patch |
200 |
50 |
|
|
Set up hour per patch |
1 |
3 |
|
|
Quality control costs |
$160,000 |
||
|
Total indirect manufacturing costs |
$280,000 |
||
|
Annual production |
15,000 |
5,000 |
Page Break
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The company’s simple (traditional) costing system uses a single indirect-cost pool and allocates costs to the two lamps on the basis of direct manufacturing labour-hours. Under this tradition system, determine total product cost per unit of each of the company's two products. (10 marks)
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The company’s ABC system uses two indirect-cost pools. One cost pool is for set up costs and the other for quality control. Zany Brainy allocates set up costs to the two lamps based on setup labour-hours and quality control costs based on direct manufacturing labour-hours. Under ABC system, determine total product cost per unit of each of the company's two products. (25 marks)
Homework Answers
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| Zany Brainy Corp. | |||||
| Workings for Answer 1 | Home Size | Industry Size | Total | Note | |
| Direct Labor per unit | 0.50 | 0.60 | A | ||
| Units produced | 15,000.00 | 5,000.00 | B | ||
| Total Direct Labor Hours | 7,500.00 | 3,000.00 | 10,500.00 | C=A*B | |
| Total overhead | 280,000.00 | D | |||
| Plant wide OH Rate | 26.67 | E=D/C | |||
| Allocated OH | 200,000.00 | 80,000.00 | 280,000.00 | F=C*E | |
| Allocated OH per unit | 13.33 | 16.00 | G=F/B | ||
| Answer 1 | Home Size | Industry Size | Note | ||
| Direct Materials | 7.00 | 12.00 | |||
| Direct Labor | 12.00 | 12.00 | |||
| Allocated OH per unit | 13.33 | 16.00 | See G | ||
| Unit product cost- Traditional | 32.33 | 40.00 | |||
| Workings for Answer 2 | Home Size | Industry Size | Total | Note | |
| Units produced | 15,000.00 | 5,000.00 | See B | ||
| Lamps produced per patch | 200.00 | 50.00 | H | ||
| Number of patches | 75.00 | 100.00 | I=B/H | ||
| Set up hours per patch | 1.00 | 3.00 | J | ||
| Total Set up hours | 75.00 | 300.00 | 375.00 | K=I*J | |
| Calculation of ABC rates for overhead | L | M | N=L/M | ||
| Activity cost pool | Activity Measure | Cost | Activity usage | ABC rates | |
| Setup costs | Setup hours | 120,000.00 | 375.00 | 320.00 | |
| Quality Control costs | Direct Labor Hours | 160,000.00 | 10,500.00 | 15.24 | |
| Total Cost assigned | 280,000.00 | ||||
| Home Size | See L | O | P=L*O | ||
| Activity cost pool | Activity Measure | ABC Rates | Activity used | Cost assigned | |
| Setup costs | Setup hours | 320.00 | 75.00 | 24,000.00 | |
| Quality Control costs | Direct Labor Hours | 15.24 | 7,500.00 | 114,285.71 | |
| Total Cost assigned | 138,285.71 | Q | |||
| Units produced | 15,000.00 | See B | |||
| Costs per unit | 9.22 | R=Q/B | |||
| Industry Size | See L | S | T=L*S | ||
| Activity cost pool | Activity Measure | ABC Rates | Activity used | Cost assigned | |
| Setup costs | Setup hours | 320.00 | 300.00 | 96,000.00 | |
| Quality Control costs | Direct Labor Hours | 15.24 | 3,000.00 | 45,714.29 | |
| Total Cost assigned | 141,714.29 | U | |||
| Units produced | 5,000.00 | See B | |||
| Costs per unit | 28.34 | V=U*B | |||
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