Question

Plata Company produces two products: a mostly handcrafted soft leather briefcase sold under the label Maletin Elegant and a leather briefcase produced largely through automation and sold under the label Maletin Fina. The two products use two overhead activities, with the following costs: Setting up equipment $ 3,000 Machining 23,000 The controller has collected the expected annual prime costs for each briefcase, the machine hours, the setup hours, and the expected production. Elegant Fina Direct labor $9,000 $3,000 Direct materials $3,000 $3,000 Units 3,000 3,000 Machine hours 500 4,500 Setup hours 100 100 Required: 1. Conceptual Connection: Do you think that the direct labor costs and direct materials costs are accurately traced to each briefcase? Explain. Yes. Because direct materials and direct labor are directly traceable to each product, their cost assignment should be accurate. 2. Calculate the consumption ratios for each activity. Round your answers to one decimal place. Elegant Fina Machining 0.1 Il Setups

Answer 1

Solution

1. Yes, these costs are accurately traced to each briefcase. Because these are variable cost and incurred upon per unit as per the product requirement and specification.

2. Calculation of consumption ratios for each activity

Consumption ratio = Amount of activity driver per product / total driver quantity

	Elegant	Fina
Machining	0.10 (500/4,500)	0.90 (4,500/5,000)
Setups	0.50 (100/200)	0.50 (100/200)

3. Calculation of Overhead cost per unit based on direct labor costs

Computation of plantwide rate based on direct labour costs :

Plantwide rate = Total overhead cost x 100

Total labour cost

= $3,000+$23,000   x 100 = 216.67%

$9,000+$3,000

Overhead cost to Elegant = $ 9,000 x 216.67% = $ 19,500

Overhead cost to Fina = $ 3,000 x 216.67% = $ 6,500

Computation per brief case as follows:

Elegant = $ 19,500 / 3,000 = $6.50

Fina = $ 6,500 / 3,000 = $ 2.17

For 3b please provide statements

4. Calculation of Overhead cost per unit based on machine hours & setup hours

Setting up costs per setup hour = $3,000 / ( 100+100) = $15 per set up hour

Machining cost per machine hour = $ 23,000 ( 500+4500) = $ 4.60 per machine hour

Overhead cost allocated to Elegant = 500 x $ 4.60+100 x $ 15 = $ 3,800

   Overhead cost allocated to Fina   = 4,500 x $ 4.60 + 100 x $ 15 = $22,200

Overhead cost for per unit of brief case :-

Elegant = $ 3,800 / 3000 = $1.27

Fina = $22,200 / 3000 = $ 7.40