Question

UW My UIW Courses Organizations Student Resources UIW Web Library Online Cost Accounting 01 Fa 20 ACC7331301 Fa 20 Week 5: Chapter 4 Chapter 4 Resources (myBusiness Business Course Return to course ABC; product profitability Outerwear Inc. is concerned about the profitability of its regular gloves. Company managers are considering producing only the top-quality, fleece lined, gloves. The company is currently assigning the $2,400,000 of overhead costs to both types of gloves based on machine hours. Of the overhead, $960,000 is utilities related and the remainder is primarily related to quality control inspectors' salaries. The following information about the products is also available. Regular Fleece-Lined Number produced 2,000,000 1,400,000 170,000 30,000 Inspection hours 10,000 50,000 $7,680,000 $6.720,000 $6,000,000 $5,280,000 Machine hours Revenues Direct costs a. Determine the total overhead cost assigned to each type of gloves using the current allocation system. Total OH assigned to regular gloves: $ Total OH assigned to fleece-lined gloves: $ b. Determine the total overhead cost assigned to each type of gloves if more appropriate cost drivers were used. Total OH assigned to regular gloves: $ Total OH assigned to fleece-lined gloves: $ MacBo

Answer 1

A.

Overhead rate at current method = Total overhead cost / total machine hours

Overhead rate at current method = 2400000 / 200000 = 12

Overhead Assigned	Machine Hrs (a)	Current method overhead rate (b)	Overhead Cost Allocated (a*b)
Regular	170000	12	2040000
Fleece - Lined	30000	12	360000

B.

Assign cost by each activities

Utilities
Overhead cost	960000	960000 / 200000 = 4.8
Based on Machine hrs	200000 (170000 + 30000 )
Assigned to Regular	170000 * 4.8	816000
Assigned to Fleece - lined	30000 * 4.8	144000
Quality Control
Overhead cost	2400000 - 960000 = 1440000	1440000 / 60000 = 24
Inspection hour required	60000 (10000 + 50000 )
Assigned to Regular	10000 * 24	240000
Assigned to Fleece - lined	50000 * 24	1200000

	Total	Assigned to Regular	Assigned to Fleece - lined
Utilities	960000	816000	144000
Quality control	1440000	240000	1200000
Total	2400000	1056000	1344000

C.

Profit before tax statement

	Regular	Fleece - lined
Sales Revenue	$7680000	$6720000
Less: Direct cost	6000000	5280000
Gross profit	$1680000	$1440000
Less: Overhead assigned	1056000	1344000
Profit before tax	$624000	$96000