Question

33.33 points Time Remaining 29 minutes 54 seconds00:29:54 Check my workCheck My Work button is now enabled1Item 1 Time Remaining 29 minutes 54 seconds00:29:54 "Two dollars of gross margin per briefcase? That's ridiculous!" roared Roy Thurmond, president

"Two dollars of gross margin per briefcase? That's ridiculous!" roared Roy Thurmond, president of First-Line Cases, Inc. "Why do we go on producing those standard briefcases when we’re able to make over $12 per unit on our specialty items? Maybe it’s time to get out of the standard line and focus the whole plant on specialty work."

 

Mr. Thurmond was referring to a summary of unit costs and revenues that he had just received from the company’s accounting department:

 


Standard
Briefcases
Specialty
Briefcases
Selling price per unit$24.75
$42.00
Unit product cost
22.75

30.00
Gross margin per unit$2.00
$12.00

 

FirstLine Cases produces briefcases from leather, fabric, and synthetic materials in a single plant. The basic product is a standard briefcase that is made from leather lined with fabric. The standard briefcase is a high-quality item and has sold well for many years.

 

Last year, the company decided to expand its product line and produce specialty briefcases for special orders. These briefcases differ from the standard in that they vary in size, they contain the finest leather and synthetic materials, and they are imprinted with the buyer’s name. To reduce labor costs on the specialty briefcases, automated machines do most of the cutting and stitching. These machines are used to a much lesser degree in the production of standard briefcases.

 

"I agree that the specialty business is looking better and better," replied Beth Mersey, the company's marketing manager. "And there seems to be plenty of demand out there, particularly because the competition hasn't been able to touch our price. Did you know that Velsun Company, our biggest competitor, charges over $45 a unit for its specialty items? Now that’s what I call gouging the customer!"

 

A breakdown of the manufacturing cost for each of FirstLine Cases’ products is given below:

 


Standard
Briefcases
Specialty
Briefcases
Units produced each month
10,000

2,500
Direct materials:





Leather$7.50
$11.50
Fabric
1.50

1.00
Synthetic
0

6.50
Total materials
9.00

19.00
Direct labor
(0.50 DLH and 0.40 DLH @ $11.50 per DLH)

5.75

4.60
Manufacturing overhead
(0.5 DLH and 0.4 DLH @ $16.00 per DLH)

8.00

6.40
Total cost per unit$22.75
$30.00

 

Manufacturing overhead is applied to products on the basis of direct labor-hours. The rate of $16.00 per hour was determined by dividing the total manufacturing overhead cost for a month by the direct labor-hours:

 

Predetermined overhead rate=Manufacturing overhead=$96,000=$16.00 per DLH
Direct labor-hours6,000 DLHs

 

The following additional information is available about the company and its products:

 

a. Standard briefcases are produced in batches of 1,000 units, and specialty briefcases are produced in batches of 100 units. Thus, the company does 10 setups for the standard items each month and 25 setups for the specialty items. A setup for the standard items requires one hour, whereas a setup for the specialty items requires two hours.

b. All briefcases are inspected to ensure that quality standards are met. Each month a total of 250 hours is spent inspecting the standard briefcases and 400 hours is spent inspecting the specialty briefcases.

c. A standard briefcase requires 0.5 hours of machine time, and a specialty briefcase requires 1.2 hours of machine time.

d. The company is considering the use of activity-based costing as an alternative to its traditional costing system for computing unit product costs. The activity-based costing system has already been designed and costs have been allocated to the activity cost pools. The activity cost pools and activity measures are detailed below:

 

Activity Cost PoolActivity MeasureEstimated Overhead
Cost
PurchasingNumber of orders$15,000
Material handlingNumber of receipts
16,000
Production orders and setupsSetup-hours
6,000
InspectionInspection-hours
13,000
Frame assemblyAssembly-hours
14,000
Machine-relatedMachine-hours
32,000


$96,000

 


Expected Activity
Activity MeasureStandard
Briefcases
Specialty
Briefcases
Total
Number of orders:


Leather501060
Fabric702090
Synthetic material0150150
Number of receipts:


Leather701080
Fabric8520105
Synthetic material0215215
Setup-hours???
Inspection-hours250400650
Assembly-hours6507501,400
Machine-hours???

 

Required:

1. Using activity-based costing, determine the amount of manufacturing overhead cost that would be assigned to each standard briefcase and each specialty briefcase. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

2. Using the data computed in part (1) above and other data from the case as needed, determine the unit product cost of each product line from the perspective of the activity-based costing system.(Do not round intermediate calculations. Round your answers to 2 decimal places.)

3. Within the limitations of the data that have been provided, evaluate the president’s concern about the profitability of the two product lines.

(Loss amounts should be indicated with a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)

0 0
Add a comment Improve this question Transcribed image text
Request Professional Answer

Request Answer!

We need at least 10 more requests to produce the answer.

0 / 10 have requested this problem solution

The more requests, the faster the answer.

Request! (Login Required)


All students who have requested the answer will be notified once they are available.
Know the answer?
Add Answer to:
33.33 points Time Remaining 29 minutes 54 seconds00:29:54 Check my workCheck My Work button is now enabled1Item 1 Time Remaining 29 minutes 54 seconds00:29:54 "Two dollars of gross margin per briefcase? That's ridiculous!" roared Roy Thurmond, president
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Similar Homework Help Questions
  • "Two dollars of gross margin per briefcase? That's ridiculous!" roared Roy Thurmond, president of First-Line Cases,...

    "Two dollars of gross margin per briefcase? That's ridiculous!" roared Roy Thurmond, president of First-Line Cases, Inc. "Why do we go on producing those standard briefcases when we’re able to make over $10 per unit on our specialty items? Maybe it’s time to get out of the standard line and focus the whole plant on specialty work." Mr. Thurmond was referring to a summary of unit costs and revenues that he had just received from the company’s accounting department: Standard...

  • "Two dollars of gross margin per briefcase? That's ridiculous!" roared Roy Thurmond, president of First-Line Cases,...

    "Two dollars of gross margin per briefcase? That's ridiculous!" roared Roy Thurmond, president of First-Line Cases, Inc. "Why do we go on producing those standard briefcases when we're able to make over $12 per unit on our specialty items? Maybe it's time to get out of the standard line and focus the whole plant on specialty work." Mr. Thurmond was referring to a summary of unit costs and revenues that he had just received from the company's accounting department: Standard...

  • "Two dollars of gross margin per briefcase? That's ridiculous!" roared Roy Thurmond, president of First-Line Cases,...

    "Two dollars of gross margin per briefcase? That's ridiculous!" roared Roy Thurmond, president of First-Line Cases, Inc. "Why do we go on producing those standard briefcases when we’re able to make over $9 per unit on our specialty items? Maybe it’s time to get out of the standard line and focus the whole plant on specialty work." Mr. Thurmond was referring to a summary of unit costs and revenues that he had just received from the company’s accounting department: Standard...

  • Two dollars of gross margin per briefcase? That's ridiculous!" roared Roy Thurmond, president of First-Line Cases,...

    Two dollars of gross margin per briefcase? That's ridiculous!" roared Roy Thurmond, president of First-Line Cases, Inc. "Why do we go on producing those standard briefcases when we’re able to make over $10 per unit on our specialty items? Maybe it’s time to get out of the standard line and focus the whole plant on specialty work." Mr. Thurmond was referring to a summary of unit costs and revenues that he had just received from the company’s accounting department: Standard...

  • Analytical Thinking [LO4-2, LO4-3, LO4-4] "Two dollars of gross margin per briefcase? That's ridiculous!" roared Roy...

    Analytical Thinking [LO4-2, LO4-3, LO4-4] "Two dollars of gross margin per briefcase? That's ridiculous!" roared Roy Thurmond, president of First-Line Cases, Inc. "Why do we go on producing those standard briefcases when we’re able to make over $9 per unit on our specialty items? Maybe it’s time to get out of the standard line and focus the whole plant on specialty work." Mr. Thurmond was referring to a summary of unit costs and revenues that he had just received from...

  • Analytical Thinking [LO4-2, LO4-3, LO4-4] "Two dollars of gross margin per briefcase? That's ridiculous!" roared Roy...

    Analytical Thinking [LO4-2, LO4-3, LO4-4] "Two dollars of gross margin per briefcase? That's ridiculous!" roared Roy Thurmond, president of First-Line Cases, Inc. "Why do we go on producing those standard briefcases when we’re able to make over $12 per unit on our specialty items? Maybe it’s time to get out of the standard line and focus the whole plant on specialty work." Mr. Thurmond was referring to a summary of unit costs and revenues that he had just received from...

  • I need help with all 3 Required questions. Analytical Thinking [LO4-2, LO4-3, LO4-4] Two dollars of...

    I need help with all 3 Required questions. Analytical Thinking [LO4-2, LO4-3, LO4-4] Two dollars of gross margin per briefcase? That's ridiculousr roared Roy Thurmond, president of First-Line Cases, Inc. "Why do we go on producing those standard briefcases when we're able to make over $12 per unit on our specialty items? Maybe it's time to get out of the standard line and focus the whole plant on specialty work. Mr. Thurmond was referring to a summary of unit costs...

  • Activity Cost Pool Activity Measure Estimated Overhead $ Purchasing Number of Orders $12,000.00 Material Handling Number...

    Activity Cost Pool Activity Measure Estimated Overhead $ Purchasing Number of Orders $12,000.00 Material Handling Number of Receipts $15,000.00 Production orders Set-up Hours $20,250.00 Inspection Inspection Hours $16,000.00 Frame assembly Assembly Hours $8,000.00 Machine related Machine Hours $30,000.00 Total Manufacturing Overhead costs $101,250.00. To complete an "activity-based" cost structure, you are required to apply manufacturing overhead to each of the briefcase products on the activity cost pool data provided. Note that the Activity Cost Pools are determined by management and...

  • Activity Cost Pool Activity Rate Labor-related per DLH Machine-related per MH Machine setups per setup Production...

    Activity Cost Pool Activity Rate Labor-related per DLH Machine-related per MH Machine setups per setup Production orders per order Product testing per test Packaging per package General factory per DLH 2. Required information [The following information applies to the questions displayed below.] Rustafson Corporation is a diversified manufacturer of consumer goods. The company's activity-based costing system has the following seven activity cost pools: Activity Cost Pool Estimated Overhead Cost Expected Activity Labor-related $ 19,600 10,000 direct labor-hours Machine-related $ 7,000...

  • Check my work Rocky Mountain Corporation makes two types of hiking boots-Xactive and Pathbreaker. Data concerning...

    Check my work Rocky Mountain Corporation makes two types of hiking boots-Xactive and Pathbreaker. Data concerning these two product lines appear below: Direct materials per unit Direct labor cost per unit Direct labor-hours per unit Estimated annual production and sales Xactive $ 64.70 $ 18.10 1.4 DLHS 24,000 units Pathbreaker $ 50.90 $ 12.90 1 DLHS 74,000 units The company has a conventional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT