Question

Name Section Alphabetical Number Week #5- Chapter 4 Homework Assignment Problem 1 (Supplemental Problem #1 )-Tradition al Costing versus Activity-based Costing You have been hired by Casson Manufacturing to assess and make recommendations for the profitability of its Bobbichead line of products. Casson Manufacturing makes two tvpes of Pistol Pete Bobbleheads. The Huge Bobblehead is 15 feet tall and is sold as a lawn ornament. The Tiny Bobblehead is 15 centimeters tall and is sold as a jewelry apparel item. Although Pistol Pete has been manufacturing the Huge Bobblehead for years, it only recently added the Tiny Bobblehead product line. The Tiny Bobblehead is more difficult to manufacture and requires special tooling and machine setups because it is made out of pure platinum. Casson Manufacturing has faced intense competition for both products from competing manufacturers and its sales of the Tiny Bobbleheads have recently dropped dramatically. Much of the competition is from Norman, Oklahoma-based Sooner-Goober Manufacturing and the Casson plant manager is convinced that this producer is intentionally selling the Tiny Bobblehead below its manufacturing cost. Production Selling price Overhead per unit Direct materials cost per unit Direct labor cost per unit Direct labor hours Number of production runs Machine hours Receiving orders Engineering hours Materials moves 900,000 units 100,000 units $500 S100 $150 150,000 DLHs 10 runs 15,000 machine hours 40 orders 10,000 hours 40 moves $3 S5 350,000 DLHs 190 runs 85,000 machine hours 450 orders 90,000 hours 60 moves Calculated using a plant-wide rate based on direct labor hours. This is the current way of assigning the plant's overhead to its products. Overhead Costs Setup costs Machine costs Receiving costs Engineering costs Materials handling costs Total overhead costs 250,000 $ 1,250,000 $ 2,000,000 S 1,000,000 500.000 $ 5,000,000 Your recommendation is to consider assigning overhead costs to each product line using Activity-based Costing (ABC). Setup costs would be assigned using Number of production runs. Machine costs would be assigned using Machine hours. Receiving costs would be assigned using Receiving orders. Engineering costs would be assigned using Engineering hours. Materials handling costs would be assigned using Materials moves. ***Problem 1 is continued on the next page** Fall 2018-Due Thursday, September 27

Answer 1

1. A) SETUP COST PER PRODUCTION RUN

         TOTAL NO PRODUCTION REUN   10+190= 200

         TOTAL SETUP COST                         $250000

         SETUPCOST PER PRODUCTION RUN     $250000/200 =1250

B)    MACHINE COST PER MACHINE HOUR

        

          TOTAL MACHINE HOUR 15000+85000=100000

          MCHINE COST $1250000

          MACHONE COST PER HOUR   1250000/100000 =   12.5

      C) RECEIVING COST PER RECEIVING ORDER

             TOTAL ORDER 450+40 = 490

              RECEIVING COST    $2000000

              PER ORDER RATE 2000000/490= 4081.63

       D)   ENGINEERING COST PER HOUR

               TOTAL ENGINEERING HOUR 90000+10000=100000

                TOTAL ENGINEERING COST $1000000

                PER HOUR RATE    1000000/100000= 10

    E) MATERIAL HANDLING COST PER MOVE

           TOTAL MOVE 60+40=100

            TOTAL HANDLING COST $500000

           PER MOVE RATE   500000/100= 5000

OVERHEAD COST AS PER ABC METHOD
	TINY BOBBLEHEADS			HUGE BOBBLEHEADS
COST ITEM	COST RATE	NO/HOUR OF ACTIVITY	COST	COST RATE	NO/HOUR OF ACTIVITY	COST
SETUP COST	1250	190	237500	1250	10	12500
MACHINE COSTS	12.5	85000	1062500	12.5	15000	187500
RECEVING COST	4081.63	450	1836734	4081.63	40	163266
ENGINEERING	10	90000	900000	10	10000	100000
MATERIAL HANDLING COST	5000	60	300000	5000	40	200000
			4,336,734.00			663,266.00
PRODUCT COST ABC SYSTEM		TINY BOBBLEHEADS			HUGE BOBBLEHEADS
MATERIAL COST	900000*3	2700000			+100000*100	10000000
LABOUR COST	5*900000	4500000			100000*150	15000000
OTHER OVERHEAD		4,336,734.00				663,266.00
TOTAL COST		11,536,734.00				25,663,266.00
CONRTRUBUTION
SALES	900000*50	45000000			100000*500	50000000
TOTAL COST		11,536,734.00				25,663,266.00
CONTRIBUTION TOTAL		33,463,266.00				24,336,734.00
CONTRIBUTION PER UNIT		37.18				243.37