Question

Willow Company produces lawn mowers. One of its plants produces two versions of mowers: a basic model and a deluxe model. The deluxe model has a sturdier frame, a higher horsepower engine, a wider blade, and mulching capability. At the beginning of the year, the following data were prepared for this plant:

	Basic Model	Deluxe Model
Expected quantity	40,000	20,000
Selling price	$180	$360
Prime costs	$80	$160
Machine hours	5,000	5,000
Direct labor hours	10,000	10,000
Engineering support (hours)	1,500	4,500
Receiving (orders processed)	250	500
Materials handling (number of moves)	1,200	4,800
Purchasing (number of requisitions)	100	200
Maintenance (hours used)	1,000	3,000
Paying suppliers (invoices processed)	250	500
Setting up equipment (number of setups)	16	64

Additionally, the following overhead activity costs are reported:

Maintaining equipment	$114,000
Engineering support	120,000
Materials handling	?
Setting up equipment	96,000
Purchasing materials	60,000
Receiving goods*	40,000
Paying suppliers	30,000
Providing space	20,000
Total	$ ?

* Receiving activity cost includes allocated share of forklift operators’ salaries.

Facility-level costs are allocated in proportion to machine hours (provides a measure of time the facility is used by each product). Receiving and materials handling use three inputs: two forklifts, gasoline to operate the forklift, and three operators. The three operators are paid a salary of $40,000 each. The operators spend 25% of their time on the receiving activity and 75% on moving goods (materials handling). Gasoline costs $3 per move. Depreciation amounts to $8,000 per forklift per year.

4.	Calculate consumption ratios for each activity.
5.	CONCEPTUAL CONNECTION:  Explain how the consumption ratios calculated in Requirement 4 can be used to reduce the number of rates. Calculate the rates that would apply under this approach.

4. Calculate consumption ratios for each activity. (Round your answers to two decimal places.)

	Basic	Deluxe
Maintenance
Engineering
Materials handling
Setting up
Purchasing
Receiving
Paying suppliers
Providing space

b) Calculate the rates that would apply under this approach. (Round to two decimal places.)

Pool 1 $ Per Unit

Pool 2 $ Per Unit

Pool 3 $ Per Unit

Pool 4 $ Per Unit

Answer 1

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you.
4. Consumption Ratio:
Consumption Ratio will be calculated with the help of Overhead allocated
				Consumption ratio
	Basic	Deluxe	Total	Basic	Deluxe
	A	B	C	A/C	B/C
Maintenance	$ 28,500	$ 85,500	$114,000	0.25	0.75
Engineering	$ 30,000	$ 90,000	$120,000	0.25	0.75
Material handling	$ 24,000	$ 96,000	$120,000	0.20	0.80
Setting up	$ 19,200	$ 76,800	$ 96,000	0.20	0.80
Purchasing	$ 20,000	$ 40,000	$ 60,000	0.33	0.67
Receiving	$ 13,333	$ 26,665	$ 39,998	0.33	0.67
Paying Suppliers	$ 10,000	$ 20,000	$ 30,000	0.33	0.67
Providing Space	$ 10,000	$ 10,000	$ 20,000	0.50	0.50
Part 5
When products consume activities in the same proportion, the activities with the same proportions can be combined into one pool.
This is so because the pooled costs will be assigned in the same proportion as the individual activity costs
Pool is being created based on same consumption Ratio
Pool 1:
Maintenance	$114,000
Engineering	$120,000
Total	$234,000
Maintenance Hours	$    4,000
Pool Rate	$    58.50
Pool 2:
Material handling	$120,000
Setting up	$ 96,000
Total	$216,000
Number of Moves	$    6,000
Pool Rate	$    36.00
Pool 3:
Purchasing	$ 60,000
Receiving	$ 39,998
Paying Suppliers	$ 30,000
Total	$129,998
Order Processed	$        750
Pool Rate	$ 173.33
Pool 4:
Providing Space	$ 20,000
Total	$ 20,000
Machine Hours	$ 10,000
Pool Rate	$      2.00

Answer 2

Willow Company produces lawn mowers. One of its plants produces two versions of mowers: a basic model and a deluxe model. The deluxe model has a sturdier frame, a higher horsepower engine, a wider blade, and mulching capability. At the beginning of the year, the following data were prepared for this plant:

	Basic Model	Deluxe Model
Expected quantity	40,000	20,000
Selling price	$180	$360
Prime costs	$80	$160
Machine hours	5,000	5,000
Direct labor hours	10,000	10,000
Engineering support (hours)	1,500	4,500
Receiving (orders processed)	250	500
Materials handling (number of moves)	1,200	4,800
Purchasing (number of requisitions)	100	200
Maintenance (hours used)	1,000	3,000
Paying suppliers (invoices processed)	250	500
Setting up equipment (number of setups)	16	64

Additionally, the following overhead activity costs are reported:

Maintaining equipment	$114,000
Engineering support	120,000
Materials handling	?
Setting up equipment	96,000
Purchasing materials	60,000
Receiving goods*	40,000
Paying suppliers	30,000
Providing space	20,000
Total	$ ?

* Receiving activity cost includes allocated share of forklift operators’ salaries.

Facility-level costs are allocated in proportion to machine hours (provides a measure of time the facility is used by each product). Receiving and materials handling use three inputs: two forklifts, gasoline to operate the forklift, and three operators. The three operators are paid a salary of $40,000 each. The operators spend 25% of their time on the receiving activity and 75% on moving goods (materials handling). Gasoline costs $3 per move. Depreciation amounts to $8,000 per forklift per year.

Required:

(Note: Round answers to two decimal places.)1.Calculate the cost of the materials handling activity. Label the cost assignments as driver tracing or direct tracing. Identify the resource drivers.2.Calculate the cost per unit for each product by using direct labor hours to assign all overhead costs.3.Calculate activity rates, and assign costs to each product. Calculate a unit cost for each product and compare these costs with those calculated in Requirement 2.4.Calculate consumption ratios for each activity.5.CONCEPTUAL CONNECTION:  Explain how the consumption ratios calculated in Requirement 4 can be used to reduce the number of rates. Calculate the rates that would apply under this approach.