Problem

Tent Master produces two lines of tents sold to outdoor enthusiasts. The tents are cut to...

Tent Master produces two lines of tents sold to outdoor enthusiasts. The tents are cut to specifications in department A. In department B the tents are sewn and folded. The activities, costs, and drivers associated with these two manufacturing processes and its production support activities follow.

Process

Activity

Overhead Cost

Driver

Quantity

Department A

Pattern alignment

$ 64,400

Batches

560

 

Cutting

50,430

Machine hours

12,300

 

Moving product

100,800

Moves

2,400

 

 

$215,630

 

 

Department B

Sewing

$327,600

Direct labor hours

4,200

 

Inspecting

24,000

Inspections

600

 

Folding

47,880

Units

22,800

 

 

$399,480

 

 

Support

Design

$280,000

Modification orders

280

 

Providing space

51,600

Square feet

8,600

 

Materials handling

184,000

Square yards

920,000

 

 

$515,600

 

 

Additional production information on the two lines of tents follows.

 

Pup Tent

Pop-Up Tent

Units produced

15,200 units

7,600 units

Moves

800 moves

1,600 moves

Batches

140 batches

420 batches

Number of inspections

240 inspections

360 inspections

Machine hours

7,000 MH

5,300 MH

Direct labor hours

2,600 DLH

1,600 DLH

Modification orders

70 modification orders

210 modification orders

Space occupied  

4,300 square feet

4,300 square feet

Material required

450,000 square yards

470,000 square yards

Required

1. Using a plantwide overhead rate based on direct labor hours, compute the overhead cost that is assigned to each pup tent and each pop-up tent.


2. Using the plantwide overhead rate, determine the total cost per unit for the two products if the direct materials and direct labor cost is $25 per pup tent and $32 per pop-up tent.


3. If the market price of the pup tent is $65 and the market price of the pop-up tent is $200, determine the gross profit per unit for each tent. What might management conclude about the pup tent?


4. Using ABC, compute the total cost per unit for each tent if the direct labor and direct materials cost is $25 per pup tent and $32 per pop-up tent.


5. If the market price is $65 per pup tent and $200 per pop-up tent, determine the gross profit per unit for each tent. Comment on the results.


6. Would your pricing analysis be improved if the company used, instead of ABC, departmental rates determined using machine hours in Department A and direct labor hours in Department B? Explain.

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Solutions For Problems in Chapter 17