We at Accounting Assignments Help provide MBA 535 – Managerial Accounting (Homework Set 5) help with step by step calculation and explanation 24*7 from our accounting experts.
Problem 7-6
Curtis Corporation is beginning Production of Mighty Mint, a new mouthwash in a small spray container. The product will be sold to wholesalers and large drugstore chains in packages of 30 containers for $20 per package. Management allocates $225,000 of fixed manufacturing overhead costs to Mighty Mint. The manufacturing cost per package of 30 containers for expected production of 100,000 packages is as follows:
| Direct Material | $8.00 |
| Direct Labor | 3.50 |
| Overhead (fixed and variable) | 3.50 |
| Total | $15.00 |
The company has contacted a number of packaging suppliers to determine whether it is better to buy or manufacture the spray containers. The lowest quote for the containers is $1.90 per 30 units. It is estimated that purchasing the containers from a supplier will save 10 percent of direct materials, 20 percent of direct labor, and 15 percent of variable overhead. Curtis’s manufacturing space is highly constrained. By purchasing the spray containers, the company will not have to lease additional manufacturing space, which is estimated to cost $17,000 per year. If the containers are purchased, one supervisory position can be eliminated. Salary plus benefits for this position are $72,000.
Required
Should Curtis make or buy the containers? What is the incremental cost (benefit) of buying the containers as opposed to making them?
Problem 7-4
For most construction projects, Bradley Heating and Cooling buys sheet metal and forms the metal into heating/cooling ducts as needed. The company estimates the costs of making and installing ductwork for the Kerry Park shopping mall to be as follows
Material $35,000
Labor to form ductwork 4,000
Labor to install ductwork 10,000
Miscellaneous variable cost 1,500
Fixed costs allocated based on labor hrs 3,000
Total cost $53,000
The fixed costs relate to the company’s building, equipment, and office staff. The company plans to bill the Kerry Park developer $68,000 for services. Bradley is currently behind schedule on other projects and is paying a late penalty of $1,200 per day. Walt Bradley, the owner of Bradley Heating and Cooling, is considering ordering prefabricated ductwork for the Kerry Park job. The prefabricated ductwork will cost $42,000 (including the cost of sheet metal). If Walt buys the prefabricated ductwork, he’ll be able to reassign workers to another project and avoid five days of late fees.
Required Should Bradley make the ductwork or buy it prefabricated?
Problem 6-3
Binder Manufacturing produces small electric motors used by appliance manufacturers. In the past year, the company has experienced sever excess capacity due to competition from a foreign company that has entered Binder’s market. The company is currently budding on a potential order from Dacon Appliances, for 6,000 Model 350 motors. The estimated cost of each motor is $45, as follows:
Direct material $25
Direct Labor 5
Overhead 15
Total $45
The predetermined overhead rate is $3 per direct labor dollar. This was estimated by dividing estimated annual overhead ($15,000,000) by estimated annual direct labor ($5,000,000). The $15,000,000 of overhead is composed of $6,000,000 of variable costs and $9,000,000 of fixed costs. The largest fixed cost relates to depreciation of plan and equipment.
Required
- With respect to overhead, what is the opportunity cost of producing a Model 350 motor?
- Suppose Binder can win the Dacon business by bidding a price of $39 per motor (but no higher price will result in a winning bid). Should Binder bid $39?
- Discuss how an allocation of overhead based on opportunity cost would facilitate an appropriate bidding decision.
Problem 6-12
The Cheesecake Shoppe is a national bakery that is known for its strawberry cheesecake. IT makes 12 different kinds of cheesecake as well as many other types of bakery items. It has recently adopted an activity-based costing system to assign manufacturing overhead to products. The following data relate to its strawberry cheesecake and the ABC cost pools:
Strawberry Cheesecake:
Annual production 19,500 units
Direct materials per unit $10
Direct labor per unit $2
| Cost Pool | Cost | Cost Driver |
| Materials ordering | $72,000 | Number of purchase orders |
| Materials inspection | 75,000 | Number of receiving reports |
| Equipment setup | 105,000 | Number of setups |
| Quality control | 69,000 | Number of inspections |
| Other | 100,000 | Direct labor costs |
| Total manufacturing overhead | $421,000 |
Annual activity information related to cost drivers:
| Cost Pool | All Products | Strawberry Cheesecake |
| Materials ordering | 8,000 orders | 100 |
| Materials inspection | 375 receiving reports | 60 |
| Equipment setup | 3,000 setups | 30 |
| Quality control | 3,000 inspections | 150 |
| Other | $2,000,000 direct labor | $39,000 |
Required
- Calculate the overhead rate per unit of activity for each of the five cost pools.
- Calculate the total overhead assigned to the production of the strawberry cheesecake.
- Calculate the overhead cost per unit for the strawberry cheesecake. Round to three decimal places.
- Calculate the total unit cost for the strawberry cheesecake. Round to three decimal places.
- Suppose that the Cheesecake Shoppe allocates overhead by a traditional production volume-based method using direct labor dollars as the allocation base and one cost pool. Determine the overhead rate per direct labor and the per unit overhead assigned to the strawberry cheesecake. Discuss the difference in cost allocations between the traditional method and the activity-based costing approach. Round to three decimal places.
Problem 6-13
Tannhauser Financial is a banking services company that offers many different types of checking accounts. It has recently adopted an activity-based costing system to assign costs to various types of checking accounts. The following data relate to one type of checking account, the many market checking account, and the ABC cost pools:
Total Number of Checking Accounts 221,750
Number of Money Market Accounts 60,000
Checking account cost pools:
| Cost Pool | Cost | Cost Driver |
| Returned check costs | $3,000,000 | Number of returned checks |
| Checking account reconciliation costs | 60,000 | Number of account reconciliation requests |
| New account setup | 780,000 | Number of new accounts |
| Copies of cancelled checks | 300,000 | Number of cancelled check copy requests |
| Website maintenance
(for online banking) |
225,000 | Per product group (type of checking account) |
| Total checking account costs | $4,365,000 |
Annual activity information related to cost drivers:
| Cost Pool | Cost | Money Market Checking |
| Returned check | 200,000 returned checks | 18,000 |
| Check reconciliation costs | 3,000 checking account reconciliations | 420 |
| New accounts | 60,000 new accounts | 20,000 |
| Cancelled check copy requests | 80,000 cancelled check copy requests | 50,000 |
| Website costs | 10 types of checking accounts | 1 |
Required
- Calculate the cost rate per cost driver activity for each of the five cost pools. Round to two decimal places.
- Calculate the total cost assigned to the money market checking account. Round to two decimal places.
- Suppose that Tannhauser Financial allocates overhead using the number of checking accounts as the allocation base and one cost pool. Determine the cost rate per checking account and the per account cost assigned to the money market checking account. Discuss the difference in cost allocations between this method and the activity-based costing approach.
Problem 7-10
Midwestern Sod Company produces two products, fescue grass and Bermuda grass:
| Fescue Grass | Bermuda Grass | |
| Selling price per square yard | $3.00 | $3.85 |
| Variable cost per square yard
(Water, fertilizer, maintenance) |
0.85 | 1.57 |
The company has 130,000 square yards of growing space available. IN the past year, the company dedicated 65,000 square yards to fescue and 65,000 square yards to Bermuda grass. Annual fixed costs are $130,000, which the company allocates to products based on relative growing space.
Martha Lopez, the chief financial officer of Midwestern Sod, has suggested that in the coming year, all 130,000 square yards should be devoted to Bermuda grass. The president vetoed her suggestion, saying, “I know that right now home construction is booming in our area, and we can sell all the grass we can produce, irrespective of what type. But you know a lot of developers really like that fescue grass, and I’d hate to disappoint them by not offering it.”
Required
What is the opportunity cost of the president’s decision to stick with both types of grass?
Need help with MBA 535 – Managerial Accounting (Homework Set 5) please:
Email us: support@accountingassignmentshelp.com
Chat with us