Marine, Inc., manufactures a product that is available in both a flexible and a rigid model. The company has made the rigid model for years; the flexible model was introduced several years ago to tap a new segment of the market.

Marine, Inc., manufactures a product that is available in both a flexible and a rigid model. The company has made the rigid model for years; the flexible model was introduced several years ago to tap a new segment of the market. Since introduction of the flexible model, the company’s profits have steadily declined, and management has become concerned about the accuracy of its costing system. Sales of the flexible model have been increasing rapidly.

Overhead is applied to products on the basis of direct labor-hours. At the beginning of the current year, management estimated that $600,000 in overhead costs would be incurred and the company would produce and sell 1,000 units of the flexible model and 10,000 units of the rigid model. The flexible model requires 2.0 hours of direct labor time per unit, and the rigid model requires 1.0 hours. Direct materials and labor costs per unit are given below:

  

	Flexible		Rigid
Direct materials cost per unit	$	110.00	$	80.00
Direct labor cost per unit	$	30.00	$	15.00

   

Required:
1-a.	Compute the predetermined overhead rate using direct labor-hours as the basis for allocating overhead costs to products.

1-b.	Compute the unit product cost for one unit of each model.

2.	An intern suggested that the company use activity-based costing to cost its products. A team was formed to investigate this idea. It came back with the recommendation that four activity cost pools be used. These cost pools and their associated activities are listed as follows:

			Expected Activity
Activity Cost Pool and Activity Measure	Estimated Overhead Cost		Flexible	Rigid	Total
Purchase orders (number of orders)	$	20,000	100	300	400
Rework requests (number of requests)		10,000	60	140	200
Product testing (number of tests)		210,000	900	1,200	2,100
Machine related (machine-hours)		360,000	1,500	2,500	4,000
	$	600,000

     

Compute the activity rate for each of the activity cost pools.

3.	Using activity-based costing, do the following:

a.	Determine the total amount of overhead that would be assigned to each model for the year.

b.	Compute the unit product cost for one unit of each model. (Round your answers to 2 decimal places.)

Gino’s Restaurant is a popular restaurant in Boston, Massachusetts. The owner of the restaurant has been trying to better understand costs at the restaurant and has hired a student intern to conduct an activity-based costing study.

Gino’s Restaurant is a popular restaurant in Boston, Massachusetts. The owner of the restaurant has been trying to better understand costs at the restaurant and has hired a student intern to conduct an activity-based costing study. The intern, in consultation with the owner, identified the following major activities:

Activity Cost Pool	Activity Measure
Serving a party of diners	Number of parties served
Serving a diner	Number of diners served
Serving drinks	Number of drinks ordered

A group of diners who ask to sit at the same table is counted as a party. Some costs, such as the costs of cleaning linen, are the same whether one person is at a table or the table is full. Other costs, such as washing dishes, depend on the number of diners served.

  

Data concerning these activities are shown below.

   

	Serving a Party		Serving a Dinner		Serving Drinks		Total
Total cost	$32,800		$211,200		$69,600		$313,600
Total activity	8,000	parties	32,000	diners	58,000	drinks

Prior to the activity-based costing study, the owner knew very little about the costs of the restaurant. She knew that the total cost for the month was $313,600 and that 32,000 diners had been served. Therefore, the average cost per diner was $9.80 ($313,600 ÷ 32,000 diners = $9.80 per diner).

Required:

1.

Compute the activity rates for each of the three activities. (Round your answers to 2  decimal places.) 2. According to the activity-based costing system, what is the total cost of serving each of the following parties of diners? (Do not round intermediate calculations. Round your final answers to 2 decimal places.)     a. A party of four diners who order three drinks in total. b. A party of two diners who do not order any drinks. c. A lone diner who orders two drinks. 3. Convert the total costs you computed in part (1) above to costs per diner. In other words, what is the average cost per diner for serving each of the following parties? (Do not round intermediate calculations. Round your final answers to 2 decimal places.)     a. A party of four diners who order three drinks in total. b. A party of two diners who do not order any drinks. c. A lone diner who orders two drinks.

Mitchell Corporation manufactures a variety of products in a single facility. Consultants hired by the company to do an activity-based costing analysis have identified the following activities carried out in the company on a routine basis:

Mitchell Corporation manufactures a variety of products in a single facility. Consultants hired by the company to do an activity-based costing analysis have identified the following activities carried out in the company on a routine basis:

 

Required:
1.	Classify each of the above activities as a unit-level, batch-level, product-level, or facility-level activity. (Hint: Some activities may be classified under more than one level.)
2.	For each of the above activities, suggest an activity measure that could be used to allocate its costs to products

Superior Company provided the following account balances for the year ended December 31 (all raw materials are used in production as direct materials):

Superior Company provided the following account balances for the year ended December 31 (all raw materials are used in production as direct materials):

Selling expenses	$	140,000
Purchases of raw materials	$	290,000
Direct labor		?
Administrative expenses	$	100,000
Manufacturing overhead applied to work in process	$	285,000
Total actual manufacturing overhead costs	$	270,000

Inventory balances at the beginning and end of the year were as follows:

  

	Beginning of Year			End of Year
Raw materials	$	40,000		$	10,000
Work in process		?		$	35,000
Finished goods	$	50,000			?

The total manufacturing costs for the year were $683,000; the cost of goods available for sale totaled $740,000; the unadjusted cost of goods sold totaled $660,000; and the net operating income was $30,000. The company’s overapplied or underapplied overhead is closed entirely to Cost of Goods Sold.

Required:

a.	Prepare a schedule of cost of goods manufactured.

Explanation:

c.

Cost of goods sold ($660,000 – $15,000) = $645,000

Leeds Architectural Consultants began operations on January 2. The following activity was recorded in the company’s Work in Process account for the first month of operations:

Leeds Architectural Consultants began operations on January 2. The following activity was recorded in the company’s Work in Process account for the first month of operations:

 
 

Work in Process

Costs of subcontracted work	90,000		To completed projects	501,400
Direct staff costs	198,000
Studio overhead	257,400

  

Leeds Architectural Consultants is a service firm, so the names of the accounts it uses are different from the names used in manufacturing companies. Costs of Subcontracted Work is comparable to Direct Materials; Direct Staff Costs is the same as Direct Labor; Studio Overhead is the same as Manufacturing Overhead; and Completed Projects is the same as Finished Goods. Apart from the difference in terms, the accounting methods used by the company are identical to the methods used by manufacturing companies.

  

Leeds Architectural Consultants uses a job-order costing system and applies studio overhead to Work in Process on the basis of direct staff costs. At the end of January, only one job was still in process. This job (Lexington Gardens Project) had been charged with $13,600 in direct staff costs.

  

Required:
1.	Compute the predetermined overhead rate that was in use during January.

Explanation:

1.

Because $257,400 of studio overhead cost was applied to Work in Process on the basis of $198,000 of direct staff costs, the apparent predetermined overhead rate was 130%:

 
 

Studio overhead applied	=	$257,400	= 130% rate
Direct staff costs incurred		$198,000

 
2.

The Lexington Gardens Project is the only job remaining in Work in Process at the end of the month; therefore, the entire $44,000 balance in the Work in Process account at that point must apply to it. Recognizing that the predetermined overhead rate is 130% of direct staff costs, the following computation can be made:

 
 

Total cost added to the Lexington Gardens Project		$44,000
Less: Direct staff costs	$13,600
Studio overhead cost
($13,600 × 130%)	17,680	31,280
Costs of subcontracted work		$12,720