precision manufacturing inc pmi makes two types of industrial component parts the ex 647009
Aug 30, 2021 | Uncategorized
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Precision Manufacturing Inc. (PMI) makes two types of industrial component parts—the EX300 and the TX500. An absorption costing income statement for the most recent period is shown below:
|
Precision Manufacturing Inc.
Income Statement |
| Sales |
$ |
1,693,400 |
| Cost of goods sold |
|
1,212,924 |
|
|
|
| Gross margin |
|
480,476 |
| Selling and administrative expenses |
|
550,000 |
|
|
|
| Net operating loss |
$ |
(69,524) |
|
|
|
|
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PMI produced and sold 60,100 units of EX300 at a price of $20 per unit and 12,600 units of TX500 at a price of $39 per unit. The company’s traditional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base.
Additional information relating to the company’s two product lines is shown below:
|
|
EX300 |
TX500 |
Total |
| Direct materials |
$ |
400,300 |
$ |
162,500 |
$ |
562,800 |
| Direct labor |
$ |
120,200 |
$ |
42,200 |
|
162,400 |
| Manufacturing overhead |
|
|
|
|
|
487,724 |
|
|
|
|
|
|
|
| Cost of goods sold |
|
|
|
|
$ |
1,212,924 |
|
|
|
|
|
|
|
|
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The company has created an activity based costing system to evaluate the profitability of its products. PMI’s ABC implementation team concluded that $57,000 and $109,000 of the company’s advertising expenses could be directly traced to EX300 and TX500, respectively. The remainder of the selling and administrative expenses was organization sustaining in nature. The ABC team also distributed the company’s manufacturing overhead to four activities as shown below:
|
|
Manufacturing |
Activity
|
| Activity Cost Pool (and Activity Measure) |
Overhead |
EX300 |
TX500 |
Total |
| Machining (machine hours) |
$ |
202,224 |
90,400 |
62,800 |
153,200 |
| Setups (setup hours) |
|
123,200 |
78 |
230 |
308 |
| Product sustaining (number of products) |
|
101,800 |
1 |
1 |
2 |
| Other (organization sustaining costs) |
|
60,500 |
NA |
NA |
NA |
|
|
|
|
|
|
| Total manufacturing overhead cost |
$ |
487,724 |
|
|
|
|
|
|
|
|
|
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| 1. |
Compute the product margins for the EX300 and TX500 under the company’s traditional costing system.(Loss amounts should be indicated with a minus sign. Do not round intermediate calculations. Round your final answers to the nearest dollar amount. Omit the “$” sign in your response.)
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