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Manufacturing overhead allocated
Problem 3 12A Contrasting ABC and Conventional Product Costs [LO2, LO3, LO4]
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Precision Manufacturing Inc. (PMI) makes two types of industrial component parts”the EX300 and the TX500. It annually produces 62,000 units of EX300 and 12,700 units of TX500. The company’s conventional 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:
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EX300
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TX500
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Total
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Direct materials
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$
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368,325
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$
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164,550
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$
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532,875
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Direct labor
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$
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122,000
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$
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43,500
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$
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165,500
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The company is considering implementing an activity based costing system that distributes all of its manufacturing overhead to four activities as shown below:
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Activity Cost Pool
(and Activity Measure)
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Manufacturing
Overhead
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Activity
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EX300
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TX500
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Total
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Machining (machine hours)
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$
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217,700
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92,000
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63,500
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155,500
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Setups (setup hours)
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170,100
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85
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320
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405
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Product level (number of products)
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92,150
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1
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1
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2
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General factory (direct labor dollars)
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66,200
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$
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122,000
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$
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43,500
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$
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165,500
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Total manufacturing overhead cost
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$
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546,150
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1 a.
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Compute the plantwide overhead rate that would be used in the company’s conventional cost system. (Round your answer to 2 decimal places.)
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Predetermined overhead rate
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$
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per DL$
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1 b.
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Using the plantwide rate, compute the unit product cost for each product.(Do not round intermediate calculations. Round your answers to 2 decimal places.)
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EX300
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TX500
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Unit product cost
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$
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$
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2 a.
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Compute the activity rate for each activity cost pool. (Round your answers to 2 decimal places.)
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Activity Cost Pools
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Activity Rate
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Machining
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$
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per MH
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Setups
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$
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per setup hr.
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Product level
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$
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per product
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General factory
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$
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per DL$
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2 b.
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Using the activity rates, compute the unit product cost for each product. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
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EX300
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TX500
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Unitproduct cost
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$
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$
Foundational 3 9
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Hickory Company manufactures two products”14,000 units of Product Y and 6,000 units of Product Z. The company uses a plantwide overhead rate based on direct labor hours. It is considering implementing an activity based costing (ABC) system that allocates all of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products Y and Z: (The total estimated overhead cost may not agree with the sum of allocated overhead costs to each product.)
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Activity Cost Pool
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Activity Measure
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Estimated Overhead Cost
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Expected Activity
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Machining
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Machine hours
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$
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209,000
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10,000
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MHs
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Machine setups
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Number of setups
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$
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171,100
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290
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setups
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Production design
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Number of products
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$
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93,000
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2
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products
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General factory
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Direct labor hours
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$
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259,000
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10,000
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DLHs
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Activity Measure
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Product Y
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Product Z
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Machining
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7,900
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2,100
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Number of setups
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50
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240
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Number of products
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1
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1
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Direct labor hours
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8,900
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1,100
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Required:
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Using the ABC system, how much total manufacturing overhead cost would be assigned to Product Y? (Round your intermediate calculations to 2 decimal places and final answers to the nearest dollar amount.)
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Total manufacturing overhead cost
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$
Foundational 3 3
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Hickory Company manufactures two products”14,000 units of Product Y and 6,000 units of Product Z. The company uses a plantwide overhead rate based on direct labor hours. It is considering implementing an activity based costing (ABC) system that allocates all of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products Y and Z: (The total estimated overhead cost may not agree with the sum of allocated overhead costs to each product.)
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Activity Cost Pool
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Activity Measure
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Estimated Overhead Cost
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Expected Activity
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Machining
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Machine hours
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$
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203,000
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10,000
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MHs
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Machine setups
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Number of setups
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$
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121,900
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230
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setups
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Production design
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Number of products
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$
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87,000
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2
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products
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General factory
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Direct labor hours
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$
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379,500
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15,000
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DLHs
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Activity Measure
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Product Y
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Product Z
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Machining
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7,300
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2,700
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Number of setups
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50
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180
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Number of products
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1
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1
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Direct labor hours
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9,500
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5,500
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Required:
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What is the activity rate for the Machining activity cost pool? (Round your answer to 2 decimal places.)
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Machining activity cost pool
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$ per MH
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