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[solution] » I only have 2 more hours to get this done. Must show work, anyone interested? Accounting


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I only have 2 more hours to get this done. Must show work, anyone interested?

Accounting


4. (25 points) Natalie Corp. manufactures three models of their product-Version A,

 

Version B, and Version C. Natalie currently allocates manufacturing overhead costs

 

to the three model lines based on direct labor costs (a version of traditional

 

absorption costing), and selling prices are set by computing prices that provide for a

 

30% margin over computed product costs per unit. Cost and revenue information

 

follow:

 

Version A

 

Version B Version C

 

Direct materials

 

$14,000

 

$ 19,000

 

$27,000

 

Direct labor

 

15,000

 

21,000

 

30,000

 

Overhead allocated

 

47,727

 

66,818

 

95,455

 

Total cost

 

$76,727

 

$106,818

 

$152,455

 

Units

 

3,000

 

5,000

 

9,000

 

Cost per unit

 

$25.58

 

$21.36

 

$16.94

 

Selling price per unit

 

$33.25

 

$27.77

 

$22.02

 

Natalie is concerned that profits are not as high as they could be. Natalie is considering

 

implementation of an activity-based costing (ABC) system. Overhead costs have been

 

categorized into three cost pools for ABC purposes: Setup costs would be allocated

 

using setups as the allocation base, engineering costs would be allocated using number

 

of components as the allocation base, and Maintenance costs would be allocated using

 

the number of Maintenance calls as the allocation base. The following activity and cost

 

information has been compiled:

 

Version A

 

Version B

 

Version C

 

Direct labor hours

 

1200

 

2000

 

3100

 

Setups

 

36

 

23

 

21

 

Number of components

 

25

 

15

 

10

 

Number of Maintenance calls

 

150

 

180

 

220

 

Costs:

 

Setups

 

$ 45,000

 

Engineering

 

100,000

 

Maintenance

 

65,000

 

Total overhead

 

$210,000

 

a. Allocate the overhead costs to the three models using activity-based costing and

 

compute the cost per unit for each model. b. Provide a possible explanation for why allocating costs based on direct labor

 

costs may have led to the company?s overall lack of profitability. c. Explain one benefit (simply ?more accurate? is not sufficient) and one drawback

 

or downside of activity-based costing in comparison with traditional absorption

 

costing.

 


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Sep 21, 2019

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