Q1DC_1 - Horngren'S Financial And Managerial Accounting

Question

Harris Systems specializes in servers for workgroup, e-commerce, and ERP applications. The company’s original job costing system has two direct cost categories: direct materials and direct labor. Overhead is allocated to jobs at the single rate of \(22 per direct labor hour.

A task force headed by Harris’s CFO recently designed an ABC system with four activities. The ABC system retains the current system’s two direct cost categories. Overhead costs are reflected in the four activities. Pertinent data follow:

___________________________________________________________________

Activity                                Allocation Base                   Predetermined Overhead

                                                                                                   Allocation Rate____

Materials handling             Number of parts                                    \) 0.85

Machine setup                    Number of setups                                500.00

Assembling                         Number of assembling hours              80.00

Shipping                              Number of shipments                      1,500.00_______

 

Harris Systems has been awarded two new contracts, which will be produced as Job A and Job B. Budget data relating to the contracts follow:

____________________________________________________________

                                                                     Job A                             Job B__

Number of parts                                        15,000                            2,000

Number of setups                                              6                                   4

Number of assembling hours                    1,500                               200

Number of shipments                                        1                                  1

Total direct labor hours                              8,000                              600

Number of units produced                            100                                10

Direct materials cost                           \( 220,000                       \) 30,000

Direct labor cost                                  \( 160,000                       \) 12,000__

 

Requirements

1. Compute the budgeted product cost per unit for each job, using the original costing system (with two direct cost categories and a single overhead allocation rate).

Step-by-Step Solution

Answer

Budgeted Product Cost per unit

For Product A: $5,560

For Product B: $39,320

Step-by-Step-Solution Step 1: Budgeted product cost for Job A

$$\begin{gathered} \mathbf{Total}\mathbf{ }\mathbf{Indirect}\mathbf{ }\mathbf{Cost}\mathbf{=}\mathbf{Predetermined}\mathbf{ }\mathbf{single}\mathbf{ }\mathbf{overhead}\mathbf{ }\mathbf{allocation}\mathbf{ }\mathbf{rate}\mathbf{\times }\mathbf{No}\mathbf{.}\mathbf{of}\mathbf{ }\mathbf{direct}\mathbf{ }\mathbf{labor}\mathbf{ }\mathbf{haour} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{22}\mathbf{\times }\mathbf{8}\mathbf{,}\mathbf{000} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{176}\mathbf{,}\mathbf{000} \end{gathered}$$

$$\begin{gathered} \mathbf{Total}\mathbf{ }\mathbf{Budgeted}\mathbf{ }\mathbf{Cost}\mathbf{=}\mathbf{Budgeted}\mathbf{ }\mathbf{Direct}\mathbf{ }\mathbf{Material}\mathbf{ }\mathbf{Cost}\mathbf{+}\mathbf{Budgeted}\mathbf{ }\mathbf{Direct}\mathbf{ }\mathbf{Labor}\mathbf{ }\mathbf{Cost}\mathbf{+}\mathbf{Budgeted}\mathbf{ }\mathbf{Indirect}\mathbf{ }\mathbf{Cost} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{220}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{160}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{176}\mathbf{,}\mathbf{000} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{556}\mathbf{,}\mathbf{000} \\ \begin{array}{c}\mathbf{Budgeted}\mathbf{ }\mathbf{Product}\mathbf{ }\mathbf{Cost}\mathbf{ }\mathbf{perunit}\mathbf{=}\frac{\mathbf{Total}\mathbf{ }\mathbf{Budgeted}\mathbf{ }\mathbf{Cost}}{\mathbf{Total}\mathbf{ }\mathbf{number}\mathbf{ }\mathbf{of}\mathbf{ }\mathbf{units}\mathbf{ }\mathbf{produced}}\\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\frac{\mathbf{\$}\mathbf{556}\mathbf{,}\mathbf{000}}{\mathbf{100}}\\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{5}\mathbf{,}\mathbf{560}\end{array} \end{gathered}$$

Step 2: Budgeted product cost for Job B

$$\begin{gathered} \mathbf{Total}\mathbf{ }\mathbf{Indirect}\mathbf{ }\mathbf{Cost}\mathbf{=}\mathbf{Predetermined}\mathbf{ }\mathbf{single}\mathbf{ }\mathbf{overhead}\mathbf{ }\mathbf{allocation}\mathbf{ }\mathbf{rate}\mathbf{\times }\mathbf{No}\mathbf{.}\mathbf{of}\mathbf{ }\mathbf{directlabor}\mathbf{ }\mathbf{haour} \\ \begin{array}{c}\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{22}\mathbf{\times }\mathbf{600}\\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{13}\mathbf{,}\mathbf{200}\end{array} \end{gathered}$$

$$\begin{gathered} \mathbf{Total}\mathbf{ }\mathbf{Budgeted}\mathbf{ }\mathbf{Cost}\mathbf{=}\mathbf{Budgeted}\mathbf{ }\mathbf{Direct}\mathbf{ }\mathbf{Material}\mathbf{ }\mathbf{Cost}\mathbf{+}\mathbf{Budgeted}\mathbf{ }\mathbf{Direct}\mathbf{ }\mathbf{Labor}\mathbf{ }\mathbf{Cost}\mathbf{+}\mathbf{Budgeted}\mathbf{ }\mathbf{Indirect}\mathbf{ }\mathbf{Cost} \\ \begin{array}{c}\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{220}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{160}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{13}\mathbf{,}\mathbf{200}\\ \mathbf{=}\mathbf{\$}\mathbf{393}\mathbf{,}\mathbf{200}\\ \end{array} \end{gathered}$$

$$\begin{gathered} \mathbf{Budgeted}\mathbf{ }\mathbf{Product}\mathbf{ }\mathbf{Cost}\mathbf{ }\mathbf{per}\mathbf{ }\mathbf{unit}\mathbf{=}\frac{\mathbf{Total}\mathbf{ }\mathbf{Budgeted}\mathbf{ }\mathbf{Cost}}{\mathbf{Total}\mathbf{ }\mathbf{number}\mathbf{ }\mathbf{of}\mathbf{ }\mathbf{units}\mathbf{ }\mathbf{produced}} \\ \begin{array}{c}\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\frac{\mathbf{\$}\mathbf{393}\mathbf{,}\mathbf{200}}{\mathbf{10}}\\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{39}\mathbf{,}\mathbf{320}\end{array} \end{gathered}$$