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The author of the assignment "Activity Based Accounting and Managerial Accounting" provides information about the labor hours required for models. However, it does not state the number of units that are produced during the given labor hours. …

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Activity Based Accounting and Managerial Accounting

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Subject: Design & Technology
Type: Assignment
Level: Ph.D.
Pages: 3 (750 words)
Downloads: 4
Author: akoss

Extract of sample "Activity Based Accounting and Managerial Accounting"

This assignment considers that the minimum labor hours illustrated in Table 2 relate to the minimum units per month illustrated in Table 1. Based on this assumption the following is deducted:

Model Labor hour Labor hour Total Unit

Motor assembly Harness fitting Final assembly LH

FL 20 9 6 35 40

TL 12 4 4 20 150

HE 18 8 4 30 30

Labor cost = $35 * 4 = $ 140 per hour

Model Labor hour / Unit Labor cost / Unit ($)

FL 35/40 = 0.88 140 * 0.88 = 122.50

TL 150/20 = 0.13 140 * 0.13 = 18.67

HE 30/30 = 1 140 * 1 = 140

Calculation using per Unit

Cost calculation

Front-loaders Top loaders High-efficiency Total

Number of Units 300 503 100 903

Raw material /unit ($) 330 250 400

Labor cost/unit ($) 122.50 18.67 140.00

OH cost/unit ($) 554 554 554

Total cost/unit ($) 1,007 823 1,094

Profit / Loss calculation

FL TL HE

No. of units 300 503 100

Sales price/unit 500 380 650

Cost/unit 1,007 823 1,094

Revenue 150,00 191,140 65,000

Cost 302,100 413,969 109,400

Loss (150,100) (222,829) (44,400)

Question 2.

Front-loaders Top loaders High efficiency

Units: 300 503 100

Labor hours unknown unknown unknown

Total LH per model calculation

Model Units Total assembly LH

FL 300 (35/40) * 300 = 263

TL 503 (20/150) * 503 = 67

HE 100 (30/30) * 100 = 30

Front-loaders Top loaders High-efficiency Total

Units: 300 503 100 903

Labor hours 263 67 100 430

Total overhead: $500,000 / month

Overhead (OH) per LH: 500,000 / 430 = $1,163

Total OH 263*1163=305,869 67*1163=77,921 100*1163 = 116,300

OH/unit 1,020 155 1,163

Calculation using Overhead per Labor hour

Front-loaders Top loaders High-efficiency Total

Unit 300 503 100 903

Raw mat. /unit ($) 330 250 400

Labor cost/unit ($) 123 19 140

OH cost/unit ($) 1,020 155 1,163

Total cost/unit ($) 1,473 424 1,703

Sale/unit ($) 500 380 650

Revenue 150,000 191,140 65,000

Cost 441,900 213,272 170,300

Loss (291,900) (22,132) (105,300)

Front-loaders Top loaders High efficiency

Raw mat. /unit ($) 330 250 400

Labor cost/unit ($) 123 19 140

OH cost/unit ($) 1,020 155 1,163

Total cost/unit ($) 1,473 424 1,703

Answer: Most profitable is the Top loader; the cost takes to produce 1 unit is $424, which is the

lowest among the three models.

Answer: The current production plan is consistent; it produces the highest quantity (503 units) of a top loader. An alternative plan is not needed, but sales prices have to be increased or OH needs to be reduced.

Question 2a.

Cost locators Overhead Cost driver Total Overhead rate

Plant and equipment $250,000 Square feet 200,000 1.25$ / sqft

Management $140,00 Labor hours 57,000 2.46$ / LH

Purchasing $70,000 Purchase orders 1,890 37.04$ / order

Sales and shipping $40,000 Customer orders 105 380.95$ / order

Unit cost per model

Cost locator

Rate

Sq.ft

1.25

50,000

62,500

70,000

87,500

80,000

100,00

2.46

25,000

61,404

12,000

29,474

20,000

49,113

37.04

450

16,667

1,080

40,000

360

13,333

Customer orders

380.95

9,524

22,857

7,619

150,094

179,831

170,075

OH / Unit 500 358 1,701

Profit / Loss calculation

units

300

503

100

Raw mat/unit

330

250

400

labor/unit

123

140

OH/unit

500

358

1,701

Cost/unit

953

627

2,241

Sale/unit

500

380

650

Revenue

150,000

191,140

65,000

Cost

285,750

315,213

224,100

Loss

-135,750

-124,073

-159,100

FL TL HE

Overhead/unit using labor hour 1,020 155 1,163

Loss from operation using

labor hour method (291,900) (22,132) (105,300

Loss from operation using

cost locator method (135,750) (124,073) (159,100)

Question 2b.

The above calculations show losses. A new calculation is presented using the following production plan: front loader 500 units, top loader 1,200 units, and high-efficiency loader 400 units.

ABC allocation method

Units

500

1,200

400

Raw mat/unit

330

250

400

labor/unit

123

140

OH/unit

500

358

1,701

Cost/unit

953

627

2,241

Sale/unit

500

380

650

Revenue

250,000

456,000

260,000

Cost

476,250

752,000

896,400

Loss

-226,250

-296,000

-636,400

Labor hour allocation method

Labor cost ($/Labor hour)

140

Number of units

500

1200

400

Labor hour for Table 1

Units (Table 2)

150

Total LH

438

160

400

LH/Unit

0.88

0.13

1.00

Labor cost/unit

123

140

Overhead cost/labor hour

501

Overhead cost for total LH

219,298

80,201

200,501

Overhead/unit

439

501

Raw mat/unit

330

250

400

Labor cost/unit

123

140

Overhead cost/unit

439

501

Cost/unit

891

336

1041

sale/unit

500

380

650

Revenue

250,000

456,000

260,000

Cost

445,548

402,601

416,501

Losses

-195,548

53,399

-156,501

Comparison

Labor hour allocation method (195,548) 53,399 (156,501)

ABC allocation (226,250) (296,000) (636,400)

Question 2c

The ABC method uses fixed overhead for all cost locators, which makes overhead per unit fixed. It does not consider the influence of labor hours needed to manufacture different quantities of the same product (Harmon, n.d.).

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(“Part 1 A manufacturer of Washing Machines produces three models, Assignment”, n.d.)
Part 1 A manufacturer of Washing Machines produces three models, Assignment. Retrieved from https://studentshare.org/design-technology/1627352-part-1-a-manufacturer-of-washing-machines-produces-three-models-namely-a-front-loader-top-loader-and-a-high-efficiency-top-loader-these-three-machines-are-produced-on-the-same-production-line-with-three-stations-namely-motor-assembly-harness-fittin

(Part 1 A Manufacturer of Washing Machines Produces Three Models, Assignment)
Part 1 A Manufacturer of Washing Machines Produces Three Models, Assignment. https://studentshare.org/design-technology/1627352-part-1-a-manufacturer-of-washing-machines-produces-three-models-namely-a-front-loader-top-loader-and-a-high-efficiency-top-loader-these-three-machines-are-produced-on-the-same-production-line-with-three-stations-namely-motor-assembly-harness-fittin.

“Part 1 A Manufacturer of Washing Machines Produces Three Models, Assignment”, n.d. https://studentshare.org/design-technology/1627352-part-1-a-manufacturer-of-washing-machines-produces-three-models-namely-a-front-loader-top-loader-and-a-high-efficiency-top-loader-these-three-machines-are-produced-on-the-same-production-line-with-three-stations-namely-motor-assembly-harness-fittin.

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