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Armoires so debbie can submit a contract price per

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armoires so Debbie can submit a contract price per armoire to Thom’s. He accumulatesthe following data for the production of 12 armoires.Direct materials$5,200Direct labor$3,500Direct labor hours200Number of purchase ordersNumber of material moves32Number of machine setupsNumber of inspections20Number of components640Number of square feet occupied320Instructions(a) Compute the predetermined overhead rate using traditional costing with materialscost as the basis.(b) What is the manufacturing cost per armoire under traditional costing?(c) What is the manufacturing cost per armoire under the proposed activity-based costing?34
(Prepare all of the necessary schedules.)(d)Which of the two costing systems is preferable in pricing decisions and why?P4-4BMerando Corporation produces two grades of wine from grapes that it buys fromCalifornia growers. It produces and sells roughly 600,000 gallon jugs per year of a low-cost,high-volume product called Valley Fresh. Merando also produces and sells roughly 200,000gallons per year of a low-volume, high-cost product called Merando Valley.Merando Valleyis sold in 1-liter bottles. Based on recent data, the Valley Fresh product has not been asprofitable as Merando Valley. Management is considering dropping the inexpensive ValleyFresh line so it can focus more attention on the Merando Valley product. The MerandoValley product already demands considerably more attention than the Valley Fresh line.Frankie Merando, president and founder of Merando, is skeptical about this idea. Hepoints out that for many decades the company produced only the Valley Fresh line, andthat it was always quite profitable. It wasn’t until the company started producing the morecomplicated Merando Valley wine that the profitability of Valley Fresh declined. Prior tothe introduction of Merando Valley, the company had simple equipment, simple growingand production procedures, and virtually no need for quality control. Because MerandoValley is bottled in 1-liter bottles, it requires considerably more time and effort, both tobottle and to label and box, than does Valley Fresh. The company must bottle and handle4 times as many bottles of Merando Valley to sell the same quantity as Valley Fresh, sincethere are approximately 4 liters in a gallon. Valley Fresh requires 1 month of aging;Merando Valley requires 1 year. Valley Fresh requires cleaning and inspection of equip-ment every 2,500 gallons; Merando Valley requires such maintenance every 250 gallons.Frankie has asked the accounting department to prepare an analysis of the cost pergallon using the traditional costing approach and using activity-based costing. The follow-ing information was collected.Assign overhead costs usingtraditional costing and ABC;compare results.(L0 1, 2), ANValley FreshMerando ValleyDirect materials per gallon$1.35$3.60Direct labor cost per gallon$0.75$1.50Direct labor hours per gallon0.050.10Total direct labor hours30,00020,000ExpectedExpected UseUse ofof Cost DriversEstimatedCostper ProductActivity Cost PoolCost DriverOverheadDriversValley FreshMerando ValleyGrape processingCart of grapes$146,0008,0006,000AgingTotal months420,0003,000,000600,0002,400,000Bottling andNumber ofcorkingbottles210,0001,400,000600,000800,000Labeling andNumber ofboxing2,000

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Term
Spring
Professor
SKENDER

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