9000000 6000000 15000000 direct labor 7000000 5000000

Info icon This preview shows pages 30–38. Sign up to view the full content.

View Full Document Right Arrow Icon
9,000,000 6,000,000 15,000,000 Direct labor 7,000,000 5,000,000 12,000,000 The first step in computing product margins is to gather each product’s sales and direct cost data.
Image of page 30

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
7-31 Plantwide manufacturing overhead rate $14,000,000 800,000 MH = $17.50 per machine-hour = The second step in computing product margins is to  compute the plantwide overhead rate.  Production Department Indirect factory wages 6,000,000 $ Factory equipment depreciation 3,500,000 Factory utilities 2,500,000 Factory building lease 2,000,000 Total manufacturing overhead 14,000,000 $ Manufacturing Overhead Costs at Baxter Battery Machine-hours SureStarts (800,000 @ 0.60 hours) 480,000 LongLifes (400,000 @ 0.80 hours) 320,000 Total machine-hours 800,000 Product Margins Computed Using  the Traditional Cost System
Image of page 31
7-32 The third step in computing product margins is allocate manufacturing overhead to each product. Machine Overhead Overhead Hours Rate Allocated SureStarts 480,000 17.50 $ 8,400,000 $ LongLifes 320,000 17.50 5,600,000 Total overhead allocated to products 14,000,000 $ 480,000 hours × $17.50 per hour = $8,400,000 Product Margins Computed Using  the Traditional Cost System
Image of page 32

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
7-33 The fourth step is to actually compute the  product margins. Sales 31,300,000 $ 18,700,000 $ 50,000,000 $ Cost of goods sold Direct materials 9,000,000 $ 6,000,000 $ 15,000,000 $ Direct labor 7,000,000 5,000,000 12,000,000 Manufacturing overhead 8,400,000 24,400,000 5,600,000 16,600,000 14,000,000 41,000,000 Product margin 6,900,000 $ 2,100,000 9,000,000 Selling and administrative 11,000,000 Ne t operating loss (2,000,000) $ SureStarts LongLifes Total Shipping expenses 3,000,000 $ Marketing expenses 2,000,000 General administrative expenses 6,000,000 11,000,000 $ Product Margins Computed Using  the Traditional Cost System
Image of page 33
7-34 SureStarts LongLifes Product margins – traditional 6,900,000 $ 2,100,000 $ Product margins – ABC 8,372,000 (1,132,000) Change in reported margins 1,472,000 $ (3,232,000) $ The traditional cost system overcosts the SureStarts and reports a lower product margin for this product. The traditional cost system undercosts the LongLifes and reports a higher product margin for this product. Differences Between ABC and  Traditional Product Costs
Image of page 34

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
7-35 Differences Between ABC and  Traditional Product Costs Traditional costing allocates all manufacturing     overhead to products.  ABC costing only assigns     manufacturing overhead costs consumed by     products to those products.  There are three reasons why the reported product margins for the two costing systems differ from one another.
Image of page 35
7-36 Differences Between ABC and  Traditional Product Costs  Traditional costing allocates all manufacturing overhead costs using a volume-related allocation base. ABC costing also uses non-volume related allocation bases. There are three reasons why the reported product margins for the two costing systems differ from one another.
Image of page 36

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
7-37 Differences Between ABC and  Traditional Product Costs   Traditional costing disregards selling and     administrative expenses because they are     assumed to be period expenses. ABC costing     directly traces shipping costs to products and     includes nonmanufacturing overhead costs caused     by products in the activity cost pools that are     assigned to products.
Image of page 37
Image of page 38
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern