2 800000 batteries ordered with 4000 separate orders

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2. 800,000 batteries ordered with 4,000 separate orders. 3. Each SureStart requires 36 minutes of machine time for a total of 480,000 machine-hours. LongLife 1. Requires new design resources. 2. 400,000 batteries ordered with 6,000 separate orders. 3. 4,000 custom designs prepared. 4. Each LongLife requires 48 minutes of machine time for a total of 320,000 machine-hours.   Assigning Overhead to Products
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7-23 (a) (b) (a) × (b) Activity Cost Pools Activity Rate Activity ABC Cost Customer orders 452.00 $ 4,000 1,808,000 $ Design changes 760.00 - - Order size 6.50 480,000 3,120,000 Total 4,928,000 $ Overhead Cost for the SureStart (a) (b) (a) × (b) Activity Cost Pools Activity Rate Activity ABC Cost Customer orders 452.00 $ 6,000 2,712,000 $ Design changes 760.00 4,000 3,040,000 Order size 6.50 320,000 2,080,000 Total 7,832,000 $ Overhead Cost for the LongLife   Assigning Overhead to Products
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7-24 Let’s take a look at how Baxter Battery’s system works for just one of the 2,000 customers – Acme Auto Parts who placed a total of twelve orders. Note that the four orders for LongLifes required a design change. Orders 1. Eight orders for 60 SureStarts per order. 2. Four orders for 50 LongLifes per order. Machine-hours 1. The 480 SureStarts required 288 machine-hours. 2. The 200 LongLifes required 160 machine hours. Assigning Overhead to Customers
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7-25 Assigning Overhead to Customers (a) (b) (a) × (b) Activity Cost Pools Activity Rate Activity ABC Cost Customer orders 452.00 $ 12 5,424 $ Design changes 760.00 4 3,040 Order size 6.50 448 2,912 Customer relations 1,540.00 1 1,540 Total 12,916 $ Overhead Cost for Acme Auto Parts
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7-26   Prepare Management Reports SureStarts LongLifes Total Sales 31,300,000 $ 18,700,000 $ 50,000,000 $ Direct costs Direct material 9,000,000 6,000,000 15,000,000 Direct labor 7,000,000 5,000,000 12,000,000 Shipping 2,000,000 1,000,000 3,000,000 Product Margin Calculations The first step in computing product margins is to gather each product’s sales and direct cost data.
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7-27   Prepare Management Reports Product Margin Calculations The second step in computing product margins is to incorporate the previously computed  activity-based cost assignments  pertaining to each product. SureStarts LongLifes Total Sales 31,300,000 $ 18,700,000 $ 50,000,000 $ Direct costs Direct material 9,000,000 6,000,000 15,000,000 Direct labor 7,000,000 5,000,000 12,000,000 Shipping 2,000,000 1,000,000 3,000,000 ABC cost assignments Customer orders 1,808,000 2,712,000 4,520,000 Design changes 3,040,000 3,040,000 Order size 3,120,000 2,080,000 5,200,000
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7-28   Prepare Management Reports Product Margin Calculations The third step in computing product margins is to  deduct each product’s direct and indirect costs   from  sales. Sales 31,300,000 $ 18,700,000 $ Costs Direct material 9,000,000 $ 6,000,000 $ Direct labor 7,000,000 5,000,000 Shipping 2,000,000 1,000,000 Customer orders 1,808,000 2,712,000 Design changes 3,040,000 Order size 3,120,000 2,080,000 Total cost 22,928,000 19,832,000 Product margin 8,372,000 $ (1,132,000) $ SureStarts LongLifes
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7-29 SureStarts LongLifes Total Sales 31,300,000 $ 18,700,000 $ 50,000,000 $ Total costs 22,928,000 19,832,000 42,760,000 Product margins 8,372,000 $ (1,132,000) $ 7,240,000 $ Less costs not assigned to products: Customer relations 3,080,000 Other 6,160,000 Total 9,240,000 Ne t operating loss (2,000,000) $ Product Margin Calculations The product margins can be reconciled with the  company’s net operating income as follows:   Prepare Management Reports
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7-30 Product Margins Computed Using  the Traditional Cost System SureStarts LongLifes Total Sales 31,300,000 $ 18,700,000 $ 50,000,000 $ Direct costs Direct material
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