COST ACCOUNTING TEAM PROJECT



COST ACCOUNTING TEAM PROJECT

Question #1:

The Matador Company manufactures two products, Product X and Product Y. These require machining and assembly work.

The company has budgeted $130,890 in manufacturing Overhead costs for the upcoming year. They also budget they will produce 400 units of Product X and 1,200 units of Product Y. Overhead is currently assigned using the Overhead Vehicle of Direct-Labor Hours.

In addition, each product has the following Standards applied:

| |Product X |Product Y |

|Standard Hours per unit |0.70 hours |1.20 hours |

|Standard Material cost per unit |$10.70 |$16.70 |

The Standard labor rate is $16.00 per hour.

a) Calculate the applied (allocated) Overhead Rate for Product X and Product Y?

b) Calculate the total product cost (i.e. Cost of Goods) for Product X and Product Y (in other words, the value of each product when it is finished and put into Inventory)?

Question #2:

Management is questioning the pricing associated with each product. They are trying to determine which product should be promoted but they first want to have a better idea of the total costs associated with each product. To achieve this they have direct that Activity-Based Costing be applied to the manufacturing Overhead.

An ABC analysis of the budgeted Overhead costs has produced the following information:

|Activity |Cost Driver |Budgeted OH Cost |

|Machining |Number of setups |$13,570 |

|Purchasing |Number of Purchase Orders |$91,520 |

|Assembly |Direct-Labor Hours |$25,800 |

|Cost Driver |Budgeted Level of Cost Driver - Product X |Budgeted Level of Cost Driver - Product Y|

|Number of setups |100 |130 |

|Number of Purchase Orders |810 |1,270 |

|Direct-Labor Hours |280 |1,440 |

a) Determine the Predetermined Overhead Rate for each Cost Driver?

b) Calculate the total amount of Overhead that would be budgeted to Product X and Product Y using ABC costing?

c) Calculate the applied (allocated) Overhead Rate for Product X and Product Y using ABC costing?

d) Calculate the total product cost (i.e. Cost of Goods) for Product X and Product Y (in other words, the value of each product when it is finished and put into Inventory) using ABC costing?

Question #3:

Would the answers to Questions #1 and #2 affect your pricing and marketing decisions for the coming year? If not, then why. If so, then how (generally or strategically)?

(Please provide some thoughtful comments for this question. I expect to see some Graduate level responses).

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