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Assignment 3

The document provides an accounting and finance assignment for managers that includes two multi-part questions. 1. The first question asks students to: a) calculate the predetermined overhead rate and unit product costs for two models using direct labor hours, and b) calculate activity rates and unit product costs for the two models using four activity cost pools. It also asks students to c) identify a possible explanation for the company's declining profits. 2. The second question asks students to: a) determine if a part should be made or bought based on provided manufacturing costs, and b) determine if the part should be purchased assuming the unused capacity can be rented or used to make another profitable product.

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solomon adamu
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42 views

Assignment 3

The document provides an accounting and finance assignment for managers that includes two multi-part questions. 1. The first question asks students to: a) calculate the predetermined overhead rate and unit product costs for two models using direct labor hours, and b) calculate activity rates and unit product costs for the two models using four activity cost pools. It also asks students to c) identify a possible explanation for the company's declining profits. 2. The second question asks students to: a) determine if a part should be made or bought based on provided manufacturing costs, and b) determine if the part should be purchased assuming the unused capacity can be rented or used to make another profitable product.

Uploaded by

solomon adamu
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Maryland International College

School of Graduate Studies

Accounting and Finance for Managers Assignment


----------------------------------------------------------------------------------------------------------------

Full Name (including your Grandfather’s name):……………………………………

General Instruction

1. Cheating is strictly forbidden.


2. Submission deadline: October 21/2021
3. Send your answers via the email: micmbaafm@gmail.com

Maryland International College Page 1


1. Weston Corporation manufactures a product that is available in both a deluxe and a regular
model. The company has made the regular model for years; the deluxe model was introduced
several years ago to tap a new segment of the market. Since introduction of the deluxe model,
the company’s profits have steadily declined. Sales of the deluxe model have been increasing
rapidly. Overhead is applied to products on the basis of direct labor-hours. At the beginning of
the current year, management estimated that $3,080,000 in overhead costs would be incurred
and the company would produce and sell 10,000 units of the deluxe model and 50,000 units of
the regular model. The deluxe model requires 2.0 hours of direct labor time per unit, and the
regular model requires 1.0 hours. Materials and labor costs per unit are given below:
Deluxe Regular
Direct materials cost per unit $50.00 $30.00
Direct labor cost per unit $30.00 $15.00

Required:
a. Compute the predetermined overhead rate using direct labor-hours as the basis for allocating
overhead costs to products. Compute the unit product cost for one unit of each model. An intern
suggested that the company use activity-based costing to cost its products. A team was formed
to investigate this idea. . It came back with the recommendation that four activity cost pools be
used. These cost pools and their associated activities are listed below:
Activity Cost Pool and Activity Estimated Activity
Measure Overhead cost
Deluxe Regular Total
Purchase orders (number of orders) $ 60,000 500 1,000 1,500

Rework requests (number of requests) 280,000 800 2,000 2,800


240,000 7,000 3,000 10,000
Product testing (number of tests)
Machine-related (machine-hours) 2,500,000 4,500 8,000 12,500

$3,080,000

Required:

b. Compute the activity rate (i.e., predetermined overhead rate) for each of the activity cost pools.
c. Assume that actual activity is as expected for the year. Using activity-based costing, do the
following: I. Determine the total amount of overhead that would be applied to each model for
the year.
II. Compute the unit product cost for one unit of each model.
d. Can you identify a possible explanation for the company’s declining profits? If so, what is it?

Maryland International College Page 2


2. Great Company manufactures 60, 000 units of part XL-40 each year for use on its production
line. The following are the costs of making part XL-40:
Total Cost per
Costs 60, 000 unit
units
Direct material Br.8
Br. 480, 000
Direct labor 360, 000 6
Variable factory overhead 180, 000 3
(FOH)
Fixed FOH 360, 000 6
Total manufacturing costs Br. 1, 380, 000 Br.23

Another manufacturer has offered to sell the same part to Great for Br.21 each. The fixed overhead
consists of depreciation, property taxes, insurance, and supervisory salaries. The entire fixed
overhead would continue if the Great Company bought the component except that the cost of Br.
120, 000 pertaining to some supervisory and custodial personnel could be avoided.

Instructions:

a. Should the parts be made or bought? Assume that the capacity now used to make parts
internally will become idle if the pats are purchased?
b. Assume that the capacity now used to make parts will be either (i) be rented to nearby
manufacturer for Br. 60, 000 for the year or (ii) be used to make another product that will yield
a profit contribution of Br. 250,000 per year. Should the company purchase them from the
outside supplier?

Maryland International College Page 3

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