Reference no: EM132815323
'See. I told you we made a good decision by introducing the Business and Deluxe chairs Look at the profits generated by the two chairs that we are selling at a premium " These were the words of Linda Badger, CEO of Badger Chair Company (BCC) However. Steve Radcliffe. the VP of operations, did not echo her enthusiasm. "Linda. I must say my people on the shop floor are not too happy with the accounting report They are still unable to believe that the Business and Deluxe chairs made money According to them the production of these chairs created nothing but problems '
Question 1:
Badger Chair Company makes four different types of chairs' Regular. Standard, Business, and Deluxe The latter two types of chairs were introduced in 2022 The production and sales of each type of chair were as follows during the last two years
Regular Standard Business Deluxe
2021 25 000 25 000
2022 20.000 20.000 5 000 5.000
Price (2022) S 37.8 $ 45.8 S 70 8 $ 98
BCC uses a normal costing system wherein it traces direct material and direct labour costs to the individual products and allocates overhead costs by applying predetermined departmental overhead rates to the actual volume of the allocation base pertaining to each department For 2022 the following overhead costs were estimated in each of the two departments
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Machining department
Assembly department
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Estimated Overhead Cost and Activity Level
S 584,000 (206,000 machine-hours)
S 641,200 (349,000 direct labour-hours)
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Consider the following information regarding the actual consumption of resources by each of the four products in 2022
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Machine-hours
Direct labour-hours Prime costs (per trait)
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Regular Standard Business Deluxe
91.000 82.000 18.000 15.000
130.000 150.000 30,000 39,000
S 18 S 25 8 S 37 8 S 42 8
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Required:
1. Compute the profitability of each type of chair (please show all the computational steps)
2. In late 2022. Linsey Lindsay. the chief cost accountant. attended a week-long workshop entitled -Advanced Cost Management Methods" offered at a local university. One particular concept she caught on to was activity-based costing. which she decided to implement She found that the total overhead of $1.225.200 consisted of five cost items and six different activities. Upon further analysis. she determined the proportions in which four of the five cost items were consumed by the six activities (facility-level costs are not to be allocated to the activities)
Question 2:
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Indirect
Labour Engineering
Salaries and Salaries and Administrative
Benefits Benefits Utilities Depreciation Costs
($274,000) ($334,000) ($216,000) (5169.200) (5232,000)
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Machining 20% 10% 35% 40% N/A
Assembly 20% 10% 40% 40% N/A
Machine setup 40% N/A
Engineering 45% N/A
Production planning 25% N/A
Maintenance 20% 10% 25% 20% N/A
100% 100% 100% 100%
She further determined the following consumption of resources across the four products:
Regular Standard Business Deluxe Total
Number of batches 8 10 20 25 63
Setup time per batch 1.5 1 0 2 0 3.0
Machine-hours 91,000 82.000 18.000 15,000 206,000
Labour-hours 130,000 150.000 30,000 39,000 349,000
Maintenance calls 40 32 20 18 110
Maintenance-hours 236 210 198 176 820
Engineering-hours 166 156 112 136 570
2-a Prepare a table listing the different activities, costs associated with each activity, the appropriate allocation base and the allocation rate for each activity.
2-b Using the above activity rates, assign the costs to each of the four types of chairs and determine their profitability. For simplicity, assign the facility-level costs equally among the four products.
Question 3: Compute the profitablity of each type of chair (please show all the computational steps). (Negative values should be indicated by a minus sign. Round predetermined overhead rate to 2 decimal places. Round "Price", "Prime costs" "Gross margin%" answers to 1 decimal place and "Gross margin/unit" answers to 2 decimal places.)
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Sales (units)
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Price
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Prime costs
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Sales revenue
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Prime costs
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Overhead costs
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Total costs
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Gross margin
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Gross margin/unit
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Gross margin %
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%
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%
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%
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Question 4: Prepare a table listing the different activities, costs associated with each activity, the appropriate allocation base and the allocation rate for each activity. (Round "Activity Rate" answers to 2 decimal places.)
Question 5: Using the above activity rates, assign the costs to each of the four types of chairs and determine their profitability. For simplicity, assign the facility-level costs equally among the four products. (Negative values should be indicated by a minus sign. Round your intermediate calculations to nearest whole dollar amount. Round "Price", "Prime costs" "Gross marginWo" answers to 1 decimal place and "Gross margin/unit" answers to 2 decimal places.)
Attachment:- accounts assignment.zip