ATTACHMENT PREVIEW

Accounting
Instructor:
Class: MBAOUM1112
Student name: Pham Nguyen Khang
Summarize:
Two product range: the standard range and the special range.
During July, 300 standard windows and 50 specialized windows were manufactured and
indirect production costs of \$73,000 were incurred
Activity
Cost driver
Total cost
Materials handling
Number of requisitions
\$25,000
Machine set-ups
Number of set-ups
\$27,000
Quality inspections
Number of inspections
\$21,000
Cost driver
Specialized
Standard
Total
Number of requisitions
400
600
1,000
Number of set-ups
150
300
450
Number of inspections
200
400
600
Question a: Calculate the indirect activity cost rate for each activity

Indirect activity cost rate for materials handling = Total materials handling cost /
Total number of requisition = \$25,000 / 1,000 =
\$25

Indirect activity cost rate for machine set-ups = Total Machine set-ups cost / Total
number of requisition = \$27,000 / 450 =
\$60

Indirect activity cost rate for quality inspections = Total quality inspections cost /
Total number of requisition = \$21,000 / 600 =
\$35
Question b: Allocate the indirect manufacturing overhead costs for July to the
products using activity cost rates calculated in (a) above
Cost driver
Indirect
activity cost
rate
Specialized
Total
activity
cost
Standar
d
Total
activity
cost
Number of requisitions
\$25
400
\$10,000
600
\$15,000
Number of set-ups
\$60
150
\$9,000
300
\$18,000
Number of inspections
\$35
200
\$7,000
400
\$14,000
\$26,000
\$47,000
c. Write a memo to the managing director of Dat Minh Company explaining the benefits of
activity-based costing

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Accounting
Instructor:
Class: MBAOUM1112
Student name: Pham Nguyen Khang
d. “Volume-based cost drivers are no longer appropriate in today’s business environment”.
Discuss
Thang Loi Company has the capacity to manufacture 50,000 units annually of its only
product. The following information is available.
Selling price
\$26 per unit
Variable manufacturing costs
\$12 per unit
Fixed manufacturing costs
\$180,000 annually
Fixed selling and
\$120,000 annually
Variable selling and
\$ 4 per unit
a. Calculate the number of units that need to be sold annually to break even?
Breakeven point in unit = Fixed manufacturing costs / (Selling price – Variable
manufacturing cost) = 180,000 / (26 – 12) = 12857.142
units
b. How many units would need to be sold to earn a target annual profit of
\$120,000?
Breakeven point in unit = Fixed manufacturing costs + target annual profit / (Selling
price – Variable manufacturing cost) = (180,000 + 120,000) / (26 – 12) = 21,428.571
units
c. In an attempt to achieve better results in the marketplace, management has
been looking at changing the reward systems for marketing, distribution and
sales personnel. This would result in an increase in variable selling and
administrative costs by \$2 per unit, and would reduce fixed selling and
i. Calculate the number of units required to break even if management
implemented the changes
Sale
\$26 * 50,000
\$1,300,000
Variable costs
\$12 * 50,000
\$600,000
Contribution margin
\$700,000
Fixed costs
\$180,000
Gross profit
\$520,000
Less Fixed S&A
\$120,000
\$4* 50,000
\$200,000
\$2* 50,000
Net income
\$200,000

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