Question Details

(Solved) Instructions: Using the information provided below, complete the following two tabs in this MS Excel Workbook: Compare the results you obtained in...


I am currently working on ABC MOH cost allocation. I'm having a hard time figuring out the building costs and plant administration. The homework provides what those costs consist of, but not the number's to figure out the cost. Are these usually number's that are just given to you?

Instructions:
Using the information provided below, complete the following two tabs in this MS Excel Workbook:
– MOH Cost Allocation – Traditional Methodology
– MOH Cost Allocation – Activity-based Costing (ABC) Methodology (complete partially completed analysis)
The background paper, Management Accounting Concepts, provides useful guidance for completing this assignment.
Compare the results you obtained in these two tabs. Describe briefly below the likely effects of management's decision to adopt the traditional
method, rather than the ABC method, of allocating MOH costs to products. (In formulating your response, it may be helpful to review pages 43
- 44 of the background paper, Management Accounting Concepts.) Limit the length of your response to 150 words. Replace this text with your response.
Company information: Note t
inform
works
throug
down
are aw A division of Premium Products Company operates from a single plant located in the midwestern U.S.
The division makes and sells 3 products. Shown below for each product is management's fiscal year ending (FYE) Dec. 31, 20X2 plans for:
Product
A-199
– Units of production and sales
– Production batch size (units in each production run)
– Product unit selling price $ B-299 C-399 10,000 ### 10,000 25 40 100 197.00 $ 170.00 $ 148.00 Management organized the plant to operate in the nine service and production departments listed below. For each department listed is shown:
– The normal, expected MOH costs (obtained from the approved production plan and operating budget for the FYE Dec. 31, 20X2)
– The MOH allocation base selected by management, which adopted the traditional MOH allocation method (see next tab in this workbook)
– The planned (i) total value of each MOH allocation base and (ii) consumption of each base by each production department
$US MOH allocation base Casting Machining Assembly Packing Total Production scheduling 151,000 Machine hours (MHs) Unit-related 9,000 22,500 9,000 4,500 45,000 Quality inspection 313,000 Batches Unit-related 75 300 225 150 750 980 2,450 980 490 4,900 4,500 9,000 2,700 1,800 18,000 8 12 10 ### 40 M&E* setup 83,000 M&E setups hours Batch-related M&E* maintenance 502,000 M&E Maint. Dept. hours Unit-related Building and admin. 522,000 Full-time employees Plant-related Casting 125,000 MHs Unit-related 9,000 22,500 9,000 4,500 45,000 Machining 250,000 MHs Unit-related 9,000 22,500 9,000 4,500 45,000 Assembly 106,000 Direct labor hours (DLHs) Unit-related 4,100 17,000 10,500 10,400 42,000 Unit-related 4,100 17,000 10,500 10,400 42,000 Packing
Total 71,000 DLHs
2,123,000 * M&E: machinery and equipment The company's engineering department determined the following standard per-unit requirements of:
– MHs and DLHs in each production department
– Direct material and direct labor cost
Product
A-199 Per-unit requirements B-299 C-399 MHs in each production department:
Casting 0.3 ### 0.3 Machining 0.9 0.7 0.6 Assembly 0.4 0.3 0.2 Packing 0.2 ### 0.1 Total 1.8 1.5 1.2 Casting 0.2 ### 0.2 Machining 1.0 0.6 0.2 Assembly 0.5 0.4 0.3 Packing 0.3 ### 0.3 Total 2.0 1.5 1.0 DLHs in each production department: Cost per unit:
Direct material $ 28.00 $ 25.00 $ 22.00 Direct labor (including "fringe") $ 38.00 $ 33.00 $ 28.00 The facilitator will grade this assignment, assigning up to 100 points for it as follows: Maximum Earned Accurate, essentially complete, and concise description of the reasons that the traditional
method of allocating MOH costs may lead to distortions in computed product unit costs and
20 20 points – Amounts and other information input into MS Excel worksheet 15 – Accuracy of computations of per-unit MOH cost and total cost of each product 25 15 points
25 points the adverse effects such distortions may have on management’s decisions
Traditional method of MOH cost allocation – Accuracy and completeness of: Activity-based method of MOH cost allocation – Accuracy and completeness of:
– Amounts and other information input into MS Excel worksheet 15 – Accuracy of computations of per-unit MOH cost and total cost of each product 25 Total points 100 15 points
25 points
100 Premium Products Company
Manufacturing Overhead (MOH) Cost Allocation – Traditional Methodology
For fiscal year ending (FYE) December 31, 20X2
(Amounts determined as part of production plan and operating budget approved on November 5, 20X1)
Normal,
expected Service departments:
Production scheduling dept. MOH costs $ 151,000 Allocation of Service Dept Costs to Production Depts Number of MHs
(Unit-related) (Batch-related) Casting MOH allocation base Quality inspection department
(Batch-related) Level 9,000 Ratio 0.200 $US Alloc $ 30,200 Machining Assembly Packing 22,500 9,000 4,500 0.500
$ 75,500 0.200
$ 30,200 0.100
$ 15,100 (Batch-related) 313,000
1.000
$ 4,900 Ratio 1.000
$ Ratio (Plant-related 1.000
$ 151,000 $ 125,000 Total 522,000 Level 40.0 Ratio 1.000 $US Alloc.
$ 502,000
18,000 $US Alloc.
Building and administration (1) 83,000 Level Level (Unit-related) 151,000 Ratio $US Alloc.
M&E maintenance dept. Total service departments 1.000
$ Level
$US Alloc. M&E setup department Total 45,000 $ $US Alloc $ 30,200 $ 125,000 $ 75,500 $ - $ 30,200 $ 15,100 - $ 1,258,000 Production departments (2):
Casting (Unit-related) Machining $ Assembly 17,000
$ - Packing
Total production departments $ 125,000 Total normal, expected MOH costs $ 276,000 Total 125,000 10,500
$ - 10,400 $ 125,000 $ - $ - $ - $ 162,900 $US Alloc $ 155,200 $ 75,500 $ 30,200 $ 15,100 $ 276,000 MOH allocation base Number of MHs Level
Rate 9,000
$ 9,000 17.24 - Number of DLHs Level
Rate 10,500
- - $ 2.88 ###
10,500 Premium Products Company
Product Unit Costs – Traditional MOH Cost Allocation Methodology
For fiscal year ended (FYE) December 31, 20X2
(Use information in tables provided in first workbook tab)
Product A-199
Product B-299
Product C-299
MHs required per unit in:
Casting department 0.3 Machining department 0.7 Assembly department 0.3 Packing department 0.1 DLHs required per unit in:
Casting department 0.2 Machining department 1.0 Assembly department
Packing department 0.3 Cost per unit:
Direct material $ 28.00 Direct labor (including "fringe") 33.00 MOH:
Casting (MOH rate/MH x MHs/unit) 5.17 - - Machining (MOH rate/MH x MHs/unit) - - - Assembly (MOH rate/DLH x DLHs/unit) - - - Packing (MOH rate/DLH x DLHs/unit)
Total cost per unit $ 33.17 $ 33.00 $ - (1) Building and administration is comprised of:
– Building costs, including depreciation, power and water, property taxes and insurance, and maintenance
– Supervisory costs of division (plant) vice president, which includes salary and related personnel costs
– Plant-level human resources and accounting personnel, which includes salaries and related personnel costs, and the costs of telecommunications, office
supplies and equipment, and contract payroll services.
(2) Production department costs include the costs of supervisory and other employees not directly involved in production of goods (i.e., indirect labor) and M&E
used in production departments, including depreciation and rent, cost of refurbishing PP&E, property taxes and property insurance related to M&E
DLHs: Direct labor hours (recorded work time of production employees) MHs: Machine hours (recorded operating time) M&E: Machinery and equipment MOH: Manufacturing overhead costs Premium Products Company
Manufacturing Overhead (MOH) Cost Allocation – Activity-based Costing (ABC) Methodology
For fiscal year ending (FYE) December 31, 20X2
(Amounts determined as part of production plan and operating budget approved on November 5, 20X1) Activity Activity Normal, cost pool expected i.e., Normal
expected Service departments:
Production scheduling MOH costs $ 151,000 Activity cost driver level MOH Driver (volume) of Driver type cost driver Rate No. of production runs (batches) Batch Quality inspection No. of production runs (batches) Batch M&E setup No. of M&E Setup Dept. setup hours Batch M&E maintenance
Building (1)
Plant administration (2)
$ No. of MHs in all production depts Unit 210,000 No. of MHs in all production depts Unit 312,000 No. of DLHs in all production depts Unit 750 $ Normal, planned per-unit consumption of cost driver
Product A-199
Hours 201.33 #DIV/0! 45,000 NA Product B-299 Cost $ NA Hours 201.33 NA #DIV/0! NA 8.3 - 1.8 $ Hours $ 201.33 Cost NA #DIV/0! NA 5.5 - 1.5 - Product C-399 Cost $ 2.1 - - - - - - 1.0 $ 99.18 0.8 $ #DIV/0! 1.8 - 673,000 Production departments:
Supervision (Indirect labor):
Casting $ Machining 81,000 Setup time (hours) in Casting Batch 100,000 Setup time (hours) in Machining Batch Assembly 85,000 Number of DLHs in Assembly Unit Packing 51,000 Number of DLHs in Packing Unit 44,000 Number of MHs in Casting Unit 980 $ 82.65 #DIV/0! 10,500 1.5 $ 3.8
0.5 123.98 1.2 #DIV/0! 3.0 $ - 0.3 66.12
#DIV/0! 0.3 - - - - - M&E costs (3):
Casting
Machining 150,000 Number of MHs in Machining Assembly
Packing Total normal, expected MOH costs 9,000 0.3 - Unit - 21,000 Number of MHs in Assembly Unit - 20,000 Number of MHs in Packing Unit $ 552,000 $ 1,225,000 $ - 0.7 - 0.2 - $ - $ - $ - $ - MOH costs: (1) Building costs include depreciation, power, water, property taxes and insurance, and maintenance Total batch-related (above) (2) Plant administration is comprised of: Normal, planned batch size (units) – Supervisory costs of division (plant) V.P., which includes salary and related personnel costs Batch-related costs per unit – Plant-level human resources and accounting staff, which includes salaries and related costs, Total unit-related (above) #DIV/0!
25
#DIV/0!
- and costs of telecommunications, office supplies and equipment, and contract payroll services. Total MOH cost per unit
(3) Production dept M&E costs include depreciation, rent, refurbishments, property taxes and insurance
Direct material
DLHs: Direct labor hours (recorded work time of production employees) Direct labor (including "fringe") M&E: Machinery and equipment Total cost per unit MHs: Machine hours (recorded operating time)
MOH: Manufacturing overhead costs 38.00
$ 38.00

 


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