Problem 1. Ryan company manufactures a single product, Blarney. In a period when 50,000 units of Blarney are produced and sold, the following amounts are budgeted.
Revenue 600,000
Direct material 200,000
Direct labor 100,000
Variable manufacturing overhead 50,000
Fixed manufacturing overhead 150,000
Net income 100,000
Burke offers to pay Ryan $10.75 per unit for an order of 8000 units. Ryan has the capacity to fill the order and accepting the order will not affect any other orders. Should Ryan accept this special order? Show your analysis.
Problem 2. Mc Callum’s Machining produces specialized equipment. Currently, overhead costs are allocated at a rate of $100. per unit produced and the company produces 1000 units per year. Mccallum’s CEO has heard about ABC and would like to see if it makes any difference in the costs allocated to jobs at the company.
The accounting stuff has provided the following information about manufacturing overhead:
Cost pool amount cost driver
Setups 30,000 number of setups
Equipment 20,000 number of machine hours
Inspection 50,000 number of inspections
The company estimates that it will perform 150 setups and 1000 inspections each year and will use 2000 machine hours.
Job FWS consists of 40 units and will require 15 setups, 200 machine hours, and 60 inspections. Using ABC what amount of manufacturing overhead will be allocated to job FWS? What amount would McCallum allocate to job FWS using their current traditional system?