Difference in the costs allocated to jobs at company


Question 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.

Question 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?

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Accounting Basics: Difference in the costs allocated to jobs at company
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