It is expected that this problem will be completed using anExcel spreadsheet using formulas.
The new president of the Wernecke Company was stumped. Why hadprofits gone down? He had directed the sales department to push theproduct with the highest contribution margin, and the salesdepartment had come through with flying colors. The percent offlams sold had increased from 25% of units sold to 37.5% of unitssold. So what happened?
Flims
Flams
Sales Price per Unit
$150
$500
Direct Materials per Unit
$75
$200
Direct Labor Cost per Hour
$25
$25
Direct Labor Hours per Unit
1 hour per unit
5 hours per unit
Number of Units Produced
25,000
15,000
The variable overhead for the coming year is estimated to be$3,000,000.
Required:
Activity Cost Pool
Estimated Overhead Cost
Expected Activity Level
Setups
$850,000
200 setups
Scrap
$350,000
500 units
Testing
$200,000
5,000 tests
Machine related
$1,600,000
100,000 Mhrs
Total
$3,000,000
Calculate the separate predetermined overhead rates for each ofthe activities listed above.
Activity Cost Pool
Estimated Activity Level for Flims
Setups
50 setups
Scrap
200 units
Testing
2,000 tests
Machine related
12,500 Mhrs.
Calculate the expected variable overhead to be applied toFlims.
Activity Cost Pool
Estimated Activity Level for Gadgets
Setups
150 setups
Scrap
300 units
Testing
3,000 tests
Machine related
87,500 Mhrs.
Calculate the expected variable overhead to be applied toFlams.
Calculate the Wernecke Company’s estimated direct labor hours toproduce flims and flams.
Calculate the predetermined variable overhead rate that will beused in the coming year using a traditional costing system basedupon direct labor hours.
Using a traditional costing system based upon direct laborhours, compute the unit product costs for flims and flams as wellas contribution margin per unit.
It has been suggested to the president to consider the use of anABC costing system to allocate manufacturing overhead. Engineeringstudies have revealed the following information about estimatedmanufacturing activities for the coming year.
The following data is available about the activity levels neededto produce the projected 25,000 units of Flims:
The following data is available about the activity levels neededto produce the projected 15,000 units of Flams:
Calculate the total overhead (total for company) that isexpected to be applied to Flims and Flams.
Calculate the projected unit costs and unit contribution marginsfor Flims and Flams using ABC costing.
What conclusions can you drawn about the use of traditionalcosting vs. ABC costing for the Wernecke Company? Whatrecommendations do you have for the president?
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