Description
Consider the following information for Hamburg Corporation:
Items
Units
Beginning inventory
85,000
Units started during the year
155,000
Ending inventory
61,000
Inventory is 100% complete as to materials and 60% complete as to conversion.
Items
Materials
Conversion
Beginning costs (SAR)
425,000
686,000
Costs added during the period (SAR)
1,255,000
980,000
Using the WEIGHTED AVERAGE method:
- Calculate the number of units completed during the period.
- Calculate equivalent units for conversion during the period.
- Calculate cost per equivalent units for materials.
Mannheim Corporation manufactures small camping tents and family camping tents. The estimated direct labor time to produce each type of tent is as follows:
Items
Small
Family
Estimated tents produced
24,500
11,000
Direct labor hours per tent
2.5
4.5
Estimated overhead for the period = 1,300,000 SAR.
4. Compute the overhead cost assigned to each type of tent assuming direct labor hours are used to allocate overhead costs.
The controller is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to the family tent product line because of its complexity. He, therefore, developed the following three activity cost pools and related cost drivers to better understand the costs.
Activity Cost Pools
Expected Use of Cost Drivers
Estimated Overhead Costs (SAR)
Setting up machines
1,000 setups
25,000
Assembling
90,000 labor hours
980,000
Inspection
1,200 inspections
230,000
5. Calculate the activity-based overhead rates for these three cost pools.
6. Compute the cost that is assigned to each tent using activity-based costing system, given the following information.
Expected Use of Cost Drivers per Product
Items
Small
Family
Number of setups
130
825
Direct labor hours
29,000
55,000
Number of inspections
125
1,125
7. What do you believe the controller should do and why?