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Asbury Coffee Enterprises (ACE) manufactures two models of coffee grinders: Personal and Commercial. The Personal grinders have a smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Since the introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at ACE believes that the problem might be in how the accounting system allocates costs to products. The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which is representative, manufacturing overhead totaled $1,983,000 based on production of 30,000 Personal grinders and 10,000 Commercial grinders. Direct costs were as follows: Direct materials Direct labor Personal $ 1,441,800 1,026,000 Commercial $ 579,000 626,500 Total $ 2,020,800 1,652,500 Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows: Activity Level Cost Driver Number of production runs Quality tests performed Shipping orders processed Total overhead Costs Assigned Personal Commercial Total $ 945,000 804,000 234,000 50 25 75 15 25 40 150 50 200 $ 1,983,000

Asbury Coffee Enterprises (ACE) manufactures two models of coffee grinders: Personal and Commercial. The Personal grinders have a smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Since the introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at ACE believes that the problem might be in how the accounting system allocates costs to products. The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which is representative, manufacturing overhead totaled $1,983,000 based on production of 30,000 Personal grinders and 10,000 Commercial grinders. Direct costs were as follows: Direct materials Direct labor Personal $ 1,441,800 1,026,000 Commercial $ 579,000 626,500 Total $ 2,020,800 1,652,500 Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows: Activity Level Cost Driver Number of production runs Quality tests performed Shipping orders processed Total overhead Costs Assigned Personal Commercial Total $ 945,000 804,000 234,000 50 25 75 15 25 40 150 50 200 $ 1,983,000

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter3: Cost Behavior
Section: Chapter Questions
Problem 34P: Kimball Company has developed the following cost formulas:...
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Asbury Coffee Enterprises (ACE) manufactures two models of coffee grinders: Personal and Commercial. The Personal grinders have a smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Since the introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at ACE believes that the problem might be in how the accounting system allocates costs to products. The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which is representative, manufacturing overhead totaled $1,983,000 based on production of 30,000 Personal grinders and 10,000 Commercial grinders. Direct costs were as follows: Direct materials Direct labor Cost Driver Number of production runs Quality tests performed Shipping orders processed Total overhead Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows: Personal $ 1,441,800 1,026,000 Required A Required B Commercial $ 579,000 626,500 Personal Commercial Overhead Costs Assigned Personal $ 945,000 804,000 234,000 $ 1,983,000 Total $ 2,020,800 1,652,500 Activity Level 50 15 150 Required: a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? b. How much overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? Complete this question by entering your answers in the tabs below. Total Cost per Unit Commercial 25 25 50 How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? Note: Round "Total Cost per Unit" to 2 decimal places. Total 75 40 200
Transcribed Image Text:Asbury Coffee Enterprises (ACE) manufactures two models of coffee grinders: Personal and Commercial. The Personal grinders have a smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Since the introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at ACE believes that the problem might be in how the accounting system allocates costs to products. The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which is representative, manufacturing overhead totaled $1,983,000 based on production of 30,000 Personal grinders and 10,000 Commercial grinders. Direct costs were as follows: Direct materials Direct labor Cost Driver Number of production runs Quality tests performed Shipping orders processed Total overhead Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows: Personal $ 1,441,800 1,026,000 Required A Required B Commercial $ 579,000 626,500 Personal Commercial Overhead Costs Assigned Personal $ 945,000 804,000 234,000 $ 1,983,000 Total $ 2,020,800 1,652,500 Activity Level 50 15 150 Required: a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? b. How much overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? Complete this question by entering your answers in the tabs below. Total Cost per Unit Commercial 25 25 50 How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? Note: Round "Total Cost per Unit" to 2 decimal places. Total 75 40 200
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