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Units produced Machine-hours Direct labor-hours Revenues Direct materials costs Direct labor costs Manufacturing overhead Operating Profit Silver 2,000 590 600 $ 583,600 310,000 9,600 Gold 1,500 2,100 1,200 $ 793,050 533,250 28,800 Platinum 500 1,050 750 $ 493,350 303,000 25,350 Total 4,000 3,740 2,550 $ 1,870,000 1,146,250 63,750 561,000 $ 99,000 The team has been discussing two issues. First, there is disagreement about how best to allocate the manufacturing overhead among the products. The current cost accounting system allocates manufacturing overhead to products based on expected unit sales. (Because Ferry carries no inventory, unit sales are equal to units produced.) Second, there is a concern about a "softening" in the demand for these systems and the managers at Ferry want to get a better understanding of possible financial implications if demand should be weaker than expected.

Units produced Machine-hours Direct labor-hours Revenues Direct materials costs Direct labor costs Manufacturing overhead Operating Profit Silver 2,000 590 600 $ 583,600 310,000 9,600 Gold 1,500 2,100 1,200 $ 793,050 533,250 28,800 Platinum 500 1,050 750 $ 493,350 303,000 25,350 Total 4,000 3,740 2,550 $ 1,870,000 1,146,250 63,750 561,000 $ 99,000 The team has been discussing two issues. First, there is disagreement about how best to allocate the manufacturing overhead among the products. The current cost accounting system allocates manufacturing overhead to products based on expected unit sales. (Because Ferry carries no inventory, unit sales are equal to units produced.) Second, there is a concern about a "softening" in the demand for these systems and the managers at Ferry want to get a better understanding of possible financial implications if demand should be weaker than expected.

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
Chapter15: Lean Accounting And Productivity Measurement
Section: Chapter Questions
Problem 25P: Continuous improvement is the governing principle of a lean accounting system. Following are several...
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Units produced Machine-hours Direct labor-hours Revenues Direct materials costs Direct labor costs Manufacturing overhead Operating Profit Revenue-related overhead Direct cost-related overhead Total overhead Silver 2,000 590 600 $ 583,600 310,000 9,600 Total profit (loss) Unit profit (loss) Silver The team has been discussing two issues. First, there is disagreement about how best to allocate the manufacturing overhead among the products. The current cost accounting system allocates manufacturing overhead to products based on expected unit sales. (Because Ferry carries no inventory, unit sales are equal to units produced.) Second, there is a concern about a "softening" in the demand for these systems and the managers at Ferry want to get a better understanding of possible financial implications if demand should be weaker than expected. Gold 1,500 2,100 1,200 $ 793,050 533, 250 28,800 The finance team decides that a two-stage system might improve the information available for management. They do an account analysis and determine that there appear to be two main drivers of overhead: revenue and direct costs. Based on the account analysis, the team splits the manufacturing overhead into two pools as follows: $ 176,341 384,659 $ 561,000 Gold Platinum 500 1,050 750 $ 493,350 303,000 25,350 Total 4,000 3,740 2,550 d. Compute total and per-unit profits by product line based on the expected (not breakeven) sales by product line using the two-stage cost allocation system developed by the finance team. $ 1,870,000 1,146, 250 63,750 561,000 $ 99,000 Note: Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round "Unit profit (loss)" answers to 2 decimal places. Round your "Total profit (loss)" answers to nearest whole dollar. Platinum
Transcribed Image Text:Units produced Machine-hours Direct labor-hours Revenues Direct materials costs Direct labor costs Manufacturing overhead Operating Profit Revenue-related overhead Direct cost-related overhead Total overhead Silver 2,000 590 600 $ 583,600 310,000 9,600 Total profit (loss) Unit profit (loss) Silver The team has been discussing two issues. First, there is disagreement about how best to allocate the manufacturing overhead among the products. The current cost accounting system allocates manufacturing overhead to products based on expected unit sales. (Because Ferry carries no inventory, unit sales are equal to units produced.) Second, there is a concern about a "softening" in the demand for these systems and the managers at Ferry want to get a better understanding of possible financial implications if demand should be weaker than expected. Gold 1,500 2,100 1,200 $ 793,050 533, 250 28,800 The finance team decides that a two-stage system might improve the information available for management. They do an account analysis and determine that there appear to be two main drivers of overhead: revenue and direct costs. Based on the account analysis, the team splits the manufacturing overhead into two pools as follows: $ 176,341 384,659 $ 561,000 Gold Platinum 500 1,050 750 $ 493,350 303,000 25,350 Total 4,000 3,740 2,550 d. Compute total and per-unit profits by product line based on the expected (not breakeven) sales by product line using the two-stage cost allocation system developed by the finance team. $ 1,870,000 1,146, 250 63,750 561,000 $ 99,000 Note: Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round "Unit profit (loss)" answers to 2 decimal places. Round your "Total profit (loss)" answers to nearest whole dollar. Platinum
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