A.1.

Total estimated overhead

$4,800,000

Estimated machine hours: Monarch (8.0 hours x 22,000 units) Regal (4.0 hours x 4,000 units) Total estimated machine hours Estimated allocation rate per machine hour ($4,800,000/192,000) Monarch $208.00 1.5 DL hours x $12 18.00 8 machine hours x $18144.00 8 machine hours x $25 200.00 $570.00

176,000 16,000 192,000 $25.00

Direct material Direct labor Machine usage Overhead Total 2.

Regal $584.00 3.5 DL hours x $12 42.00 4 machine hours x $18 72.00 4 machin hours x $25 100.00 $798.00

Soldering ($942,000/1,570,000 solder joints) $0.60 per solder joint Shipments ($860,000/20,000 shipments) $43.00 per shipment Quality control ($1,240,000/77,500 units inspected) $16.00 per inspection Purchase orders ($950,400/190,080 purchase orders) $5.00 per purchase order Machine power ($57,600/192,000 machine hours) $0.30 per machine hour Machine setups ($750,000/30,000 setups) $25.00 per setup Regal
385,000 solder joints x $0.60$ 231,000 3,800 shipment x $43 163,400 21,300 inspections x $16 340,800 109,980 POs x $5 549,900 16,000 machine hours x $0.30 4,800 14,000 x $25 350,000

Monarch Soldering 1,185,000 solder joints x $0.60 $ 711,000 Shipments 16,200 shipments x $43 696,600 Quality control 56,200 inspections x $16 899,200 Purchase orders 80,100 POs x $5 400,500 Machine power 176,000 machine hours x $0.30 52,800 Machine setups 16,000 x $25 400,000 Total Manufacturing Overhead $3,160,100 Total Manufacturing Overhead Per Unit $3,160,100/22,000 units Direct material Direct labor 1.5 DL hours x $12 Machine usage 8 machine hours x $18 Total Manufacturing Cost Per Unit

$1,639,900

$143.64 208.00 18.00 144.00 $513.64

$ 409.98 584.00 3.5 DL hours x $12 42.00 4 machine hours x $18 72.00
$1,639,900/4,000

$1,107.98

B. The difference is that the first system allocates a lump sum of overhead based only on machine hours and the second system uses 6 cost pools to allocate the overhead.

C.1.

Operating profit per unit under traditional cost accounting: Monarch Selling Price $ 900.00 Manufacturing -570.00 Selling, General, and Administrative - 265.00 Traditional costing operating profit $ 65.00 Monarch $900.00 -513.64 -265.00 $121.36

Regal $1,140.00 -798.00 -244.50 $ 97.50 Regal $1,140.00 -1,107.98 -244.50 -$ 212.48

2. Operating profit per unit under ABC: Selling Price Manufacturing Selling, General, and Administrative ABC costing operating profit

D. Applewood should concentrate its marketing effort on Monarch because using the ABC system, the organization getting a loss for each unit sold by Regal. Regal have a negative profit margin. 7.37 A.
Light-Weight Cotton $24,000 $1,320 Heavy-Weight Cotton $20,000 $920

Denim Direct Costs: Direct materials Direct labor cost Overhead Costs: Machine Setup Inspection Total Overhead Volumes: Units Direct labor hours Machine hours Number of set-ups Inspection hours $8,000 $660

Total $52,000 $2,900

$40,000 $11,000 $6,996 $57,996

1,000 33 500 10 83.3

4,000 66 1,333 30 333.3

2,000 46 1,500 20 166.6

7,000 145 3,333 60 583.2

TRADITIONAL PROCESS COSTING

Equivalent Conversion Cost Per Unit

Total Conversion Costs to Account for: Direct labor Overhead Total Total Units (Bolts) to Account for Equivalent Conversion Cost Per Unit Total $2,900 $57,996 $60,896 7,000 $8.69943 Denim 1,000 $8,000 $8,699 $16,699 LW Cotton 4,000 $24,000 $34,798 $58,798 HW Cotton 2,000 $20,000 $17,399 $37,399 Total 7,000 $52,000 $60,896 $112,896

Process Cost Report

Number of bolts Direct materials Conversion costs Total Costs Accounted for Summary of Cost Per Unit: Direct materials Conversion costs Total

$8.00 $8.70 $16.70

$6.00 $8.70 $14.70

$10.00 $8.70 $18.70

B. Denim $16.70 17.49 Light-Weight Cotton $14.70 12.70 Heavy-Weight Cotton $18.70 22.29

Process Costing Activity-Based Costing Cost Per Bolt Overstated (Understated by Traditional Process Costing

$ -0.79

$ 2.00

$ -3.59

Under this process, the cost per bolt of light weight cotton was overstated because it used costs from denim and heavy weight cotton. The amount of light weight cotton is much larger than denim or heavy weight cotton. When conversion costs are distributed by the number of units instead of how resources are used, the product with the most units gets the most cost. Light weight cotton use less direct labor per bolt than the others. Direct labor is used with other conversion costs and is distributed to units with no regard to the labor used. C. Managers can look at machine set up costs and reduce them or reduce the number of set ups required for all products. Inspection can be checked costs reduced. They can look at

the reason light weight cotton uses less direct labor than the others. Direct labor can be used efficiently, reducing the direct labor cost.