COST ACCOUNTING TEAM PROJECT

Question #1:

The Matador Company manufactures two products, Product X and Product Y. These require machining and assembly work.

The company has budgeted $130,890 in manufacturing Overhead costs for the upcoming year. They also budget they will produce 400 units of Product X and 1,200 units of Product Y. Overhead is currently assigned using the Overhead Vehicle of Direct-Labor Hours.

In addition, each product has the following Standards applied:

Product X / Product Y
Standard Hours per unit / 0.70 hours / 1.20 hours
Standard Material cost per unit / $10.70 / $16.70

The Standard labor rate is $16.00 per hour.

a)  Calculate the applied (allocated) Overhead Rate for Product X and Product Y?

b)  Calculate the total product cost (i.e. Cost of Goods) for Product X and Product Y (in other words, the value of each product when it is finished and put into Inventory)?

Question #2:

Management is questioning the pricing associated with each product. They are trying to determine which product should be promoted but they first want to have a better idea of the total costs associated with each product. To achieve this they have direct that Activity-Based Costing be applied to the manufacturing Overhead.

An ABC analysis of the budgeted Overhead costs has produced the following information:

Activity / Cost Driver / Budgeted OH Cost
Machining / Number of setups / $13,570
Purchasing / Number of Purchase Orders / $91,520
Assembly / Direct-Labor Hours / $25,800
Cost Driver / Budgeted Level of Cost Driver - Product X / Budgeted Level of Cost Driver - Product Y
Number of setups / 100 / 130
Number of Purchase Orders / 810 / 1,270
Direct-Labor Hours / 280 / 1,440

a)  Determine the Predetermined Overhead Rate for each Cost Driver?

b)  Calculate the total amount of Overhead that would be budgeted to Product X and Product Y using ABC costing?

c)  Calculate the applied (allocated) Overhead Rate for Product X and Product Y using ABC costing?

d)  Calculate the total product cost (i.e. Cost of Goods) for Product X and Product Y (in other words, the value of each product when it is finished and put into Inventory) using ABC costing?

Question #3:

Would the answers to Questions #1 and #2 affect your pricing and marketing decisions for the coming year? If not, then why. If so, then how (generally or strategically)?

(Please provide some thoughtful comments for this question. I expect to see some Graduate level responses).