Case Stadey Essay

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A CASE STUDY Activity-based Costing and Pricing Submitted by: Maryland Tano August 24, 2011 Requirements: 1. Using direct labor-hours as the base for assigning manufacturing overhead cost to products, do the following: a. Determine the predetermined overhead rate that will be used during the year. Data given: * Estimated manufacturing overhead cost $ 2,200,000 * Direct labor hours 50,000 hours Answer: Predetermined overhead rate = $ 2,200,000 = $ 44 per DLHs 50,000 hrs b. Determine the unit product cost of one pound of the Kenya Dark coffee and one pound of the Viet Select coffee. | Kenya Dark Coffee | Viet Select Coffee | Direct Materials | $ 4.50 | $ 2.90 | Direct Labor | $ 0.24 | $ 0.24 | Manufacturing Overhead0.02 ($ 44) = $ 0.88 (1.25) | $ 1.10 | $ 1.10 | Unit Product Cost | $ 5.84 | $ 4.24 | 2. Using activity-based costing as the basis for assigning manufacturing overhead cost to products, do the following: a. Determine the total amount of manufacturing overhead cost assigned to the Kenya Dark coffee and to the Viet Select coffee for the year. b. Using the data developed in (2a) above, compute the amount of manufacturing overhead cost per pound of the Kenya Dark coffee and the Viet Select coffee. Round all computations to the nearest whole cent. c. Determine the unit product cost of one pound of the Kenya Dark coffee and one pound of the Viet Select coffee. Mark-up = 25% | Kenya Dark Coffee | Viet Select Coffee | Selling Price | $6.35 | $6.30 | Unit Product Cost | $5.08 | $5.04 | Profit Margin | $1.27 | $1.26 | (In Percent) | 25% | 25% | 3. Write a brief memo to the president of JSI explaining what you have found in (1) and (2) above and discussing the implications to the company of using direct labor as the base for assigning manufacturing overhead cost to

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