9. Betz Company's Sales Budget Shows the Following Projections for Next Year

9. Betz Company's sales budget shows the following projections for next year:

Sales in units
First Quarter...... / 60,000
Second Quarter...... / 80,000
Third Quarter...... / 45,000
Fourth Quarter...... / 55,000

Inventory at the beginning of the year was 18,000 units. The finished goods inventory at the end of each quarter is to equal 30% of the next quarter's budgeted unit sales. How many units should be produced during the first quarter?

A) 24,000

B) 48,000

C) 66,000

D) 72,000

E) None of the above

Units produced = Ending inventory + Units sold + Beginning inventory

= (30% × 80,000) + 60,000 − 18,000

= 24,000 + 60,000 − 18,000 = 66,000

Use the following to answer questions 10-11:

Pacchiana Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, R21V and D00B, about which it has provided the following data:

R21V / D00B
Direct materials per unit..... / $19.60 / $61.70
Direct labor per unit...... / $3.90 / $19.50
Direct labor-hours per unit. / 0.30 / 1.50
Annual production...... / 45,000 / 15,000

The company's estimated total manufacturing overhead for the year is $1,262,880 and the company's estimated total direct labor-hours for the year is 36,000.

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

Activities and Activity Measures / Estimated Overhead Cost
Assembling products (DLHs)...... / $ 108,000
Preparing batches (batches)...... / 362,880
Product support (product variations)...... / 792,000
Total...... / $1,262,880
Expected Activity
R21V / D00B / Total
DLHs...... / 13,500 / 22,500 / 36,000
Batches...... / 1,440 / 1,152 / 2,592
Product variations.... / 1,404 / 576 / 1,980

10. The unit product cost of product R21V under the company's traditional costing system is closest to:

A) $34.02

B) $24.40

C) $41.36

D) $23.50

E) None of the above

Predetermined overhead rate = $1,262,880 ÷ 36,000 DLHs = $35.08 per DLH

Applied overhead = [(45,000 units × 0.30 DLHs per unit) × $35.08 per DLH] ÷ 45,000 units = $10.52 per unit

Unit Product Cost:

Direct materials...... / $19.60
Direct labor...... / 3.90
Applied manufacturing overhead. / 10.52
Total...... / $34.02

11. The unit product cost of product D00B under the activity-based costing system is closest to:

A) $111.81

B) $133.82

C) $81.20

D) $30.61

E) None of the above

Solution:

(a) / (b) / (a) ÷ (b)
Activity Cost Pool / Estimated Cost / Expected Activity / Activity Rate
Assembling products / $108,000 / 36,000 DLHs / $3 per DLH
Preparing batches / $362,880 / 2,592 batches / $140 per batches
Product support / $792,000 / 1,980 product variations / $400 per product variation

Total Overhead applied to Product D00B:

(a) / (b) / (a) × (b)
Activity Cost Pool / Activity Rate / Expected Activity / ABC Cost
Assembling products / $3 per DLH / 22,500 DLHs / $ 67,500
Preparing batches / $140 per batch / 1,152 batches / 161,280
Product support / $400 per product variation / 576 product variations / 230,400
$459,180

Overhead Cost per unit = $459,180 ÷ 15,000 units = $30.61 per unit

Unit Product Cost:

Direct materials...... / $ 61.70
Direct labor...... / 19.50
Applied manufacturing overhead. / 30.61
Total...... / $111.81