29 Jun Question Molly Manufacturing Cas
Question
Molly Manufacturing Case
Holly Manufacturing Company produces two cello models. One is a standard acoustic cello that sells for $600 and is constructed
from medium-grade materials. The other model is a custom-made amplified cello with pearl inlays and a body constructed from special woods.
The custom cello sells for $900. Both cellos require 10 hours of direct labor to produce, but the custom cello is manufactured by more
experienced workers who are paid at a higher rate.
Most of Holly’s sales come from the standard cello, but sales of the custom model have been growing. Following is the company’s sales,
production, and cost information for last year:
Cello Standard Custom
Sales and production volume in units 900 100
Unit Selling Price $600.00 $900.00
Unit costs:
Direct materials $150.00 $375.00
Direct labor $180.00 $240.00
Manufacturing overhead* $135.00 $135.00
Total unit costs $465.00 $750.00
Unit Gross Profit $135.00 $150.00
Direct Labor Hours 10.00 10.00
Direct Labor Rate Per Hour $18.00 $24.00
*Manufacturing overhead costs:
Building depreciation $ 40,000
Maintenance 15,000.00
Purchasing 20,000.00
Inspection 12,000.00
Indirect materials 15,000.00
Supervision 30,000.00
Supplies 3,000.00
Total manufacturing overhead costs $135,000.00
These manufacturing overhead costs are fixed in nature: they do not vary with the volume of manufacturing activity.
The company allocates overhead costs using the traditional method. Its activity base is direct labor hours. The predetermined overhead rate,
based on 10,000 direct labor hours, is $13.50 ($135,000 ÷ 10,000 direct labor hours).
Johann Brahms, president of Holly, is concerned that the traditional cost-allocation system the company is using may not be generating accurate
information and that the selling price of the custom cello may not be covering its true cost.
Questions To Be Answered
1. The cost-allocation system Holly has been using allocates 90% of overhead costs to the
standard cello because 90% of direct labor hours were spent on the standard model.
How much overhead was allocated to each of the two models last year?
Discuss why this might not be an accurate way to assign overhead costs to products.
2. How would the use of more than one cost pool improve Holly’s cost allocation?
Use the data below for the questions which follow.
Holly’s controller developed the following data for use in activity-based costing:
Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of HIGH QUALITY & PLAGIARISM FREE. To make an Order you only need to click Ask A Question and we will direct you to our Order Page at WriteDemy. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Fill in all the assignment paper details that are required in the order form with the standard information being the page count, deadline, academic level and type of paper. It is advisable to have this information at hand so that you can quickly fill in the necessary information needed in the form for the essay writer to be immediately assigned to your writing project. Make payment for the custom essay order to enable us to assign a suitable writer to your order. Payments are made through Paypal on a secured billing page. Finally, sit back and relax.
About Writedemy
We are a professional paper writing website. If you have searched a question and bumped into our website just know you are in the right place to get help in your coursework. We offer HIGH QUALITY & PLAGIARISM FREE Papers.
How It Works
To make an Order you only need to click on “Order Now” and we will direct you to our Order Page. Fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Are there Discounts?
All new clients are eligible for 20% off in their first Order. Our payment method is safe and secure.