Q1) Venable Inc. manufactures golf carts. One of its plants in South Carolina makes two versions of carts: a basic model and deluxe model. Deluxe model has sturdier frame, a higher horsepower engine, bigger tires, and softer seats. At the starting of the year, the following data were made by controller's office for this SC plant:
| |
Basic Cart |
Deluxe Cart |
| Expected Quantity to Produce |
20,000 |
10,000 |
| Selling Price |
$1,800 |
$3,600 |
| Direct Material and Direct Labor Costs |
$800 |
$1,600 |
| Machine Hours |
5,000 |
5,000 |
| Direct Labor Hours |
10,000 |
10,000 |
| Engineering Support (Hours) |
1,500 |
4,500 |
| Receiving (Orders Processed) |
300 |
500 |
| Material Handling (Number of Moves) 2,000 |
4,000 |
|
| Purchasing (Number of Requisitions) |
100 |
200 |
| Maintenance (Hours Used) |
1,000 |
3,000 |
| Paying Suppliers (Invoices Processed) |
250 |
500 |
| Setting up Batches (Number of Setups) |
20 |
60 |
Additionally, following overhead activity center costs are reported:
| Maintaining Equipment |
$1,140,000 |
| Engineering Support |
1,200,000 |
| Material Handling |
1,200,000 |
| Setting Up Equipment |
960,000 |
| Purchasing Materials |
600,000 |
| Receiving Goods |
400,000 |
| Paying Suppliers |
300,000 |
| Providing Facility Space |
200,000 |
| Total |
$6,000,000 |
Providing facility-level costs are assigned on basis of machine hours. This gives a measure of time facility is used by each product.
1. Compute cost per cart using direct labor hours to allocate overhead costs.
2. Determine the gross margin on deluxe golf cart?
3. Using ABC how much engineering overhead costs would be assigned to basic cart?
4. Using ABC would amount of purchasing overhead costs allocated to each kind of cart be more or less for deluxe than basic? Give quantitative support for answer.