Alliance Company manufactures two products (brushes and combs). The overhead costs have been divided into four cost pools that use the following activity drivers.

Problem 1:

Alliance Company manufactures two products (brushes and combs). The overhead costs have been divided into four cost pools that use the following activity drivers.

	# of Setups	# of Orders	Machine Hours	Packing Orders
Brushes	30	35	2,000	100
Combs	10	65	6,000	150
Cost per Pool	$20,000	$10,000	$280,000	$60,000

Required

1.       Compute the allocation rates for each of the activity drivers listed.

2.       Allocate the overhead costs to Brushes and Combs  using activity-based costing.

3.       Compute the overhead rate using machine hours under the functional-based costing system.

4.       Allocate the overhead costs to Brushes and Combs using the functional-based costing system overhead rate calculated in part (c).

 

Problem 2:

A company’s sales volume averages 4,000 units per year. The current Price is $60 per unit.
Recently, its main competitor reduced the price of its product to $48.
The company expects sales to drop dramatically unless it matches the competitor’s price.

In addition, the current profit per unit must be maintained.
Information about the product (for production of 4,000) is as follows.

	Standard Quantity	Actual Quantity	Actual Cost
Materials (pounds)	5,800	6,000	$60,000
Labor (hours)	1,800	2,000	$20,000
Setups (hours)	0	225	$8,000
Material handling (moves)	0	400	$5,000
Warranties (number repaired)	0	300	$15,000

Required

1.       Calculate the target cost for maintaining current market share and profitability.

2.       Calculate the non-value-added cost per unit.

3.       If non-value-added costs can be reduced to zero, can the target cost be achieved?

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