accounting home work

Step 1: Allocate Costs

You have been asked to look at production options for the Android01 since production methods and allocation of costs have implications for cost-per-unit. There are two alternative methods of production being considered. Begin by gathering data (using financial information in decision making), then answer various questions to determine the suitability of the project.

Production A

Costs are as follows:

• $4.5 million per year in rent for factory and machinery

• components and labor in the amount of $12 million will produce 300 units per year

Production B

In an alternative production method, the production of Android01 will share some production facilities and service divisions with Processor01. Fixed costs are $5 million per year, and are to be assigned at the rate of 30 percent to Android01 and 70 percent to Processor01.

The variable cost of the production facilities and service divisions is $20 million per year. The square footage of factory space and labor needed for the production of 500 units of Processor01 and 300 units of Android01 are listed below.

The remaining cost for the production of Android01 is for components, at $25,000 per unit.

Question 1: In Method B, what would be the cost-per-unit of producing Android01 using factory space as the allocation basis? What would be the cost-per-unit using labor as the allocation basis?

Before starting on your calculations, review materials on production cost allocation.

Submit your Allocation of Costs Report and Calculations to the dropbox below. Be sure to show your calculations in Excel and provide a narrative analysis in PowerPoint. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of company.

Before you submit your assignment, review the competencies below, which your instructor will use to evaluate your work. A good practice would be to use each competency as a self-check to confirm you have incorporated all of them in your work.

• 3.1 Identify numerical or mathematical information that is relevant in a problem or situation.

• 3.2 Employ mathematical or statistical operations and data analysis techniques to arrive at a correct or optimal solution.

• 3.3 Analyze mathematical or statistical information, or the results of quantitative inquiry and manipulation of data.

• 3.4 Employ software applications and analytic tools to analyze, visualize, and present data to inform decision-making.

• 10.5 Develop operating forecasts and budgets and apply managerial accounting techniques to support strategic decisions.

Note from school tutors=======================

Hi class,

I have compiled all the advice that the tutors have been offering on this project into this document, copied below. I hope it helps.

1. Allocate fixed costs based on percentages given in the problem.

2. Allocate variable costs

Example (copied from material imbedded in the project):

VC Allocated based on direct labor hours:

Smith Manufacturing has $1,000,000 of variable overhead costs. These costs come from direct labor hours and machine hours. Smith expects to spend about 500,000 labor hours and 100,000 machine hours.

Determine the allocated overhead for each department. Assume that direct labor hours are used as the allocation base and the production departments (quality assurance and packaging) actually incurred 180,000 and 320,000 hours, respectively.

            Overhead rate = $1,000,000 / 500,000 DLH = $2/DLH

                                                                                                Allocated

Department                             Allocation                               Overhead

Quality Assurance                   180,000 DLHs x $2  =            $360,000

Packaging                                320,000 DLHs x $2 =             $640,000

                                                                                                $1,000,000

VC Allocated based on machine hours:

Now allocate the costs using machine hours (assuming the same expected overhead costs). Actual machine hours for quality assurance and packaging are 40,000 and 60,000, respectively.

            Overhead rate = $1,000,000 / 100,000 MHs = $10.00/MH

                                                                                                Allocated

Department                             Allocation                               Overhead

Quality Assurance                   40,000 MHs x $10.00  =         $400,000

Packaging                                60,000 MHs x $10.00 =          $600,000

                                                                                                $1,000,000

1. Calculate price per unit. You will need to consider total Android cost and number of Android units produced.

2. Consider the component cost (notice it is given as a per unit cost).