Acct344 Cost Accounting: Week 3 Homework (Alliance Company and Target Costing)

Acct344 Cost Accounting
Week 3 Homework

Problem 1: Use the following information.
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
Brushes 30
Combs 10
Cost per Pool 20,000

a. Compute the overhead rates for each of the overhead pools and activity drivers listed.
b. Allocate (assign) the overhead costs to Products Brushes and Combs using activity-based costing.
c. Compute the overhead rate using machine hours under the functional-based costing system (also called plant-wide rate or normal costing).
d. Allocate the overhead costs to Products 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.
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) - 225 8,000
Material handling (moves) - 400 5,000
Warranties (number repaired) - 300 15,000
The current selling price is $60.

a. Calculate the target cost for maintaining current market share and profitability.
b. Calculate the non-value-added cost per unit.
c. If non-value-added costs can be reduced to zero, can the target cost be achieved?
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