Answer on Task # 239610 — Economics — Microeconomics

Bolt Industries makes camping equipment. One of their products, the camping tent, is under
review for its’ pricing procedures. Management is trying to determine the appropriate price of the

S
o
l
u $
t Allocation Rate 0.70 6.67
i (700,000 / 1,000,000) (700,000 / 105,000)
oM , ,
nL , ,
A 84,000 640,000
l (120,000 x 0.70) (96,000 x 6.67)
l 292,500 848,500
oper units 24.38 70.71
c
a
t With a change in the distribution base of overhead costs, the cost of a unit of production
e
increased from $24.38 to $70.71. This is due to an increase in the amount of distributed overhead
d from $84,000 to $640,000.
costs

O
 S
o
l
u
t
i
o
n
 Direct Labor Rate Variance is the measure of difference between the actual cost of direct
labor and the standard cost of direct labor utilized during a period.

Actual hours (AH) = 1,800

Actual rate (AR) = $14
Standard rate (SR) = $12
Standard hours (SH) = 2,000

After collecting the necessary information described above, you are ready to substitute the
numbers into the formula to compute the rate and hours (quantity) variances.

The formula for the rate variance is:

(AH x AR) - (AH x SR)
(1,800 x 14) - (1,800 x 12) = 3,600

The labor efficiency variance measures the ability to utilize labor in accordance with
expectations.
The formula for the labor efficiency variance is:
Labor efficiency variance = (AH - SH) x SR
Labor efficiency variance = (1,800 – 2,000) x 12 = -2,400

Since the direct labor efficiency variance is negative, it is unfavorable.

Combine the two in order to come up with the total direct labor variance:
Total Direct Labor Variance = 3,600 – 2,400 = 1,200
 c) Does Dalton’s operational performance increase if they drop a product line?

(429)
Net Income 21

A
l A
l Product A = 500 x 0.857 = $429
lo Product B = 600 x 0.857 = $514
c
o Product C = 400 x 0.857 = $343
ca Product D = 600 x 0.857 = $514
at
ti For the given data, the production of Product B is unprofitable.
eo
n
d b
Consider the situation of refusal to produce unprofitable products B.
R
O
:a
t
e
0.857 (
Net Income )

A
l A
l P
rlo P
c
ro P
ca
d
ro
at
u
d
o
cti
u
d
cteo
u
n
ctd
 с) If you abandon the production of unprofitable products B, then the profit increases by $ 100.

The difficulty of making a decision lies in the fact that a loss-making product can be left for the
breadth of the product line. And also due to the fact that it takes on some of the overhead.
 before allocate
cost (8,000,000)
cost
Total 0

`s cost has been allocated on the basis of labor hours:

6,000 hours + 10,000 hours + 9,000 hours = 25,000 hours.
A
l A
l A
lo
c cost has been allocated on the basis of spaces occupied:
lo
’s
ca
o 25,000 square feet + 30,000 square feet + 45,000 square feet = 100,000 square feet.
cat A
late A
lted A
ed
lo
tThe cost allocation under step method is a sequential process. It begins with the allocation of cost
cd
lo
cat the service department that provides the greatest amount of service to other service
o
of
cato
departments and ends with the allocation of cost of the service department that provides the least
: $8,000,000
ateo
amount of service
× (6/25)
to other
= $1,920,000
service departments.
: $8,000,000 × (10/25) = $3,200,000
ted
: $8,000,000 × (9/25) = $2,880,000
ed
t
d
before allocate
to
tocost (
: cost
o $10,000,000 × (25/100) = $2,500,000 0
:Total
$10,000,000 × (30/100) = $3,000,000 0
0
: $10,000,000 × (45/100) = $4,500,000 0
,
)
`s cost has been allocated on the basis of spaces occupied:
10,000 square feet + 25,000 square feet + 30,000 square feet + 45,000 square feet = 110,000
square feet.

A
l A
l A
lo A
c
lo A
ca
lo
cat
lo A
cati
lo T
lcate
o A
n
aed
lto A
lacted A
t
aed
lo
f
ctd
lo
cait
,o
:’s$cost:
cato 10,000,000 × (10/110) = $909,091
: $ 10,000,000 × (25/110) = $2,272,727
o
atesn
,1
: $ 10,000,000 × (30/110) = $2,727,273
ted
0
: $ 10,000,000 × (45/110) = $3,207,273
o
,ed
f
to
d
0
f
to
0
’s cost:
to
0
:$
o
3 $8,000,000
8,909,091+×$909,091
(6/25) = $2,138,182
= $8,909,091
,: $ 8,909,091 × (10/25) = $3,563,636
: $ 8,909,091 × (9/25) = $3,207,273
0
0
0
1
3
,
0
0
0
,

’s cost has been allocated to Repair.