Question

Elliott Engines Inc. produces three products-pistons, valves, and cams-for the heavy equipment industry. Elliott Engines has a very simple production process and product line and uses a single plantwide factory based on direct labor hours. Information about the three products for 20Y2 is as follows: overhead rate allocate overhead the three products. The factory overhead rate Budgeted Volume Direct Labor Price Per Direct Materials Hours Per Unit Per Unit (Units) Unit 6,000 $33 16 Pistons 0.20 20.000 Valves 0.15 Cams 4,000 0.30 19 The estimated direct lal rate is $19 per direct labor hour. Beginning and ending inventories are negligible and are, thus, assumed to be zero. The budgeted factory overhead for Elliott Engines is $140,400. If required, round all per unit answers the nearest cent .Determine the plantwide factory overhead rate. per dlh b. Determine the factory overhead and direct labor cost per unit for each product Direct Labor Direct Labor Factory Overhead Cost Per Unit Hours Per Unit Cost Per Unit dih Pistons dlh Valves dlh Cams c. Use the information above to construct a budgeted gross profit report by product line for the year ended December 31, 20Y2. Include the gross profit as a percent of sales in the last line of your report, rounded to one decimal place. Enter all amounts as positive numbers, except for a negative gross profit/gross profit percentage of sales Elliot Enginesn Product Line ofit Reports For the Year Ended December 31, 20Y2 Pistons Valves Cams Product Costs S Total Product Costs Gross profit Gross profit percentage of sales d. What does the report (c) indicate to you? Valves have the f sales, Valves may require a gross profit as a percent price or cost to manufacture in order to achieve the same profitability as the other two products.

Answer 1

1)PLANTWIDE FACTORY OVERHEAD RATE
(TOTAL OVERHEAD /TOTAL DIRECT LABOR HOUR)
TOTAL DIRECT HOUR CALCULATION
PRODUCTS	VOLUME (A)	DLH PER UNIT (B)	TOTAL HOUR (C = A XB)
PISTONS	6000	0.2	1,200.00
VALVES	20000	0.15	3,000.00
CAMS	4000	0.3	1,200.00
		TOTAL HOUR	5,400.00
($140400/5400)	$            26.00	PER DIRECT LABOR HOUR
2)FACTORY OVERHEAD COST AND DIRECT LABOR COST PER UNIT OF ECHA PRODUCTS
	DIRECT LABOR HOUR PER UNIT (A)	FACTORY OVERHEAD RATE PER HOUR (B)	FACTORY OVERHEAD COST PER UNIT (A XB)	DIRECT LABOR RATE PER HOUR ©	DIRECT LABOR COST PER UNIT ( A XC)
PISTONS	0.2	26	$                  5.20	19	$            3.80
VALVES	0.15	26	$                  3.90	19	$            2.85
CAMERA	0.3	26	$                  7.80	19	$            5.70
3) GROSS PROFIT REPORTS
	PISTONS		VALVES		CAMS
SALES	6000 X 33	$       198,000.00	20000 X 8	$ 160,000.00	4000 X 44	$ 176,000.00
PRODUCT COST
MATERIAL COST	6000 X 16	$         96,000.00	20000 X 3	$    60,000.00	4000 X 19	$    76,000.00
LABOR COST	6000 X 3.8	$         22,800.00	20000X 2.85	$    57,000.00	4000 X 5.7	$    22,800.00
OVERHEAD COST	6000 X 5.2	$         31,200.00	20000 X 3.9	$    78,000.00	4000 X 7.8	$    31,200.00
TOTAL PRODUCT COST		$       150,000.00		$ 195,000.00		$ 130,000.00
GROSS PROFIT		$         48,000.00		$ (35,000.00)		$    46,000.00
GROSS PROFIT % TO SALES		24.24%		-21.88%		26.14%
(GROSS PROFIT/SALES)
4)VALVES HAVE THE NEGATIVE GROSS PROFIT AS A PERCENT OF SALES, VALVES MAY REQUIRE A INCREASE IN PRICE OR DECREASE IN COST
TO MANUFACTURE IN ORDER TO ACHIEVE SAME PROFITABILITY AS THE OTHER TWO PRODUCTS