What do you believe the controller should do and why?
Complete the following questions using Microsoft Excel. No other submission format is allowed. Review the grading rubric to confirm you are meeting the assignment requirements.
Consider the following information for Hamburg Corporation:
| Items | Units |
| Beginning inventory | 85,000 |
| Units started during the year | 155,000 |
| Ending inventory | 61,000 |
Inventory is 100% complete as to materials and 60% complete as to conversion.
| Items | Materials | Conversion |
| Beginning costs (SAR) | 425,000 | 686,000 |
| Costs added during the period (SAR) | 1,255,000 | 980,000 |
Using the WEIGHTED AVERAGE method:
- Calculate the number of units completed during the period.
- Calculate equivalent units for conversion during the period.
- Calculate cost per equivalent units for materials.
Mannheim Corporation manufactures small camping tents and family camping tents. The estimated direct labor time to produce each type of tent is as follows:
| Items | Small | Family |
| Estimated tents produced | 24,500 | 11,000 |
| Direct labor hours per tent | 2.5 | 4.5 |
Estimated overhead for the period = 1,300,000 SAR
- 4 – Compute the overhead cost assigned to each type of tent assuming direct labor hours are used to allocate overhead costs.
The controller is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to the family tent product line because of its complexity. He, therefore, developed the following three activity cost pools and related cost drivers to better understand the costs.
| Activity Cost Pools | Expected Use of Cost Drivers | Estimated Overhead Costs (SAR) |
| Setting up machines | 1,000 setups | 25,000 |
| Assembling | 90,000 labor hours | 980,000 |
| Inspection | 1,200 inspections | 230,000 |
- 5 – Calculate the activity-based overhead rates for these three cost pools.
- 6 – Compute the cost that is assigned to each tent using activity-based costing system, given the following information.
| Expected Use of Cost Drivers per Product | ||
| Items | Small | Family |
| Number of setups | 130 | 825 |
| Direct labor hours | 29,000 | 55,000 |
| Number of inspections | 125 | 1,125 |
- 7 – What do you believe the controller should do and why?
