ACCG200: Excel Assignment 2015 Semester 3 Crystal Jewellery Ltd (CJL) manufactures two types of Jewellery products, 10 Carat Gold and 18 Carat Gold Bangles, and applies overhead on the basis of direct labour hours. Anticipated overhead and direct labour time for the upcoming accounting period are as follows: Overhead $400,000 Direct labour time 12,500 hours Information about the company's products follows. 10 Carat Bangle: Estimated product volume 1,500 units Direct material cost $13 per unit Direct labour costs 1.5 hours at $12 per hour 18 Carat Bangle: Estimated product volume 2,000 units Direct material cost $20 per unit Direct labour costs 2 hours at $12 per hour CJL's overhead of $400,000 can be identified with three major activities: Order processing $75,000 Machine processing $280,000 Product inspection $45,000 These activities are driven by number of orders processed, machine hours worked, and inspection hours, respectively. Data relevant to these activities follow. Orders processed Machine hours worked Inspection hours 10 Carat Bangle: 150 9,000 1,000 18 Carat Bangle: 100 11,000 4,000 Total 250 20,000 5,000 Top management is very concerned about declining profitability despite a healthy increase in sales volume. The decrease in income is especially puzzling because the company recently undertook a massive plant renovation during which new, highly automated machinery was installed—machinery that was expected to produce significant operating efficiencies. Required: 1. Assuming use of direct labour hours to apply overhead to production, calculate the unit manufacturing costs of the 10 Carat Bangle and 18 Carat Bangle if the expected manufacturing volume is attained. 2. Assuming use of activity-based costing, calculate the unit manufacturing costs of the 10 Carat Bangle and 18 Carat Bangle if the expected manufacturing volume is attained. 3. CJL's selling prices are based heavily on cost. (a) Using direct labour hours as an application base, which product is overcosted and which product is undercosted? Calculate the amount of the cost distortion for each product. (b) Is it possible that overcosting and undercosting (i.e. cost distortion) and the subsequent determination of selling prices are contributing to the company's profit woes? Explain. 4. Construct an Excel spreadsheet to solve requirements 1, 2 and 3(a) above. Then show how the solution will change if the total overhead costs increase to: $685,000 as a result of ordering processing costs increasing by $150,000 and product inspection costs increasing by $135,000
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