Seattle Grace Corporation Manufactures Two Models of a Medical Device

question 27

Essay

Seattle Grace Corporation manufactures two models of a medical device: Model 101 and Model 102.
Below is the current year production data for the company:
The 210,000 units of material had a total cost of $1,365,000.Direct labor is $17 per hour.
The company has total overhead production costs of $1,850,000.
a.If Seattle Grace Corporation applies factory overhead using direct labor hours,compute the total production cost and the unit cost for each model
b.If Seattle Grace Corporation applies factory overhead using machine hours,compute the total production cost and the unit cost for each model.
c.Assume that Seattle Grace Corporation has established the following activity centers,costs drivers,and costs to apply factory overhead.
Compute the total cost and the unit cost for each model.
d.Explain why the unit cost for each model is different across the three methods of overhead application.How can such information benefit an organization?

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Definitions:

Operating Cycle

The duration of time from the acquisition of inventory to the collection of cash from receivables, reflecting the company's efficiency in using its assets.

Times Interest Earned

A financial ratio that measures a company's ability to cover its interest charges with its earnings before interest and taxes (EBIT).

Debt-To-Equity Ratio

A calculation to determine a firm's financial leverage by dividing the total amount of its liabilities by the equity of its shareholders.

Equity Multiplier

A financial ratio indicating the proportion of a company's assets that are financed by stockholders’ equity, showing the level of financial leverage.