Kya,Incmanufactures Two Models of High-Pressure Steam Valves,the XR7 Model and the ZD5

question 24

Essay

Kya,Inc.manufactures two models of high-pressure steam valves,the XR7 model and the ZD5 model.Budgeted manufacturing overhead cost and operating data regarding production and sales of 2,000 units of the XR7 model and 8,000 units of the ZD5 model for 2005 follow:
Required:
a)Identify and briefly explain each of the three cost drivers as either unit-level or batch-level or product-level or organization-sustaining level.
b)Calculate the budgeted manufacturing overhead cost for each unit of the two models,using only one unit-level cost driver.
c)Calculate the budgeted manufacturing overhead cost for each unit of the two models,using the activity-based-costing (ABC)method.
d)Assume Kya,Inc.will use only the unit-level driver.Compared to the ABC method,by how much (in terms of total allocated/applied manufacturing overhead cost),if any,will the total output of each model be either under-costed or over-costed?
e)Is the result obtained in part (d)above consistent with your expectations? Explain.

---

Definitions:

360-Day Year

A simplified approach used in some financial calculations where the year is assumed to have 360 days instead of 365 or 366, to facilitate easier interest calculations.

Note

A financial instrument that represents a promise to pay a specific amount of money at a future date or upon demand.

Notes Issued

Financial obligations in the form of promissory notes that a company issues to creditors or investors to raise capital.

Account Payable

Liabilities to suppliers or creditors for goods or services received that have not yet been paid for.