Pickle Motorcycles, Inc. (PMI), manufactures three motorcycle models: a cruising
ID: 2537654 • Letter: P
Question
Pickle Motorcycles, Inc. (PMI), manufactures three motorcycle models: a cruising bike (Route 66), a street bike (Main Street), and a starter model (Alley Cat). Because of the different materials used, production processes for each model differ significantly in terms of machine types and time requirements. Once parts are produced, however, assembly time per unit required for each type of bike is similar. For this reason, PMI allocates overhead on the basis of machine-hours. Last year, the company shipped 900 Route 66s, 1,900 Main Streets, and 5,400 Alley Cats and had the following revenues and expenses:Explanation / Answer
Answer: Requirement 1 Pickle Motorcycles Income Statement Route 66 Main Street Alley Cat Total Sales Revenue $ 8,100,000.00 $ 12,100,000.00 $ 9,900,000.00 $ 30,100,000.00 Direct Cost: Direct material $ 3,200,000.00 $ 5,300,000.00 $ 3,500,000.00 $ 12,000,000.00 Direct labour $ 285,000.00 $ 476,000.00 $ 1,070,000.00 $ 1,831,000.00 Variable overhead $ 788,148.15 $ 1,970,370.37 $ 2,561,481.48 $ 5,320,000.00 Contribution margin $ 3,826,851.85 $ 4,353,629.63 $ 2,768,518.52 $ 10,949,000.00 Fixed Overhead: $ - Plant administration $ 1,800,000.00 Other fixed overhead $ 2,880,000.00 Grossprofit $ 6,269,000.00 Work Note: 1 Machine setup $ 450,000.00 Order processing $ 1,440,000.00 Warehousing costs $ 1,940,000.00 Energy to run machines $ 918,000.00 Shipping $ 572,000.00 Total variable overhead $ 5,320,000.00 Total Machine hours 54000 (8,000+20,000+26,000) Variable overhead per machine hour $ 98.52 Variable overhead-Route 66 $ 788,148.15 ($98.52*8000) Variable overhead-Main Street $ 1,970,370.37 ($98.52*20000) Variable overhead-Alley Cat $ 2,561,481.48 ($98.52*26000) Total variable overhead $ 5,320,000.00 Requirement 2 Pickle Motorcycles Income Statement Route 66 Main Street Alley Cat Total Sales Revenue $ 8,100,000.00 $ 12,100,000.00 $ 9,900,000.00 $ 30,100,000.00 Direct Cost: Direct material $ 3,200,000.00 $ 5,300,000.00 $ 3,500,000.00 $ 12,000,000.00 Direct labour $ 285,000.00 $ 476,000.00 $ 1,070,000.00 $ 1,831,000.00 Variable overhead Machine setup $ 112,500.00 $ 157,500.00 $ 180,000.00 $ 450,000.00 Order processing $ 450,000.00 $ 450,000.00 $ 540,000.00 $ 1,440,000.00 Warehousing costs $ 485,000.00 $ 533,500.00 $ 921,500.00 $ 1,940,000.00 Energy to run machines $ 136,000.00 $ 340,000.00 $ 442,000.00 $ 918,000.00 Shipping $ 40,000.00 $ 172,000.00 $ 360,000.00 $ 572,000.00 Contribution margin $ 3,391,500.00 $ 4,671,000.00 $ 2,886,500.00 $ 10,949,000.00 Fixed Overhead: Plant administration $ 1,800,000.00 Other fixed overhead $ 2,880,000.00 Gross profit $ 6,269,000.00 Work Note: 1 Total cost Number of activity Cost per actvity Machine setup $ 450,000.00 100 (25+35+40) $ 4,500.00 (450000/100) Order processing $ 1,440,000.00 1600 (500+500+600) $ 900.00 ($1440000/1600) Warehousing costs $ 1,940,000.00 800 (200+220+380) $ 2,425.00 ($1940000/800) Energy to run machines $ 918,000.00 54000 (8000+20000+26000) $ 17.00 (918000/54000) Shipping $ 572,000.00 14300 (1000+4300+9000) $ 40.00 (572000/14300) 2 Machine setup =4500*25 $ 112,500.00 =4500*35 $ 157,500.00 =4500*40 $ 180,000.00 Order processing =900*500 $ 450,000.00 =900*500 $ 450,000.00 =900*600 $ 540,000.00 Warehousing costs =2425*200 $ 485,000.00 =2425*220 $ 533,500.00 =2425*380 $ 921,500.00 Energy to run machines =17*8000 $ 136,000.00 =17*20000 $ 340,000.00 17*26000 $ 442,000.00 Shipping =40*1000 $ 40,000.00 =40*4300 $ 172,000.00 =40*9000 $ 360,000.00