Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making True/False Questions 1. If a manufacturing company is using activity-based costing for internal purposes only, then organization-sustaining overhead costs should not be allocated to any of the products. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium 2. Batch-level activities are performed each time a batch of goods is handled or processed. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 3. Organization-sustaining activities are carried out regardless of how many units are made, how many batches are run, or how many different products are made. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 4. Direct labor-hours or direct labor cost should not be used as a measure of activity in an activity-based costing system. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium 5. Activity-based costing is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore “fixed” costs. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 6. Activity-based costing is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect only variable costs. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-5 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 7. A duration driver provides a measure of the amount of time required to perform an activity. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium 8. In general, transaction drivers are more accurate measures of the consumption of resources than duration drivers. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium 9. The costs of idle capacity should not be assigned to products in activity-based costing. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 10. In traditional costing systems, all manufacturing costs are assigned to products--even manufacturing costs that are not caused by the products. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium 11. Activity-based costing involves a two-stage allocation in which overhead costs are first assigned to departments and then to jobs on the basis of direct labor hours. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Medium 12. In activity-based costing, some costs may be broken down and assigned to two activity cost pools. For example, part of a supervisor's salary may be classified as a productlevel activity and part of it may be classified as a batch-level activity. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium 13. Activity rates in activity-based costing are computed by dividing costs from the firststage allocations by the activity measure for each activity cost pool. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium 8-6 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 14. In the second-stage allocation in activity-based costing, activity rates are used to apply costs to products, customers, and other cost objects. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Medium 15. When a company shifts from a traditional cost system in which manufacturing overhead is applied based on direct labor-hours to an activity-based costing system in which there are batch-level and product-level costs, the unit product costs of high volume products typically decrease whereas the unit product costs of low volume products typically increase. Ans: True AACSB: Analytic AICPA FN: Reporting LO: 8 AICPA BB: Critical Thinking Level: Medium Multiple Choice Questions 16. Which terms would make the following sentence true? Manufacturing companies that benefit the most from activity-based costing are those where overhead costs are a _________ percentage of total product cost and where there is ___________ diversity among the various products that they produce. A) low, little B) low, considerable C) high, little D) high, considerable Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium 17. Would factory security and assembly activities be best classified at an appliance manufacturing plant as unit-level, batch-level, product-level, or organizationsustaining? Security Assembly A) Product Unit B) Batch Batch C) Organization Unit D) Organization Product Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-7 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 18. Which of the following would be an acceptable measure of activity for a material handling activity cost pool? A) B) C) D) Number of Weight of material moves material moved Yes Yes No Yes Yes No No No Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium 19. An activity-based costing system that is designed for internal decision-making generally will not conform to generally accepted accounting principles. Which of the following is NOT a reason for this happening? A) Some manufacturing costs (i.e., the costs of idle capacity and organizationsustaining costs) will not be assigned to products. B) Some nonmanufacturing costs are assigned to products. C) Allocation bases other than direct labor-hours, direct labor cost, and machinehours are used. D) First-stage allocations may be based on subjective interview data. Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Hard 20. Providing the power required to run production equipment is an example of a: A) Unit-level activity. B) Batch-level activity. C) Product-level activity. D) Organization-sustaining activity. Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium 21. Parts administration is an example of a: A) Unit-level activity. B) Batch-level activity. C) Product-level activity. D) Organization-sustaining. Ans: C 8-8 LO: 1 Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 22. If a cost object such as a product or customer has a negative green margin, then: A) its red margin will be positive. B) its red margin may be either positive or negative. C) its red margin will be negative. D) its red margin will be zero. Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 8A LO: 6 Level: Medium 23. Tatman Corporation uses an activity-based costing system with the following three activity cost pools: Activity Cost Pool Total Activity Fabrication ......................... 10,000 machine-hours Order processing................ 800 orders Other .................................. Not applicable The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs. The company has provided the following data concerning its costs: Wages and salaries ............ Depreciation ...................... Occupancy ......................... Total................................... $320,000 220,000 120,000 $660,000 The distribution of resource consumption across activity cost pools is given below: Wages and salaries ...... Depreciation ................ Occupancy ................... Activity Cost Pools Order Fabrication Processing Other 20% 65% 15% 15% 35% 50% 5% 70% 25% Total 100% 100% 100% The activity rate for the Fabrication activity cost pool is closest to: A) $3.30 per machine-hour B) $13.20 per machine-hour C) $10.30 per machine-hour D) $8.80 per machine-hour Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-9 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Solution: Total Fabrication Cost: Wages and salaries: 20% × $320,000 ....... $ 64,000 Depreciation: 15% × $220,000 ................. 33,000 Occupancy: 5% × $120,000 ..................... 6,000 Total.......................................................... $103,000 (a) ÷ (b) Activity Cost Pool Fabrication (a) Total Cost $103,000 (b) Total Activity 10,000 machine-hours Activity Rate $10.30 per machine-hour 24. Leaper Corporation uses an activity-based costing system with the following three activity cost pools: Activity Cost Pool Fabrication ......................... Order processing................ Other .................................. Total Activity 40,000 machine-hours 200 orders Not applicable The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs. The company has provided the following data concerning its costs: Wages and salaries ...... Depreciation ................ Occupancy ................... Total............................. $360,000 140,000 160,000 $660,000 The distribution of resource consumption across activity cost pools is given below: Wages and salaries ...... Depreciation ................ Occupancy ................... Activity Cost Pools Order Fabrication Processing Other 35% 40% 25% 5% 55% 40% 30% 45% 25% Total 100% 100% 100% The activity rate for the Order Processing activity cost pool is closest to: A) $1,485 per order B) $1,540 per order C) $1,465 per order D) $1,320 per order 8-10 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium Solution: Total Order Processing Cost: Wages and salaries: 40% × $360,000 ....... $144,000 Depreciation: 55% × $140,000 ................. 77,000 Occupancy: 45% × $160,000 ................... 72,000 Total.......................................................... $293,000 (a) ÷ (b) Activity Cost Pool Order Processing (a) Total Cost $293,000 (b) Total Activity 200 orders Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Activity Rate $1,465 per order 8-11 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 25. Huelskamp Corporation has provided the following data concerning its overhead costs for the coming year: Wages and salaries ...... Depreciation ................ Rent ............................. Total............................. $360,000 120,000 180,000 $660,000 The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year: Activity Cost Pool Total Activity Assembly ..................... 60,000 labor-hours Order processing.......... 400 orders Other ............................ Not applicable The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs. The distribution of resource consumption across activity cost pools is given below: Wages and salaries ...... Depreciation ................ Rent ............................. Activity Cost Pools Order Assembly Processing Other 25% 65% 10% 15% 45% 40% 35% 40% 25% Total 100% 100% 100% The activity rate for the Assembly activity cost pool is closest to: A) $2.65 per labor-hour B) $3.85 per labor-hour C) $2.85 per labor-hour D) $2.75 per labor-hour Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium 8-12 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Solution: Total Assembly Cost: Wages and salaries: 25% × $360,000 ....... $ 90,000 Depreciation: 15% × $120,000 ................. 18,000 Rent: 35% × $180,000 .............................. 63,000 Total.......................................................... $171,000 (a) ÷ (b) Activity Cost Pool Assembly (a) Total Cost $171,000 (b) Total Activity 60,000 labor-hours Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Activity Rate $2.85 per labor-hour 8-13 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 26. Bennette Corporation has provided the following data concerning its overhead costs for the coming year: Wages and salaries ...... Depreciation ................ Rent ............................. Total............................. $340,000 120,000 140,000 $600,000 The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year: Activity Cost Pool Assembly .................. Order processing....... Other ......................... Total Activity 30,000 labor-hours 500 orders Not applicable The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs. The distribution of resource consumption across activity cost pools is given below: Wages and salaries ...... Depreciation ................ Rent ............................. Assembly 40% 15% 35% Activity Cost Pools Order Processing Other 35% 25% 45% 40% 30% 35% Total 100% 100% 100% The activity rate for the Order Processing activity cost pool is closest to: A) $430 per order B) $420 per order C) $360 per order D) $440 per order Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium 8-14 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Solution: Total Order Processing Cost: Wages and salaries: 35% × $340,000 ....... $119,000 Depreciation: 45% × $120,000 ................. 54,000 Rent: 30% × $140,000 .............................. 42,000 Total.......................................................... $215,000 (a) ÷ (b) Activity Cost Pool Order Processing (a) Total Cost $215,000 (b) Total Activity 500 orders Activity Rate $430 per order 27. Eccles Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system: Costs: Wages and salaries ............ $340,000 Depreciation ...................... 180,000 Utilities .............................. 200,000 Total................................... $720,000 Distribution of resource consumption: Wages and salaries ...... Depreciation ................ Utilities ........................ Assembly 20% 15% 5% Activity Cost Pools Setting Up Other 60% 20% 35% 50% 55% 40% Total 100% 100% 100% How much cost, in total, would be allocated in the first-stage allocation to the Assembly activity cost pool? A) $144,000 B) $96,000 C) $36,000 PD) $105,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-15 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Solution: Total Assembly Cost: Wages and salaries: 20% × $340,000 ....... $ 68,000 Depreciation: 15% × $180,000 ................. 27,000 Utilities: 5% × $200,000 .......................... 10,000 Total.......................................................... $105,000 28. Mayeux Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system: Costs: Wages and salaries ............ Depreciation ...................... Utilities .............................. Total................................... $320,000 160,000 240,000 $720,000 Distribution of resource consumption: Wages and salaries ...... Depreciation ................ Utilities ........................ Assembly 50% 10% 15% Activity Cost Pools Setting Up Other 40% 10% 55% 35% 50% 35% Total 100% 100% 100% How much cost, in total, would be allocated in the first-stage allocation to the Setting Up activity cost pool? A) $360,000 B) $336,000 C) $288,000 D) $348,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Total Setting Up Cost: Wages and salaries: 40% × $320,000 ....... $128,000 Depreciation: 55% × $160,000 ................. 88,000 Utilities: 50% × $240,000 ........................ 120,000 Total.......................................................... $336,000 8-16 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 29. Gutknecht Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system: Costs: Wages and salaries ............ Depreciation ...................... Utilities .............................. Total................................... $300,000 180,000 240,000 $720,000 Distribution of resource consumption: Wages and salaries ........ Depreciation .................. Utilities .......................... Assembly 35% 5% 10% Activity Cost Pools Setting Up Other 40% 25% 60% 35% 60% 30% Total 100% 100% 100% How much cost, in total, would be allocated in the first-stage allocation to the Other activity cost pool? A) $138,000 B) $210,000 C) $180,000 D) $216,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Total Other Cost: Wages and salaries: 25% × $300,000 ....... $ 75,000 Depreciation: 35% × $180,000 ................. 63,000 Utilities: 30% × $240,000 ........................ 72,000 Total.......................................................... $210,000 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-17 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 30. Lakatos Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs: Costs: Wages and salaries ............ Depreciation ...................... Occupancy ......................... Total................................... $420,000 240,000 220,000 $880,000 The distribution of resource consumption across the three activity cost pools is given below: Activity Cost Pools Order Fabricating Processing Other Wages and salaries ........ 10% 75% 15% Depreciation .................. 5% 50% 45% Occupancy ..................... 30% 35% 35% Total 100% 100% 100% How much cost, in total, would be allocated in the first-stage allocation to the Fabricating activity cost pool? A) $88,000 B) $132,000 C) $264,000 D) $120,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Total Fabricating Cost: Wages and salaries: 10% × $420,000 ....... $ 42,000 Depreciation: 5% × $240,000 ................... 12,000 Occupancy: 30% × $220,000 ................... 66,000 Total.......................................................... $120,000 8-18 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 31. Perl Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs: Costs: Wages and salaries ............ Depreciation ...................... Occupancy ......................... Total................................... $360,000 200,000 100,000 $660,000 The distribution of resource consumption across the three activity cost pools is given below: Activity Cost Pools Order Fabricating Processing Other Wages and salaries ........ 15% 60% 25% Depreciation .................. 20% 35% 45% Occupancy ..................... 25% 50% 25% Total 100% 100% 100% How much cost, in total, would be allocated in the first-stage allocation to the Order Processing activity cost pool? A) $336,000 B) $319,000 C) $330,000 D) $396,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Total Order Processing Cost: Wages and salaries: 60% × $360,000 ....... $216,000 Depreciation: 35% × $200,000 ................. 70,000 Occupancy: 50% × $100,000 ................... 50,000 Total.......................................................... $336,000 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-19 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 32. Hosley Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs: Costs: Wages and salaries ...... Depreciation ................ Occupancy ................... Total............................. $360,000 100,000 120,000 $580,000 The distribution of resource consumption across the three activity cost pools is given below: Activity Cost Pools Order Fabricating Processing Other Total Wages and salaries ........ 50% 40% 10% 100% Depreciation .................. 10% 45% 45% 100% Occupancy ..................... 5% 60% 35% 100% How much cost, in total, would be allocated in the first-stage allocation to the Other activity cost pool? A) $123,000 B) $174,000 C) $58,000 D) $203,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Total Other Cost: Wages and salaries: 10% × $360,000 ....... $ 36,000 Depreciation: 45% × $100,000 ................. 45,000 Occupancy: 35% × $120,000 ................... 42,000 Total.......................................................... $123,000 8-20 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 33. Feldpausch Corporation has provided the following data from its activity-based costing system: Activity Cost Pool Assembly ..................... Processing orders ......... Inspection .................... Total Cost $1,137,360 $28,479 $97,155 Total Activity 84,000 machine-hours 1,100 orders 1,270 inspection-hours The company makes 470 units of product W26B a year, requiring a total of 660 machine-hours, 50 orders, and 40 inspection-hours per year. The product's direct materials cost is $40.30 per unit and its direct labor cost is $42.22 per unit. The product sells for $118.00 per unit. According to the activity-based costing system, the product margin for product W26B is: A) $6,444.70 per unit B) $4,679.20 per unit C) $3,384.70 per unit D) $16,675.60 per unit Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4,5 Level: Medium Solution: Activity Cost Pool Assembly (a) Total Cost $1,137,360 Processing Orders Inspection 28,479 97,155 (b) Total Activity 84,000 machinehours 1,100 orders 1,270 inspectionhours (a) ÷ (b) Activity Rate $13.54 per machine-hour $25.89 per order $76.50 per inspection-hour Calculation of Overhead Costs: Activity Cost Pool Assembly Processing Orders Inspection (a) Activity Rate $13.54 per MH $25.89 per order $76.50 per IH (b) Total Activity 660 MHs 50 orders 40 IHs Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition (a) × (b) ABC Cost $8,936.40 $1,294.50 $3,060.00 8-21 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Sales.............................................................................$55,460.00 Costs: Direct materials (470 × $40.30) ............................... $18,941.00 Direct labor (470 × $42.22) ..................................... 19,843.40 Assembly ................................................................. 8,936.40 Processing ................................................................ 1,294.50 Inspection ................................................................. 3,060.00 52,075.30 Product margin ............................................................$ 3,384.70 34. Houseal Corporation has provided the following data from its activity-based costing system: Activity Cost Pool Assembly ..................... Processing orders ......... Inspection .................... Total Cost $613,250 $46,170 $146,110 Total Activity 55,000 machine-hours 1,500 orders 1,900 inspection-hours Data concerning one of the company’s products, Product W58B, appear below: Selling price per unit ........................... Direct materials cost per unit............... Direct labor cost per unit ..................... Annual unit production and sales ........ Annual machine-hours ........................ Annual orders ...................................... Annual inspection-hours...................... $113.70 $48.14 $11.62 360 1,040 60 30 According to the activity-based costing system, the product margin for product W58B is: A) $3,668.60 B) $5,975.60 C) $5,515.40 D) $19,418.40 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4,5 Level: Medium 8-22 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Solution: Activity Cost Pool Assembly (a) Total Cost $613,250 Processing Orders Inspection 46,170 146,110 (b) Total Activity 55,000 machinehours 1,500 orders 1,900 inspectionhours (a) ÷ (b) Activity Rate $11.15 per machine-hour $30.78 per order $76.90 per inspection-hour Calculation of Overhead Costs: Activity Cost Pool Assembly Processing Orders Inspection (a) Activity Rate $11.15 per MH $30.78 per order $76.90 per IH (b) Total Activity 1,040 MHs 60 orders 30 IHs (a) × (b) ABC Cost $11,596.00 $1,846.80 $2,307.00 Sales (360 × $113.70) ..................................................$40,932.00 Costs: Direct materials (360 × $48.14) ............................... $17,330.40 Direct labor (360 × $11.62) ..................................... 4,183.20 Assembly ................................................................. 11,596.00 Processing ................................................................ 1,846.80 Inspection ................................................................. 2,307.00 37,263.40 Product margin ............................................................$ 3,668.60 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-23 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 35. Dobles Corporation has provided the following data from its activity-based costing system: Activity Cost Pool Assembly ..................... Processing orders ......... Inspection .................... Total Cost $228,060 $34,068 $125,560 Total Activity 18,000 machine-hours 1,200 orders 1,720 inspection-hours The company makes 420 units of product D28K a year, requiring a total of 460 machine-hours, 80 orders, and 10 inspection-hours per year. The product's direct materials cost is $48.96 per unit and its direct labor cost is $25.36 per unit. According to the activity-based costing system, the average cost of product D28K is closest to: A) $95.34 per unit B) $93.60 per unit C) $74.32 per unit D) $89.93 per unit Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4 Level: Medium Solution: Activity Cost Pool Assembly (a) Total Cost $228,060 Processing Orders Inspection 34,068 125,560 (b) Total Activity 18,000 machinehours 1,200 orders 1,720 inspectionhours Average Cost of Product D28K: Direct materials ......................................... Direct labor ................................................ Assembly [($12.67 × 460) ÷ 420] ............. Processing orders [($28.39 × 80) ÷ 420] ... Inspection [($73.00 × 10) ÷ 420]............... 8-24 (a) ÷ (b) Activity Rate $12.67 per machine-hour $28.39 per order $73.00 per inspection-hour $48.96 25.36 13.88 5.40 1.74 $95.34 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 36. Paparo Corporation has provided the following data from its activity-based costing system: Activity Cost Pool Assembly ..................... Processing orders ......... Inspection .................... Total Cost $846,040 $64,056 $102,408 Total Activity 52,000 machine-hours 1,700 orders 1,360 inspection-hours Data concerning the company’s product Q79Y appear below: Annual unit production and sales ........ 450 Annual machine-hours ........................ 1,080 Annual number of orders ..................... 70 Annual inspection hours ...................... 20 Direct materials cost ............................ $44.00 per unit Direct labor cost .................................. $41.03 per unit According to the activity-based costing system, the average cost of product Q79Y is closest to: A) $133.29 per unit B) $85.03 per unit C) $127.43 per unit D) $129.94 per unit Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4 Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-25 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Solution: Activity Cost Pool Assembly (a) Total Cost $846,040 Processing Orders Inspection 64,056 102,408 (b) Total Activity 52,000 machinehours 1,700 orders 1,360 inspectionhours Average Cost of Product Q79Y: Direct materials ......................................... Direct labor ................................................ Assembly [($16.27 × 1,080) ÷ 450] .......... Processing orders [($37.68 × 70) ÷ 450] ... Inspection [($75.30 × 20) ÷ 450]............... (a) ÷ (b) Activity Rate $16.27 per machine-hour $37.68 per order $75.30 per inspection-hour $ 44.00 41.03 39.05 5.86 3.35 $133.29 37. Millner Corporation has provided the following data from its activity-based costing accounting system: Activity Cost Pools Designing products ............ Setting up batches .............. Assembling products ......... Total Cost $1,372,448 $33,300 $126,160 Total Activity 7,798 product design hours 740 batch set-ups 6,640 assembly hours The activity rate for the “designing products” activity cost pool is closest to: A) $101 per product design hour B) $1,372,448 per product design hour C) $176 per product design hour D) $57 per product design hour Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy Solution: Activity Cost Pool Designing Products 8-26 (a) Total Cost $1,372,448 (b) Total Activity 7,798 PDHs (a) ÷ (b) Activity Rate $176 per PDH Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 38. Data concerning three of the activity cost pools of Salcido LLC, a legal firm, have been provided below: Activity Cost Pools Researching legal issues .... Meeting with clients .......... Preparing documents ......... Total Cost Total Activity $20,480 640 research hours $1,182,239 7,253 meeting hours $91,840 5,740 documents The activity rate for the “meeting with clients” activity cost pool is closest to: A) $95 per meeting hour B) $61 per meeting hour C) $163 per meeting hour D) $1,182,239 per meeting hour Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy Solution: Activity Cost Pool Meeting with clients (a) Total Cost $1,182,239 (b) Total Activity 7,253 meeting hours Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition (a) ÷ (b) Activity Rate $163 per meeting hour 8-27 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 39. Gould Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products: Activity Cost Pools Setting up batches .......................... Processing customer orders ........... Assembling products ..................... Activity Rate $59.06 per batch $72.66 per customer order $3.75 per assembly hour Data concerning two products appear below: Number of batches......................... Number of customer orders ........... Number of assembly hours ............ Product K91B Product F65O 84 50 32 43 483 890 How much overhead cost would be assigned to Product K91B using the activity-based costing system? A) $9,097.41 B) $81,146.53 C) $4,961.04 D) $135.47 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy Solution: Activity Cost Pool Setting up batches Processing customer orders Assembling products 8-28 (a) Activity Rate $59.06 per batch $72.66 per order $3.75 per AH (b) Total Activity 84 batches (a) × (b) ABC Cost $4,961.04 32 orders 2,325.12 483 AHs 1,811.25 $9,097.41 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 40. Hane Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products: Activity Cost Pools Assembling products ..................... Processing customer orders ........... Setting up batches .......................... Activity Rate $8.90 per assembly hour $31.23 per customer order $43.72 per batch Data for one of the company’s products follow: Number of assembly hours ............ Number of customer orders ........... Number of batches......................... Product U94W 389 53 61 How much overhead cost would be assigned to Product U94W using the activitybased costing system? A) $42,176.55 B) $83.85 C) $7,784.21 D) $2,666.92 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy Solution: Activity Cost Pool Assembling products Processing customer orders Setting up batches (a) Activity Rate $8.90 per AH $31.23 per order $43.72 per batch (b) Total Activity 389 AHs 53 orders (a) × (b) ABC Cost $3,462.10 1,655.19 61 batches 2,666.92 $7,784.21 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-29 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 41. Activity rates from Lippard Corporation's activity-based costing system are listed below. The company uses the activity rates to assign overhead costs to products: Activity Cost Pools Processing customer orders ........... Assembling products ..................... Setting up batches .......................... Activity Rate $31.62 per customer order $2.86 per assembly hour $46.61 per batch Last year, Product H50E involved 9 customer orders, 666 assembly hours, and 77 batches. How much overhead cost would be assigned to Product H50E using the activity-based costing system? A) $60,979.68 B) $3,588.97 C) $5,778.31 D) $81.09 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy Solution: Activity Cost Pool Processing customer orders Assembling products Setting up batches (a) Activity Rate $31.62 per order $2.86 per AH $46.61 per batch (b) Total Activity 9 orders (a) × (b) ABC Cost $ 284.58 666 AHs 77 batches 1,904.76 3,588.97 $5,778.31 8-30 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Use the following to answer questions 42-43: Weldon Corporation has provided the following data from its activity-based costing accounting system: Indirect factory wages ............................ Factory equipment depreciation ............. $340,000 $240,000 Distribution of Resource Consumption across Activity Cost Pools: Indirect factory wages ................... Factory equipment depreciation .... Activity Cost Pools Customer Product Orders Processing Other Total 25% 65% 10% 100% 40% 40% 20% 100% The “Other” activity cost pool consists of the costs of idle capacity and organizationsustaining costs that are not assigned to products. 42. How much indirect factory wages and factory equipment depreciation cost would be assigned to the Customer Orders activity cost pool? A) $188,500 B) $181,000 C) $290,000 D) $580,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2 Level: Easy Solution: Customer Orders Cost: Indirect factory wages: 25% × $340,000............................................ $ 85,000 Factory equipment depreciation: 40% × $240,000 ............................ 96,000 Total.................................................................................................... $181,000 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-31 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 43. How much indirect factory wages and factory equipment depreciation cost would NOT be assigned to products using the activity-based costing system? A) $340,000 B) $82,000 C) $0 D) $240,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2 Level: Easy Solution: Other Cost: Indirect factory wages: 10% × $340,000............................................ $34,000 Factory equipment depreciation: 20% × $240,000 ............................ 48,000 Total.................................................................................................... $82,000 Use the following to answer questions 44-45: Tomasini Corporation has provided the following data from its activity-based costing accounting system: Supervisory wages ............ Factory supplies ................ $660,000 $280,000 Distribution of Resource Consumption across Activity Cost Pools: Supervisory wages ... Factory supplies ....... Activity Cost Pools Batch Unit Processing Processing Other 20% 70% 10% 45% 35% 20% Total 100% 100% The “Other” activity cost pool consists of the costs of idle capacity and organizationsustaining costs that are not assigned to products. 8-32 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 44. How much supervisory wages and factory supplies cost would be assigned to the Batch Processing activity cost pool? A) $940,000 B) $470,000 C) $305,500 D) $258,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2 Level: Easy Solution: Batch Processing Cost: Supervisory wages: 20% × $660,000 ................................................. $132,000 Factory supplies: 45% × $280,000 ..................................................... 126,000 Total.................................................................................................... $258,000 45. How much supervisory wages and factory supplies cost would NOT be assigned to products using the activity-based costing system? A) $122,000 B) $660,000 C) $280,000 D) $0 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2 Level: Easy Solution: Other Cost: Supervisory wages: 10% × $660,000 ................................................. $ 66,000 Factory supplies: 20% × $280,000 ..................................................... 56,000 Total.................................................................................................... $122,000 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-33 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Use the following to answer questions 46-47: The following data have been provided by Letze Corporation from its activity-based costing accounting system: Factory supervision ........... Indirect factory labor ......... $460,000 $220,000 Distribution of Resource Consumption across Activity Cost Pools: Activity Cost Pools Batch Set-Up Expediting Other Factory supervision ........... 55% 35% 10% Indirect factory labor ......... 60% 20% 20% Total 100% 100% The “Other” activity cost pool consists of the costs of idle capacity and organizationsustaining costs that are not assigned to products. 46. How much factory supervision and indirect factory labor cost would be assigned to the Batch Set-Up activity cost pool? A) $680,000 B) $385,000 C) $391,000 D) $340,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2 Level: Easy Solution: Batch Set-Up Cost: Factory supervision: 55% × $460,000 ................................................ $253,000 Indirect factory labor: 60% × $220,000 ............................................. 132,000 Total.................................................................................................... $385,000 8-34 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 47. How much factory supervision and indirect factory labor cost would NOT be assigned to products using the activity-based costing system? A) $220,000 B) $90,000 C) $0 D) $460,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2 Level: Easy Solution: Other Cost: Factory supervision: 10% × $460,000 ................................................ $46,000 Indirect factory labor: 20% × $220,000 ............................................. 44,000 Total.................................................................................................... $90,000 Use the following to answer questions 48-49: Forliche Florist specializes in large floral bouquets for hotels and other commercial spaces. The company has provided the following data concerning its annual overhead costs and its activity based costing system: Overhead costs: Wages and salaries ............ Other expenses .................. Total .................................. $ 80,000 40,000 $120,000 Distribution of resource consumption: Activity Cost Pools Wages and salaries ... Other expenses ......... Making Bouquets 60% 45% Delivery 30% 25% Other 10% 30% Total 100% 100% The “Other” activity cost pool consists of the costs of idle capacity and organizationsustaining costs. The amount of activity for the year is as follows: Activity Cost Pool Making bouquets ...... Delivery .................... Activity 40,000 bouquets 5,000 deliveries Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-35 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 48. What would be the total overhead cost per bouquet according to the activity based costing system? In other words, what would be the overall activity rate for the making bouquets activity cost pool? (Round to the nearest whole cent.) A) $1.65 B) $1.35 C) $1.58 D) $1.80 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium Solution: Making Bouquets Cost: Wages and salaries: 60% × $80,000 ................................................... $48,000 Other expenses: 45% × $40,000 ......................................................... 18,000 Total.................................................................................................... $66,000 Activity Cost Pool Making Bouquets (a) Total Cost $66,000 (b) Total Activity 40,000 bouquets (a) ÷ (b) Activity Rate $1.65 per bouquet 49. What would be the total overhead cost per delivery according to the activity based costing system? In other words, what would be the overall activity rate for the deliveries activity cost pool? (Round to the nearest whole cent.) A) $7.20 B) $6.60 C) $6.00 D) $6.80 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium Solution: Delivery Cost: Wages and salaries: 30% × $80,000 ................................................... $24,000 Other expenses: 25% × $40,000 ......................................................... 10,000 Total.................................................................................................... $34,000 Activity Cost Pool Delivery 8-36 (a) Total Cost $34,000 (b) Total Activity 5,000 deliveries (a) ÷ (b) Activity Rate $6.80 per delivery Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Use the following to answer questions 50-52: Dietz Company uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system: Costs: Manufacturing overhead ........................... Selling and administrative expenses ......... Total .......................................................... $440,000 240,000 $680,000 Distribution of resource consumption: Manufacturing overhead ..................... Selling and administrative expenses ... Order Size 55% 30% Activity Cost Pools Customer Support Other Total 35% 10% 100% 50% 20% 100% The “Other” activity cost pool consists of the costs of idle capacity and organizationsustaining costs. You have been asked to complete the first-stage allocation of costs to the activity cost pools. 50. How much cost, in total, would be allocated in the first-stage allocation to the Order Size activity cost pool? A) $314,000 B) $289,000 C) $204,000 D) $374,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Solution: Order Size Cost: Manufacturing overhead: 55% × $440,000 ........................................ $242,000 Selling and administrative expenses: 30% × $240,000 ...................... 72,000 Total.................................................................................................... $314,000 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-37 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 51. How much cost, in total, would be allocated in the first-stage allocation to the Customer Support activity cost pool? A) $274,000 B) $238,000 C) $289,000 D) $340,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Solution: Customer Support Cost: Manufacturing overhead: 35% × $440,000 ........................................ $154,000 Selling and administrative expenses: 50% × $240,000 ...................... 120,000 Total.................................................................................................... $274,000 52. How much cost, in total, should NOT be allocated to orders and products in the second stage of the allocation process if the activity-based costing system is used for internal decision-making? A) $68,000 B) $0 C) $92,000 D) $136,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Other Cost: Manufacturing overhead: 10% × $440,000 ........................................ $44,000 Selling and administrative expenses: 20% × $240,000 ...................... 48,000 Total.................................................................................................... $92,000 8-38 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Use the following to answer questions 53-54: The controller of Hendershot Company estimates the amount of materials handling overhead cost that should be allocated to the company's two products using the data that are given below: Total expected units produced .................. Total expected material moves.................. Expected direct labor-hours per unit ......... Wall Mirrors Specialty Windows 6,000 3,000 500 100 6 9 The total materials handling cost for the year is expected to be $6,123.60. 53. If the materials handling cost is allocated on the basis of direct labor-hours, how much of the total materials handling cost would be allocated to the wall mirrors? (Round off your answer to the nearest whole dollar.) A) $2,449 B) $4,144 C) $3,499 D) $3,062 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4 Level: Easy Source: CMA, adapted Solution: Total Direct Labor-Hours Wall Mirrors: 6,000 units × 6 DLHs per unit .................................... 36,000 DLHs Specialty Mirrors: 3,000 units × 9 DLHs per unit ............................. 27,000 DLHs Total ................................................................................................... 63,000 DLHs Activity Cost Pool Direct labor-hours (a) Total Cost $6,123.60 (b) Total Activity 63,000 DLHs (a) ÷ (b) Activity Rate $.0972 per DLH Materials Handling Cost for Wall Mirrors: Activity Cost Pool Direct labor-hours (a) Activity Rate $.0972 per DLH (b) Total Activity 36,000 DLHs Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition (a) × (b) ABC Cost $3,499 8-39 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 54. If the materials handling cost is allocated on the basis of material moves, how much of the total materials handling cost would be allocated to the specialty windows? (Round off your answer to the nearest whole dollar.) A) $1,021 B) $3,674 C) $3,062 D) $1,980 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4 Level: Easy Source: CMA, adapted Solution: (a) Activity Cost Pool Total Cost Material moves $6,123.60 *500 + 100 = 600 moves (b) Total Activity 600 moves* (a) ÷ (b) Activity Rate $10.206 per move Materials Handling Cost for Specialty Mirrors: Activity Cost Pool Material moves (a) (b) Activity Rate Total Activity $10.206 per move 100 moves (a) × (b) ABC Cost $1,021 Use the following to answer questions 55-56: Swimm Company allocates materials handling cost to the company's two products using the below data: Total expected units produced ............ Total expected material moves............ Expected direct labor-hours per unit ... Modular Homes Prefab Barns 3,000 4,000 400 100 700 200 The total materials handling cost for the year is expected to be $72,065. 8-40 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 55. If the materials handling cost is allocated on the basis of direct labor-hours, how much of the total materials handling cost would be allocated to the prefab barns? (Round off your answer to the nearest whole dollar.) A) $16,014 B) $19,880 C) $36,890 D) $36,033 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4 Level: Easy Source: CMA, adapted Solution: Total Direct Labor-Hours Modular Homes: 3,000 units × 700 DLHs per unit ............................ 2,100,000 DLHs Prefab Barns: 4,000 units × 200 DLHs per unit ................................. 800,000 DLHs Total.................................................................................................... 2,900,000 DLHs Activity Cost Pool Direct labor-hours (a) Total Cost $72,065 (b) Total Activity 2,900,000 DLHs (a) ÷ (b) Activity Rate $.02485 per DLH Materials Handling Cost for Prefab Barns: Activity Cost Pool Direct labor-hours (a) Activity Rate $.02485 per DLH (b) Total Activity 800,000 DLHs Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition (a) × (b) ABC Cost $19,880 8-41 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 56. If the materials handling cost is allocated on the basis of material moves, how much of the total materials handling cost would be allocated to the modular homes? (Round off your answer to the nearest whole dollar.) A) $36,033 B) $57,652 C) $56,051 D) $35,175 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4 Level: Easy Source: CMA, adapted Solution: (a) Activity Cost Pool Total Cost Material moves $72,065 *400 + 100 = 500 moves (b) Total Activity 500 moves* Materials Handling Cost for Modular Homes: (a) (b) Activity Cost Pool Activity Rate Total Activity Material moves $144.13 per move 400 moves (a) ÷ (b) Activity Rate $144.13 per move (a) × (b) ABC Cost $57,652 Use the following to answer questions 57-58: Abel Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 200 units and of Product B is 400 units. There are three activity cost pools, with estimated costs and expected activity as follows: Expected Activity Activity Cost Pool Activity 1 ............... Activity 2 ............... Activity 3 ............... 8-42 Estimated Cost $16,660 $18,450 $9,731 Product A 600 1,100 60 Product B 100 700 160 Total 700 1,800 220 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 57. The activity rate for Activity 2 is closest to: A) $24.91 B) $26.36 C) $16.77 D) $10.25 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium Solution: Activity Cost Pool Activity 2 (a) Total Cost $18,450 (b) (a) ÷ (b) Total Activity Activity Rate 1,800 $10.25 58. The cost per unit of Product B is closest to: A) $41.58 B) $81.53 C) $74.73 D) $17.69 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Hard Solution: Activity Cost Pool Activity 1 Activity 2 Activity 3 (a) Total Cost $16,660 $18,450 $9,731 (b) Total Activity 700 1,800 220 (a) ÷ (b) Activity Rate $23.80 $10.25 $44.23 Total Cost of Product B: Activity Cost Pool Activity 1 Activity 2 Activity 3 (a) Activity Rate $23.80 $10.25 $44.23 (b) Total Activity 100 700 160 (a) × (b) ABC Cost $ 2,380.00 7,175.00 7,076.80 $16,631.80 Cost per unit of Product B = $16,631.80 ÷ 400 units = $41.58 per unit Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-43 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Use the following to answer questions 59-60: Andris Corporation uses activity-based costing to determine product costs for external financial reports. The company has provided the following data concerning its activity-based costing system: Estimated Overhead Activity Cost Pools(and Activity Measures) Cost Machine related (machine-hours) ................ $46,400 Batch setup (setups) ..................................... $434,000 General factory (direct labor-hours)............. $226,500 Activity Cost Pools Machine related ........... Batch setup .................. General factory ............ Expected Activity Total Product X Product Y 4,000 3,000 1,000 7,000 3,000 4,000 15,000 7,000 8,000 59. The activity rate for the batch setup activity cost pool is closest to: A) $62.00 B) $101.00 C) $144.70 D) $108.50 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium Solution: Activity Cost Pool Batch setup 8-44 (a) Total Cost $434,000 (b) (a) ÷ (b) Total Activity Activity Rate 7,000 $62.00 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 60. Assuming that actual activity turns out to be the same as expected activity, the total amount of overhead cost allocated to Product X would be closest to: A) $353,450 B) $303,000 C) $326,500 D) $434,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Medium Solution: Activity Cost Pool Machine related Batch setup General factory (a) Total Cost $46,400 $434,000 $226,500 (b) (a) ÷ (b) Total Activity Activity Rate 4,000 $11.60 7,000 $62.00 15,000 $15.10 Total Overhead Cost Allocated to Product X: Activity Cost Pool Machine related Batch setup General factory (a) Activity Rate $11.60 $62.00 $15.10 (b) Total Activity 3,000 3,000 7,000 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition (a) × (b) ABC Cost $ 34,800 186,000 105,700 $326,500 8-45 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Use the following to answer questions 61-63: Nissley Wedding Fantasy Company makes very elaborate wedding cakes to order. The owner of the company has provided the following data concerning the activity rates in its activitybased costing system: Activity Cost Pools Size-related ..................... Complexity-related ......... Order-related .................. Activity Rate $1.13 per guest $28.22 per tier $74.72 per order The measure of activity for the size-related activity cost pool is the number of planned guests at the wedding reception. The greater the number of guests, the larger the cake. The measure of complexity is the number of tiers in the cake. The activity measure for the order-related cost pool is the number of orders. (Each wedding involves one order.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for separately. Data concerning two recent orders appear below: Number of reception guests ...................... Number of tiers on the cake ...................... Cost of purchased decorations for cake .... 8-46 Tijerina Wedding 49 2 $28.60 Twersky Wedding 126 4 $54.64 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 61. Assuming that all of the costs listed above are avoidable costs in the event that an order is turned down, what amount would the company have to charge for the Tijerina wedding cake to just break even? A) $74.72 B) $215.13 C) $28.60 D) $260.31 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4,5 Level: Medium Solution: Total Cost for Tijerina Wedding Cake Order: (a) (b) Activity Cost Pool Activity Rate Total Activity Size-related $1.13 per guest 49 guests Complexity-related $28.22 per tier 2 tiers $74.72 per 1 order Order-related order Cost of purchased decorations for cake ............................. Total cost ........................................................................... Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition (a) × (b) ABC Cost $ 55.37 56.44 74.72 28.60 $215.13 8-47 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 62. Assuming that the company charges $465.39 for the Twersky wedding cake, what would be the overall margin on the order? A) $135.41 B) $80.77 C) $384.62 D) $155.49 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4,5 Level: Medium Solution: (a) (b) Activity Rate Total Activity $1.13 per guest 126 guests $28.22 per tier 4 tiers $74.72 per 1 order Order-related order Cost of purchased decorations for cake ............................. Total cost ........................................................................... Activity Cost Pool Size-related Complexity-related Sales ............................... Total cost ........................ Margin on order .............. (a) × (b) ABC Cost $142.38 112.88 74.72 54.64 $384.62 $465.39 384.62 $ 80.77 63. Suppose that the company decides that the present activity-based costing system is too complex and that all costs (except for the costs of purchased decorations) should be allocated on the basis of the number of guests. In that event, what would you expect to happen to the costs of cakes? A) The costs of all cakes would go up. B) The cost of cakes for receptions with fewer than the average number of guests would go down. C) The cost of cakes for receptions with more than the average number of guests would go down. D) The costs of all cakes would go down. Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4,5 Level: Medium 8-48 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Use the following to answer questions 64-65: Meade Nuptial Bakery makes very elaborate wedding cakes to order. The company has an activity-based costing system with three activity cost pools. The activity rate for the SizeRelated activity cost pool is $1.13 per guest. (The greater the number of guests, the larger the cake.) The activity rate for the Complexity-Related cost pool is $43.52 per tier. (Cakes with more tiers are more complex.) Finally, the activity rate for the Order-Related activity cost pool is $61.44 per order. (Each wedding involves one order for a cake.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for separately. Data concerning two recent orders appear below: Number of reception guests ..................... Number of tiers on the cake ..................... Cost of purchased decorations for cake ... Ericson Wedding 60 4 $16.89 Haupt Wedding 162 3 $38.61 64. Assuming that all of the costs listed above are avoidable costs in the event that an order is turned down, what amount would the company have to charge for the Ericson wedding cake to just break even? A) $61.44 B) $387.45 C) $16.89 D) $320.21 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4,5 Level: Medium Solution: Total Cost for Ericson Wedding Cake Order: (a) (b) Activity Cost Pool Activity Rate Total Activity Size-related $1.13 per guest 60 guests Complexity-related $43.52 per tier 4 tiers $61.44 per 1 order Order-related order Cost of purchased decorations for cake ............................. Total cost ........................................................................... Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition (a) × (b) ABC Cost $ 67.80 174.08 61.44 16.89 $320.21 8-49 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 65. Assuming that the company charges $500.54 for the Haupt wedding cake, what would be the overall margin on the order? A) $86.87 B) $413.67 C) $148.31 D) $125.48 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4,5 Level: Medium Solution: (a) (b) Activity Rate Total Activity $1.13 per guest 162 guests $43.52 per tier 3 tiers $61.44 per 1 order Order-related order Cost of purchased decorations for cake ............................. Total cost ........................................................................... Activity Cost Pool Size-related Complexity-related Sales ............................... Total cost ........................ Margin on order .............. 8-50 (a) × (b) ABC Cost $183.06 130.56 61.44 38.61 $413.67 $500.54 413.67 $ 86.87 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Use the following to answer questions 66-68: (Appendix 8A) Espinoza Company is a wholesale distributor that uses activity-based costing for all of its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity based costing system: Overhead costs: Wages and salaries ... Other expenses ......... Total ......................... $220,000 160,000 $380,000 Distribution of resource consumption: Activity Cost Pools Wages and salaries ...... Other expenses ............ Filling Orders 35% 15% Customer Support Other Total 55% 10% 100% 65% 20% 100% The “Other” activity cost pool consists of the costs of idle capacity and organizationsustaining costs. The amount of activity for the year is as follows: Activity Cost Pool Filling orders ............... Customer support ........ Activity 4,000 orders 20 customers Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-51 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 66. What would be the total overhead cost per order according to the activity based costing system? In other words, what would be the overall activity rate for the filling orders activity cost pool? (Round to the nearest whole cent.) A) $25.25 B) $23.75 C) $33.25 D) $14.25 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium Solution: Filling Orders Cost: Wages and salaries: 35% × $220,000 ....... $ 77,000 Other expenses: 15% × $160,000 ............. 24,000 Total.......................................................... $101,000 Activity Cost Pool Filling orders (a) Total Cost $101,000 (b) Total Activity 4,000 order (a) ÷ (b) Activity Rate $25.25 per order 67. What would be the total overhead cost per customer according to the activity based costing system? In other words, what would be the overall activity rate for the customer support activity cost pool? (Round to the nearest whole dollar.) A) $10,450 B) $11,250 C) $12,350 D) $11,400 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium 8-52 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Solution: Customer Support Cost: Wages and salaries: 55% × $220,000 ....... $121,000 Other expenses: 65% × $160,000 ............. 104,000 Total.......................................................... $225,000 Activity Cost Pool Customer support (a) Total Cost $225,000 (b) Total Activity 20 customers (a) ÷ (b) Activity Rate $11,250 per customer 68. To the nearest whole dollar, how much wages and salaries cost would be allocated to a customer who made 6 orders in a year? A) $5,745 B) $10,650 C) $6,166 D) $5,325 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Hard Solution: Wages and Salaries Cost: Allocated to Filling Orders: 35% × $220,000 .................................... $77,000 Allocated to Customer Support: 55% × $220,000 ............................. $121,000 Activity Cost Pool Filling orders Customer support Activity Cost Pool Filling orders Customer support (a) Total Cost $77,000 (b) Total Activity 4,000 orders 20 customers $121,000 (a) Activity Rate $19.25 per order $6,050 per customer Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition (a) ÷ (b) Activity Rate $19.25 per order $6,050 per customer (b) Total Activity 6 orders 1 customer (a) × (b) ABC Cost $ 116 6,050 $6,166 8-53 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Use the following to answer questions 69-71: (Appendix 8A) Groats Catering uses activity-based costing for its overhead costs. The company has provided the following data concerning the activity rates in its activity-based costing system: Activity Cost Pools Wages ....................... Supplies .................... Other expenses ......... Preparing Meals Arranging Functions $1.15 $180.00 $0.40 $320.00 $0.15 $130.00 The number of meals served is the measure of activity for the Preparing Meals activity cost pool. The number of functions catered is used as the activity measure for the Arranging Functions activity cost pool. Management would like to know whether the company made any money on a recent function at which 150 meals were served. The company catered the function for a fixed price of $18.00 per meal. The cost of the raw ingredients for the meals was $12.40 per meal. This cost is in addition to the costs of wages, supplies, and other expenses detailed above. For the purposes of preparing action analyses, management has assigned ease of adjustment codes to the costs as follows: wages are classified as a Yellow cost; supplies and raw ingredients as a Green cost; and other expenses as a Red cost. 69. According to the activity-based costing system, what was the total cost (including the costs of raw ingredients) of the function mentioned above? (Round to the nearest whole dollar.) A) $2,945 B) $2,745 C) $2,095 D) $2,245 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium Solution: Cost of preparing meals [($1.15 + $0.40 + $0.15) × 150] .............................................................................................. $ 255 Cost of arranging functions ($180 + $320 + $130) ............................ 630 Cost of raw ingredients ($12.40 × 150) .............................................. 1,860 Total.................................................................................................... $2,745 8-54 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 70. Suppose an action analysis report is prepared for the function mentioned above. What would be the “red margin” in the action analysis report? (Round to the nearest whole dollar.) A) $(45) B) $(195) C) $(145) D) $105 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Hard Solution: Sales ($18.00 × 150) .................................................... Green costs: Supplies−Preparing meals ($0.40 × 150)................. Supplies−Arranging functions ................................. Raw ingredients ($12.40 × 150) .............................. Green margin ............................................................... Yellow costs: Wages−Preparing meals ($1.15 × 150) ................... Wages−Arranging functions .................................... Yellow margin ............................................................. Red costs: Other expenses−Preparing meals ($0.15 × 150) ...... Other expenses−Arranging functions ...................... Red margin .................................................................. Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition $2,700.00 $ 60.00 320.00 1,860.00 172.50 180.00 22.50 130.00 2,240.00 460.00 352.50 107.50 152.50 $(45.00) 8-55 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 71. Suppose an action analysis report is prepared for the function mentioned above. What would be the “yellow margin” in the action analysis report? (Round to the nearest whole dollar.) A) $183 B) $288 C) $233 D) $108 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Hard Solution: Sales ($18.00 × 150) .................................................... Green costs: Supplies−Preparing meals ($0.40 × 150)................. Supplies−Arranging functions ................................. Raw ingredients ($12.40 × 150) .............................. Green margin ............................................................... Yellow costs: Wages−Preparing meals ($1.15 × 150) ................... Wages−Arranging functions .................................... Yellow margin ............................................................. 8-56 $2,700 $ 60 320 1,860 173 180 2,240 460 353 $ 108 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Use the following to answer questions 72-75: (Appendix 8B) Addison Company has two products: A and B. Annual production and sales are 800 units of Product A and 700 units of Product B. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.2 direct labor hours per unit and Product B requires 0.6 direct labor hours per unit. The total estimated overhead for next period is $71,286. The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools—Activity 1, Activity 2, and General Factory-with estimated overhead costs and expected activity as follows: Expected Activity Activity Cost Pool Activity 1 ............... Activity 2 ............... General Factory ..... Total ...................... Estimated Overhead Costs $20,272 29,380 21,634 $71,286 Product A 300 800 160 Product B 500 500 420 Total 800 1,300 580 (Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor hours.) 72. The predetermined overhead rate under the traditional costing system is closest to: A) $25.34 B) $22.60 C) $37.30 D) $122.91 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium Solution: Total Direct Labor-Hours Product A: 800 units × .2 DLHs per unit ........................................... 160 DLHs Product B: 700 units × .6 DLHs per unit ............................................ 420 DLHs Total.................................................................................................... 580 DLHs Predetermined overhead rate = $71,286 ÷ 580 DLHs = $122.91 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-57 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 73. The overhead cost per unit of Product B under the traditional costing system is closest to: A) $22.38 B) $13.56 C) $73.74 D) $15.20 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium Solution: Total Direct Labor-Hours Product A: 800 units × .2 DLHs per unit ........................................... 160 DLHs Product B: 700 units × .6 DLHs per unit ............................................ 420 DLHs Total.................................................................................................... 580 DLHs Predetermined overhead rate = $71,286 ÷ 580 DLHs = $122.9069 Total overhead cost applied to Product B using traditional costing: $122.9069 × 420 DLHs = $51,621 (rounded) Overhead cost per unit = $51,621 ÷ 700 units = $73.74 74. The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activitybased costing system is closest to: A) $22.60 B) $54.84 C) $58.76 D) $36.73 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium Solution: Activity Cost Pool Activity 2 8-58 (a) (b) (a) ÷ (b) Estimated Cost Estimated Activity Activity Rate $29,380 1,300 $22.60 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 75. The overhead cost per unit of Product B under the activity-based costing system is closest to: A) $73.74 B) $56.62 C) $22.38 D) $47.52 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Hard Solution: Activity Cost Pool Activity 1 Activity 2 General Factory (a) (b) Estimated Cost Estimated Activity $20,272 800 $29,380 1,300 $21,634 580 (a) ÷ (b) Activity Rate $25.34 $22.60 $37.30 Total Cost of Product B: Activity Cost Pool Activity 1 Activity 2 General Factory (a) Activity Rate $25.34 $22.60 $37.30 (b) Activity 500 500 420 (a) × (b) ABC Cost $12,670 11,300 15,666 $39,636 Overhead cost per unit = $39,636 ÷ 700 units = $56.62 per unit (rounded) Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-59 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Use the following to answer questions 76-77: (Appendix 8B) Koszyk Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, P85G and C43S, about which it has provided the following data: Direct materials per unit .......... Direct labor per unit ................ Direct labor-hours per unit ...... Annual production ................... P85G C43S $36.50 $63.10 $20.80 $31.20 0.80 1.20 35,000 10,000 The company’s estimated total manufacturing overhead for the year is $2,264,000 and the company’s estimated total direct labor-hours for the year is 40,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Estimated Activities and Activity Measures Overhead Cost Supporting direct labor (DLHs) .... $1,160,000 Setting up machines (setups) ......... 288,000 Parts administration (part types) ... 816,000 Total .............................................. $2,264,000 DLHs ............ Setups ........... Part types ...... 8-60 Expected Activity P85G C43S Total 28,000 12,000 40,000 1,480 920 2,400 1,880 840 2,720 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 76. The manufacturing overhead that would be applied to a unit of product P85G under the company's traditional costing system is closest to: A) $89.67 B) $45.28 C) $44.39 D) $23.20 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium Solution: Predetermined overhead rate = $2,264,000 ÷ 40,000 DLHs = $56.60 per DLH Applied overhead per unit = $56.60 per DLH × 0.80 DLHs per unit = $45.28 per unit 77. The manufacturing overhead that would be applied to a unit of product C43S under the activity-based costing system is closest to: A) $71.04 B) $138.96 C) $67.92 D) $11.04 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-61 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Solution: Activity Cost Pool Supporting direct labor Setting up machines Parts administration (a) Estimated Cost $1,160,000 $288,000 $816,000 (b) Estimated Activity 40,000 DLHs 2,400 setups 2,720 part types (a) ÷ (b) Activity Rate $29 per DLH $120 per setup $300 per part type Total Overhead applied to Product C43S: (a) (b) Activity Cost Pool Activity Rate Expected Activity Supporting direct labor $29 per DLH 12,000 DLHs Setting up machines $120 per setup 920 setups Parts administration $300 per part type 840 part types (a) × (b) ABC Cost $348,000 110,400 252,000 $710,400 Applied overhead per unit = $710,400 ÷ 10,000 units = $71.04 per unit 8-62 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Use the following to answer questions 78-79: (Appendix 8B) Binegar Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, R58G and R09O, about which it has provided the following data: Direct materials per unit .......... Direct labor per unit ................ Direct labor-hours per unit ...... Annual production ................... R58G R09O $15.90 $52.40 $1.30 $27.30 0.10 2.10 30,000 10,000 The company’s estimated total manufacturing overhead for the year is $1,617,600 and the company’s estimated total direct labor-hours for the year is 24,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Estimated Activities and Activity Measures Overhead Cost Assembling products (DLHs) ............... $ 696,000 Preparing batches (batches)................... 252,000 Product support (product variations) ..... 669,600 Total ...................................................... $1,617,600 DLHs ........................... Batches ........................ Product variations........ Expected Activity R58G R09O Total 3,000 21,000 24,000 528 1,152 1,680 1,056 1,176 2,232 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-63 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 78. The manufacturing overhead that would be applied to a unit of product R58G under the company's traditional costing system is closest to: A) $6.74 B) $16.10 C) $22.84 D) $2.90 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium Solution: Predetermined overhead rate = $1,617,600 ÷ 24,000 DLHs = $67.40 per DLH Total applied overhead = 3,000 DLHs × $67.40 per DLH = $202,200 Applied overhead per unit = $202,200 ÷ 30,000 units = $6.74 per unit 8-64 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 79. The manufacturing overhead that would be applied to a unit of product R09O under the activity-based costing system is closest to: A) $113.46 B) $255.00 C) $141.54 D) $17.28 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium Solution: Activity Cost Pool Assembling products Preparing batches Product support (a) Estimated Cost $696,000 $252,000 $669,600 (b) Estimated Activity 24,000 DLHs 1,680 batches 2,232 product variations Total Overhead applied to Product R09O: (a) Activity Cost Pool Activity Rate Assembling products $29 per DLH Preparing batches $150 per batch $300 per product Product support variation (a) ÷ (b) Activity Rate $29 per DLH $150 per batch $300 per product variation (b) Expected Activity 21,000 DLHs 1,152 batches 1,176 product variations (a) × (b) ABC Cost $ 609,000 172,800 352,800 $1,134,600 Applied overhead per unit = $1,134,600 ÷ 10,000 units = $113.46 per unit Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-65 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Use the following to answer questions 80-81: (Appendix 8B) Kebort Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, U86Y and M91F, about which it has provided the following data: Direct materials per unit .......... Direct labor per unit ................ Direct labor-hours per unit ...... Annual production ................... U86Y M91F $19.80 $45.80 $18.20 $49.40 0.70 1.90 40,000 10,000 The company’s estimated total manufacturing overhead for the year is $2,541,760 and the company’s estimated total direct labor-hours for the year is 47,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Activities and Activity Measures Direct labor support (DLHs) ............ Setting up machines (setups) ............ Part administration (part types) ........ Total ................................................. DLHs ............... Setups .............. Part types ......... 8-66 Estimated Overhead Cost $1,175,000 407,960 958,800 $2,541,760 Expected Activity U86Y M91F Total 28,000 19,000 47,000 2,256 658 2,914 1,034 2,162 3,196 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 80. The unit product cost of product U86Y under the company's traditional costing system is closest to: A) $71.15 B) $55.50 C) $75.86 D) $38.00 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium Solution: Predetermined overhead rate = $2,541,760 ÷ 47,000 DLHs = $54.08 per DLH Applied overhead = [(40,000 units × 0.70 DLHs per unit) × $54.08 per DLH] ÷ 40,000 units = $37.86 per unit Unit Product Cost: Direct materials ............................... Direct labor ..................................... Applied manufacturing overhead .... Total ................................................ $19.80 18.20 37.86 $75.86 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-67 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 81. The unit product cost of product M91F under the activity-based costing system is closest to: A) $95.20 B) $121.57 C) $216.77 D) $197.95 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium Solution: (a) Activity Cost Pool Direct labor support Setting up machines Part administration Estimated Cost $1,175,000 $407,960 $958,800 (b) Expected Activity 47,000 DLHs 2,914 setups 3,196 part types Total Overhead applied to Product M91F: (a) Activity Cost Pool Activity Rate Direct labor support $25 per DLH Setting up machines $140 per setup $300 per part Part administration type (a) ÷ (b) Activity Rate $25 per DLH $140 per setup $300 per part type (b) Expected Activity 19,000 DLHs 658 setups 2,162 part types (a) × (b) ABC Cost $ 475,000 92,120 648,600 $1,215,720 Overhead Cost per unit = $1,215,720 ÷ 10,000 units = $121.57 per unit Unit Product Cost: Direct materials ............................... $ 45.80 Direct labor ...................................... 49.40 Applied manufacturing overhead .... 121.57 Total................................................. $216.77 8-68 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Use the following to answer questions 82-83: (Appendix 8B) Pacchiana Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, R21V and D00B, about which it has provided the following data: Direct materials per unit ................ Direct labor per unit ...................... Direct labor-hours per unit ............ Annual production ......................... R21V D00B $19.60 $61.70 $3.90 $19.50 0.30 1.50 45,000 15,000 The company’s estimated total manufacturing overhead for the year is $1,262,880 and the company’s estimated total direct labor-hours for the year is 36,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Estimated Activities and Activity Measures Overhead Cost Assembling products (DLHs) ................... $ 108,000 Preparing batches (batches)....................... 362,880 Product support (product variations) ......... 792,000 Total .......................................................... $1,262,880 DLHs ........................ Batches ..................... Product variations..... Expected Activity R21V D00B Total 13,500 22,500 36,000 1,440 1,152 2,592 1,404 576 1,980 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-69 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 82. The unit product cost of product R21V under the company's traditional costing system is closest to: A) $34.02 B) $24.40 C) $41.36 D) $23.50 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium Solution: Predetermined overhead rate = $1,262,880 ÷ 36,000 DLHs = $35.08 per DLH Applied overhead = [(45,000 units × 0.30 DLHs per unit) × $35.08 per DLH] ÷ 45,000 units = $10.52 per unit Unit Product Cost: Direct materials ............................... Direct labor ...................................... Applied manufacturing overhead .... Total................................................. 8-70 $19.60 3.90 10.52 $34.02 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 83. The unit product cost of product D00B under the activity-based costing system is closest to: A) $111.81 B) $133.82 C) $81.20 D) $30.61 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium Solution: (a) Activity Cost Pool Assembling products Preparing batches Product support Estimated Cost $108,000 $362,880 $792,000 (b) Expected Activity 36,000 DLHs Activity Rate $3 per DLH 2,592 batches 1,980 product variations $140 per batches $400 per product variation Total Overhead applied to Product D00B: (a) Activity Cost Pool Activity Rate Assembling products $3 per DLH Preparing batches $140 per batch $400 per product Product support variation (a) ÷ (b) (b) Expected Activity 22,500 DLHs 1,152 batches 576 product variations (a) × (b) ABC Cost $ 67,500 161,280 230,400 $459,180 Overhead Cost per unit = $459,180 ÷ 15,000 units = $30.61 per unit Unit Product Cost: Direct materials ............................... $ 61.70 Direct labor ...................................... 19.50 Applied manufacturing overhead .... 30.61 Total................................................. $111.81 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-71 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Essay Questions 84. Beckley Corporation has provided the following data from its activity-based costing accounting system: Indirect factory wages ................... $16,000 Factory equipment depreciation .... $193,000 Distribution of Resource Consumption across Activity Cost Pools: Activity Cost Pools Indirect factory wages ................... Factory equipment depreciation .... Customer Product Orders Processing 48% 47% 61% 25% Other 5% 14% Total 100% 100% The “Other” activity cost pool consists of the costs of idle capacity and organizationsustaining costs that are not assigned to products. Required: a. Determine the total amount of indirect factory wages and factory equipment depreciation costs that would be allocated to the Product Processing activity cost pool. Show your work! b. Determine the total amount of indirect factory wages and factory equipment depreciation costs that would NOT be assigned to products. Show your work! Ans: a. Allocations to the Product Processing activity cost pool: Indirect factory wages (47% × $16,000) ........................ $ 7,520 Factory equipment depreciation (25% × $193,000) ....... 48,250 Total................................................................................ $55,770 b. As stated in the problem, the costs allocated to the “Other” cost pool are not assigned to products. Indirect factory wages (5% × $16,000) .......................... $ 800 Factory equipment depreciation (14% × $193,000) ....... 27,020 Total................................................................................ $27,820 AACSB: Analytic AICPA BB: Critical Thinking LO: 1,2 Level: Easy 8-72 AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 85. Desilets Corporation has provided the following data from its activity-based costing accounting system: Supervisory wages ............. Factory utilities .................. $94,000 $128,000 Distribution of Resource Consumption across Activity Cost Pools: Batch Unit Activity Cost Pools Set-Ups Processing Other Total Supervisory wages ....... 34% 64% 2% 100% Factory utilities ............ 49% 35% 16% 100% The “Other” activity cost pool consists of the costs of idle capacity and organizationsustaining costs that are not assigned to products. Required: a. Determine the total amount of supervisory wages and factory utilities costs that would be allocated to the Unit Processing activity cost pool. Show your work! b. Determine the total amount of supervisory wages and factory utilities costs that would NOT be assigned to products. Show your work! Ans: a. Allocations to the Unit Processing activity cost pool: Supervisory wages (64% × $94,000) ........ $ 60,160 Factory utilities (35% × $128,000)............ 44,800 Total........................................................... $104,960 b. As stated in the problem, the costs allocated to the “Other” cost pool are not assigned to products. Supervisory wages (2% × $94,000) .......... $ 1,880 Factory utilities (16% × $128,000)............ 20,480 Total........................................................... $22,360 AACSB: Analytic AICPA BB: Critical Thinking LO: 1,2 Level: Easy Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition AICPA FN: Reporting 8-73 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 86. The following data have been provided by Hooey Corporation from its activity-based costing accounting system: Supervisory wages ............. Factory utilities .................. $46,000 $199,000 Distribution of Resource Consumption across Activity Cost Pools: Activity Cost Pools Supervisory wages ....... Factory utilities ............ Product Change-Overs Machining 59% 33% 18% 69% Other 8% 13% Total 100% 100% The “Other” activity cost pool consists of the costs of idle capacity and organizationsustaining costs that are not assigned to products. Required: a. Determine the total amount of supervisory wages and factory utilities costs that would be allocated to the Machining activity cost pool. Show your work! b. Determine the total amount of supervisory wages and factory utilities costs that would NOT be assigned to products. Show your work! Ans: a. Allocations to the Machining activity cost pool: Supervisory wages (33% × $46,000) ........ $ 15,180 Factory utilities (69% × $199,000)............ 137,310 Total........................................................... $152,490 b. As stated in the problem, the costs allocated to the “Other” cost pool are not assigned to products. Supervisory wages (8% × $46,000) .......... $ 3,680 Factory utilities (13% × $199,000)............ 25,870 Total........................................................... $29,550 AACSB: Analytic AICPA BB: Critical Thinking LO: 1,2 Level: Easy 8-74 AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 87. Fidler & Jenkins PLC, a consulting firm, uses an activity-based costing in which there are three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system: Costs: Wages and salaries ............ $620,000 Travel expenses ................. 140,000 Other expenses .................. 120,000 Total................................... $880,000 Distribution of resource consumption: Activity Cost Pools Wages and salaries ...... Travel expenses ........... Other expenses ............ Working On Engagements 60% 50% 35% Business Development 10% 40% 25% Other 30% 10% 40% Total 100% 100% 100% Required: a. How much cost, in total, would be allocated to the Working On Engagements activity cost pool? b. How much cost, in total, would be allocated to the Business Development activity cost pool? c. How much cost, in total, would be allocated to the Other activity cost pool? Ans: All three parts can be answered using a first-stage allocation of costs. Wages and salaries .... Travel expenses ......... Other expenses .......... Total .......................... Working On Engagements $372,000 70,000 42,000 $484,000 Business Development Other Total $ 62,000 $186,000 $620,000 56,000 14,000 140,000 30,000 48,000 120,000 $148,000 $248,000 $880,000 AACSB: Analytic AICPA BB: Critical Thinking LO: 2 Level: Easy Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition AICPA FN: Reporting 8-75 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 88. Dane Housecleaning provides housecleaning services to its clients. The company uses an activity-based costing system for its overhead costs. The company has provided the following data from its activity-based costing system. Activity Cost Pool Cleaning.................... Job support ............... Client support ........... Other ......................... Total.......................... Total Cost $263,784 145,180 4,774 170,000 $583,738 Total Activity 34,800 hours 7,000 jobs 220 clients Not applicable The “Other” activity cost pool consists of the costs of idle capacity and organizationsustaining costs. One particular client, the Hoium family, requested 45 jobs during the year that required a total of 90 hours of housecleaning. For this service, the client was charged $2,000. Required: a. Compute the activity rates (i.e., cost per unit of activity) for the activity cost pools. Round off all calculations to the nearest whole cent. b. Using the activity-based costing system, compute the customer margin for the Hoium family. Round off all calculations to the nearest whole cent. c. Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to customers on the basis of cleaning hours. Compute the margin for the Hoium family. Round off all calculations to the nearest whole cent. 8-76 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Ans: a. The computation of the activity rates follow: Total Cost Total Activity Activity Rates Cleaning........... $263,784 34,800 hours $7.58 per hour Job support ...... $145,180 7,000 jobs $20.74 per job Client support .. $4,774 220 clients $21.70 per client b. The customer margin for the family is computed as follows: Client charges .............. $2,000.00 Costs: Cleaning ................... $682.20 Job support ............... 933.30 Client support ........... 21.70 1,637.20 Customer margin ......... $ 362.80 Computations for costs: Cleaning: 90 hours × $7.58 per hour = $682.20 Job support: 45 jobs × $20.74 per job = $933.30 Client support: 1 client × $21.70 per client = $21.70 c. The margin if all costs are allocated on the basis of cleaning hours: Predetermined overhead rate = $583,738 ÷ 34,800 hours = $16.77 per hour Client charges .................... Allocated costs* ................ Customer margin ............... $2,000.00 1,509.30 $ 490.70 * 90 hours × $16.77 per hour = $1,509.30 AACSB: Analytic AICPA BB: Critical Thinking LO: 3,4,5 Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition AICPA FN: Reporting 8-77 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 89. The Kamienski Cleaning Brigade Company provides housecleaning services to its clients. The company uses an activity-based costing system for its overhead costs. The company has provided the following data from its activity-based costing system. Activity Cost Pool Cleaning................. Job support ............ Client support ........ Other ...................... Total....................... Total Cost $185,752 171,532 15,124 240,000 $612,408 Total Activity 21,700 hours 6,100 jobs 760 clients Not applicable The “Other” activity cost pool consists of the costs of idle capacity and organizationsustaining costs. One particular client, the Whiddon family, requested 15 jobs during the year that required a total of 60 hours of housecleaning. For this service, the client was charged $1,170. Required: a. Using the activity-based costing system, compute the customer margin for the Whiddon family. Round off all calculations to the nearest whole cent. b. Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to customers on the basis of cleaning hours. Compute the margin for the Whiddon family. Round off all calculations to the nearest whole cent. 8-78 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Ans: a. The first step is to compute activity rates: Total Cost Total Activity Activity Rates Cleaning................. $185,752 21,700 hours $8.56 per hour Job support ............ $171,532 6,100 jobs $28.12 per job Client support ........ $15,124 760 clients $19.90 per client The customer margin for the family is computed as follows: Client charges .............. $1,170.00 Costs: Cleaning ................... $513.60 Job support ............... 421.80 Client support ........... 19.90 955.30 Customer margin ......... $ 214.70 Computations for costs: Cleaning: 60 hours × $8.56 per hour = $513.60 Job support: 15 jobs × $28.12 per job = $421.80 Client support: 1 client × $19.90 per client = $19.90 b. The margin if all costs are allocated on the basis of cleaning hours: Predetermined overhead rate = $612,408 ÷ 21,700 hours = $28.22 per hour Client charges .............. Allocated costs* .......... Customer margin ......... $1,170.00 1,693.20 ($523.20) * 60 hours × $28.22 per hour = $1,693.20 AACSB: Analytic AICPA BB: Critical Thinking LO: 3,4,5 Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition AICPA FN: Reporting 8-79 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 90. Cabio Company manufactures two products, Product C and Product D. The company estimated it would incur $119,100 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labor hours. Data concerning the current period's operations appear below: Estimated volume .......................... Direct labor hours per unit............. Direct materials cost per unit......... Direct labor cost per unit ............... Product C 400 units 1.20 hours $4.00 $12.00 Product D 3,000 units 1.30 hour $22.80 $13.00 Required: a. Compute the predetermined overhead rate under the current method, and determine the unit product cost of each product for the current year. b. The company is considering using an activity-based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labor hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below: Expected Activity Estimated Overhead Activity Cost Pool Costs Product C Product D Total Machine setups ...... $ 10,440 60 120 180 Purchase orders...... 78,000 820 1,180 2,000 General factory ...... 30,660 480 3,900 4,380 Total....................... $119,100 Determine the unit product cost of each product for the current period using the activity-based costing approach. 8-80 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Ans: a. The expected total direct labor hours during the period are computed as follows: Product C: 400 units × 1.2 hours per unit .......... Product D: 3,000 units × 1.3 hours per unit ....... Total direct labor hours ...................................... 480 hours 3,900 hours 4,380 hours Using these hours as a base, the predetermined overhead using direct labor hours would be: Estimated overhead cost ÷ Estimated direct labor-hours = $119,100 ÷ 4,380 DLHs = $27.19 per DLH Using this overhead rate, the unit product costs are: Direct materials ....................... Direct labor .............................. Manufacturing overhead.......... Total unit product cost ............. Product C Product D $ 4.00 $22.80 12.00 13.00 32.63 35.35 $48.63 $71.15 b. The activity rates for each activity cost pool are as follows: Machine setups ...... Purchase orders...... General factory ...... Estimated Overhead Costs $10,440 $78,000 $30,660 Expected Activity 180 2,000 4,380 Activity Rate $58.00 $39.00 $7.00 The overhead cost charged to each product is: Machine setups ......... Purchase orders......... General factory ......... Total overhead cost .. Product C Activity Amount 60 $ 3,480 820 31,980 480 3,360 $38,820 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Product D Activity Amount 120 $ 6,960 1,180 46,020 3,900 27,300 $80,280 8-81 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Overhead cost per unit: Product C: $38,820 ÷ 400 units = $97.05 per unit Product D: $80,280 ÷ 3,000 units = $26.76 per unit Using activity based costing, the unit product cost of each product would be: Direct materials ............................. Direct labor .................................... Manufacturing overhead................ Total unit product cost ................... Product C Product D $ 4.00 $22.80 12.00 13.00 97.05 26.76 $113.05 $62.56 AACSB: Analytic AICPA BB: Critical Thinking LO: 7 Level: Hard AICPA FN: Reporting 91. Danton Company manufactures two products, Product F and Product G. The company expects to produce and sell 600 units of Product F and 3,000 units of Product G during the current year. The company uses activity-based costing to compute unit product costs for external reports. Data relating to the company's three activity cost pools are given below for the current year: Expected Activity Estimated Overhead Activity Cost Pool Costs Product F Product G Total Machine setups ...... $13,720 140 140 280 Purchase orders...... $74,730 630 960 1,590 General factory ...... $15,000 600 2,400 3,000 Required: Using the activity-based costing approach, determine the overhead cost per unit for each product. 8-82 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Ans: The activity rates for each activity cost pool are as follows: Activity Cost Pool Machine setups ............ Purchase orders............ General factory ............ Overhead Estimated Costs $13,720 $74,730 $15,000 Expected Activity 280 1,590 3,000 Activity Rate $49.00 $47.00 $5.00 The overhead cost charged to each product is: Machine setups ............ Purchase orders............ General factory ............ Total overhead cost ..... Product F Activity Amount 140 $ 6,860 630 29,610 600 3,000 $39,470 Product G Activity Amount 140 $ 6,860 960 45,120 2,400 12,000 $63,980 Overhead cost per unit: Product F: $39,470 ÷ 600 units = $65.78 per unit Product G: $63,980 ÷ 3,000 units = $21.33 per unit AACSB: Analytic AICPA BB: Critical Thinking LO: 3,4 Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition AICPA FN: Reporting 8-83 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 92. Kretlow Corporation has provided the following data from its activity-based costing accounting system: Activity Cost Pools Designing products ...... Setting up batches ........ Assembling products ... Total Cost $700,502 $12,400 $125,440 Total Activity 3,746 product design hours 620 batch set-ups 8,960 assembly hours Required: Compute the activity rates for each of the three cost pools. Show your work! Ans: Activity Cost Pools Designing products ............ Setting up batches .............. Assembling products ......... Total Cost Total Activity Activity Rate $700,502 3,746 $187 $12,400 620 $20 $125,440 8,960 $14 AACSB: Analytic AICPA BB: Critical Thinking LO: 3 Level: Easy AICPA FN: Reporting 93. Data concerning three of Kilmon Corporation's activity cost pools appear below: Activity Cost Pools Assembling products ......... Designing products ............ Setting up batches .............. Total Cost $150,300 $1,177,535 $14,400 Total Activity 8,350 assembly hours 7,597 product design hours 600 batch set-ups Required: Compute the activity rates for each of the three cost pools. Show your work! Ans: Activity Cost Pools Assembling products ......... Designing products ............ Setting up batches .............. Total Cost Total Activity Activity Rate $150,300 8,350 $18 $1,177,535 7,597 $155 $14,400 600 $24 AACSB: Analytic AICPA BB: Critical Thinking LO: 3 Level: Easy 8-84 AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 94. Doles Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products. Activity Cost Pools Setting up batches .................... Processing customer orders ..... Assembling products ............... Activity Rate $98.54 per batch $42.00 per customer order $3.53 per assembly hour Data concerning two products appear below: Number of batches......................... Number of customer orders ........... Number of assembly hours ............ Product K52W Product X94T 55 73 9 17 697 402 Required: How much overhead cost would be assigned to each of the two products using the company's activity-based costing system? Ans: Setting up batches ....................... Processing customer orders ........ Assembling products .................. Total overhead cost .................... Product K52W Product X94T $5,419.70 $7,193.42 378.00 714.00 2,460.41 1,419.06 $8,258.11 $9,326.48 AACSB: Analytic AICPA BB: Critical Thinking LO: 4 Level: Easy Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition AICPA FN: Reporting 8-85 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 95. Desjarlais Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products. Activity Cost Pools Setting up batches .......................... Assembling products ..................... Processing customer orders ........... Activity Rate $32.22 per batch $6.13 per assembly hour $72.75 per customer order Data concerning two products appear below: Number of batches......................... Number of assembly hours ............ Number of customer orders ........... Product S96U Product Q06F 78 24 412 178 53 18 Required: a. How much overhead cost would be assigned to Product S96U using the company's activity-based costing system? Show your work! b. How much overhead cost would be assigned to Product Q06F using the company's activity-based costing system? Show your work! Ans: a. Product S96U Setting up batches (78 batches × $32.22 per batch) ....... Assembling products (412 assembly hours × $6.13 per assembly hour) ............................................................ Processing customer orders (53 customer orders × $72.75 per customer order) ......................................... Total overhead cost ......................................................... b. Product Q06F Setting up batches (24 batches × $32.22 per batch) ....... Assembling products (178 assembly hours × $6.13 per assembly hour) ............................................................ Processing customer orders (18 customer orders × $72.75 per customer order) ......................................... Total overhead cost ......................................................... AACSB: Analytic AICPA BB: Critical Thinking LO: 4 Level: Easy 8-86 $2,513.16 2,525.56 3,855.75 $8,894.47 $ 773.28 1,091.14 1,309.50 $3,173.92 AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 96. Archie Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products. Activity Cost Pools Setting up batches .................... Processing customer orders ..... Assembling products ............... Activity Rate $16.68 per batch $98.60 per customer order $7.89 per assembly hour Last year, Product X26X involved 18 batches, 4 customer orders, and 103 assembly hours. Required: How much overhead cost would be assigned to Product X26X using the company's activity-based costing system? Show your work! Ans: Setting up batches (18 batches × $16.68 per batch) ....... Processing customer orders (4 customer orders × $98.60 per customer order) ......................................... Assembling products (103 assembly hours × $7.89 per assembly hour) ............................................................ Total overhead cost ........................................................ AACSB: Analytic AICPA BB: Critical Thinking LO: 4 Level: Easy Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition $ 300.24 394.40 812.67 $1,507.31 AICPA FN: Reporting 8-87 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 97. IGL Draperies makes custom draperies for homes and businesses. The company uses an activity-based costing system for its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity cost pools. Overhead costs: Production overhead .... Office expense ............. Total............................. $140,000 140,000 $280,000 Distribution of resource consumption: Activity Cost Pools Making Drapes Job Support Other Total Production overhead .... 60% 20% 20% 100% Office expense ............. 15% 55% 30% 100% The “Other” activity cost pool consists of the costs of idle capacity and organizationsustaining costs. The amount of activity for the year is as follows: Activity Cost Pool Making drapes ....... Job support ............ Other ...................... Annual Activity 3,000 yards 140 jobs Not applicable Required: a. Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in the table below: Making Drapes Job Support Other Total Production overhead .... Office expense ............. Total............................. b. Compute the activity rates (i.e., cost per unit of activity) for the Making Drapes and Job Support activity cost pools by filling in the table below: Making Drapes Job Support Production overhead .... Office expense ............. Total............................. 8-88 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making c. Prepare an action analysis report in good form of a job that involves making 85 yards of drapes and has direct materials and direct labor cost of $2,990. The sales revenue from this job is $6,000. For purposes of this action analysis report, direct materials and direct labor should be classified as a Green cost; production overhead as a Red cost; and office expense as a Yellow cost. Ans: a. First-stage allocation Production overhead .... Office expense ............. Total............................. Activity ........................ Making Drapes Job Support Other Total $84,000 $28,000 $28,000 $140,000 21,000 77,000 42,000 140,000 $105,000 $105,000 $70,000 $280,000 3,000 yards 140 jobs b. Activity rates (costs divided by activity) Making Drapes Activity ........................ 3,000 yards Production overhead .... Office expense ............. Total............................. $28.00 7.00 $35.00 Job Support 140 jobs $200.00 550.00 $750.00 c. Overhead cost of the job. Activity .............................. Production overhead .......... Office expense ................... Total................................... Making Drapes Job Support 85 1 $2,380 $200 595 550 $2,975 $750 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Total $2,580 1,145 $3,725 8-89 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Sales............................................... Green costs: Direct materials and labor .......... Green margin ................................. Yellow costs: Office expense ............................ Yellow margin ............................... Red costs: Production overhead ................... Red margin .................................... $6,000 2,990 3,010 1,145 1,865 2,580 ($ 715) AACSB: Analytic AICPA BB: Critical Thinking Appendix: 8A LO: 6 Level: Hard 8-90 AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 98. Haskell Hardwood Floors installs oak and other hardwood floors in homes and businesses. The company uses an activity-based costing system for its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity based costing system: Overhead costs: Production overhead .......... $120,000 Office expense ................... 140,000 Total................................... $260,000 Distribution of resource consumption: Installing Job Activity Cost Pools Floors Support Other Total Production overhead .......... 55% 25% 20% 100% Office expense ................... 20% 50% 30% 100% The “Other” activity cost pool consists of the costs of idle capacity and organizationsustaining costs. The amount of activity for the year is as follows: Activity Cost Pool Installing floors...... Job support ............ Other ...................... Annual Activity 800 squares 100 jobs Not applicable A “square” is a measure of area that is roughly equivalent to 1,000 square feet. Required: a. Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in the table below: Installing Floors Job Support Other Total Production overhead .......... Office expense ................... Total................................... Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-91 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making b. Compute the activity rates (i.e., cost per unit of activity) for the Installing Floors and Job Support activity cost pools by filling in the table below: Installing Floors Job Support Production overhead .......... Office expense ................... Total................................... c. Compute the overhead cost, according to the activity-based costing system, of a job that involves installing 3.2 squares. Ans: a. First-stage allocation Installing Job Floors Support Other Total $66,000 $ 30,000 $24,000 $120,000 28,000 70,000 42,000 140,000 $94,000 $100,000 $66,000 $260,000 Production overhead .... Office expense ............. Total ............................. b. Activity rates (costs divided by activity) Activity .............................. Production overhead .......... Office expense ................... Total ................................... Installing Floors 800 squares Job Support 100 jobs $ 82.50 $ 300.00 35.00 700.00 $117.50 $1,000.00 c. Overhead cost of the job. Installing Floors Activity ........................ 3.2 Production overhead .... Office expense ............. Total ............................. Job Support 1 $264.00 $ 300.00 $ 564.00 112.00 700.00 812.00 $376.00 $1,000.00 $1,376.00 AACSB: Analytic AICPA BB: Critical Thinking Appendix: 8A LO: 6 Level: Medium 8-92 Total AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 99. Golden Company, a wholesale distributor, uses activity-based costing for its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity based costing system: Overhead costs: Wages and salaries ...... Nonwage expenses ...... Total............................. $680,000 120,000 $800,000 Distribution of resource consumption: Filling Product Activity Cost Pools Orders Support Other Total Wages and salaries ............ 15% 75% 10% 100% Nonwage expenses ............ 25% 55% 20% 100% The “Other” activity cost pool consists of the costs of idle capacity and organizationsustaining costs. The amount of activity for the year is as follows: Activity Cost Pool Filling orders ............ Product support......... Other ......................... Annual Activity 4,000 orders 40 products Not applicable Required: Compute the activity rates (i.e., cost per unit of activity) for the Filling Orders and Product Support activity cost pools by filling in the table below: Filling Orders Product Support Other Total Wages and salaries ............ Nonwage expenses ............ Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-93 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Ans: First-stage allocation Filling Product Orders Support Other Total Wages and salaries ...... $102,000 $510,000 $68,000 $680,000 Nonwage expenses ...... 30,000 66,000 24,000 120,000 Total............................. $132,000 $576,000 $92,000 $800,000 Activity ....................................... Filling Orders 4,000 orders Wages and salaries ..................... Nonwage expenses ..................... Total............................................ $25.50 7.50 $33.00 AACSB: Analytic AICPA BB: Critical Thinking Appendix: 8A LO: 6 Level: Medium 8-94 Product Support 40 products $12,750 1,650 $14,400 AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 100. Jared Painting paints the interiors and exteriors of homes and commercial buildings. The company uses an activity-based costing system for its overhead costs. The company has provided the following data concerning its activity-based costing system. Activity Cost Pool Painting overhead .............. Job support ........................ Other .................................. Activity Measure Square meters Jobs None Annual Activity 10,000 square meters 200 jobs Not applicable The “Other” activity cost pool consists of the costs of idle capacity and organizationsustaining costs. The company has already finished the first stage of the allocation process in which costs were allocated to the activity cost centers. The results are listed below: Painting overhead ..... Office expense .......... Total.......................... Job Painting Support Other Total $ 99,000 $ 45,000 $36,000 $180,000 6,000 78,000 36,000 120,000 $105,000 $123,000 $72,000 $300,000 Required: a. Compute the activity rates (i.e., cost per unit of activity) for the Painting and Job Support activity cost pools by filling in the table below. Round off all calculations to the nearest whole cent. Painting Job Support Painting overhead ..... Office expense .......... Total.......................... b. Prepare an action analysis report in good form of a job that involves painting 71 square meters and has direct materials and direct labor cost of $2,410. The sales revenue from this job is $3,800. For purposes of this action analysis report, direct materials and direct labor should be classified as a Green cost; painting overhead as a Red cost; and office expense as a Yellow cost. Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-95 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Ans: a. Activity rates (costs divided by activity) Painting overhead ..... Office expense .......... Total .......................... Job Painting Support $ 9.90 $225.00 0.60 390.00 $10.50 $615.00 b. Overhead cost of the job. Activity ........................ Job Painting Support 71 1 Painting overhead ........ Office expense ............. Total ............................. $702.90 $225.00 $ 927.90 42.60 390.00 432.60 $745.50 $615.00 $1,360.50 Sales ............................................... Green costs: Direct materials and labor ........... Green margin ................................. Yellow costs: Office expense ............................ Yellow margin ............................... Red costs: Painting overhead ....................... Red margin ..................................... $3,800.00 2,410.00 1,390.00 432.60 957.40 927.90 $ 29.50 AACSB: Analytic AICPA BB: Critical Thinking Appendix: 8A LO: 6 Level: Medium 8-96 Total AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 101. Werger Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, W82R and L48S, about which it has provided the following data: W82R L48S Direct materials per unit ................ $11.50 $62.90 Direct labor per unit ...................... $2.00 $13.00 Direct labor-hours per unit ............ 0.20 1.30 Annual production ......................... 45,000 10,000 The company’s estimated total manufacturing overhead for the year is $1,521,960 and the company’s estimated total direct labor-hours for the year is 22,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Activities and Activity Measures Supporting direct labor (DLHs) .......... Setting up machines (setups) ............... Parts administration (part types).......... Total..................................................... Activities Supporting direct labor ...... Setting up machines........... Parts administration ........... Estimated Overhead Cost $ 352,000 201,960 968,000 $1,521,960 W82R L48S Total 9,000 13,000 22,000 814 374 1,188 924 1,012 1,936 Required: a. Determine the unit product cost of each of the company's two products under the traditional costing system. b. Determine the unit product cost of each of the company's two products under activity-based costing system. Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-97 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Ans: a. Traditional Unit Product Costs Predetermined overhead rate = $1,521,960 ÷ 22,000 DLHs = $69.18 per DLH Direct materials .............................................................. Direct labor ..................................................................... Manufacturing overhead (0.2 DLHs × $69.18 per DLH; 1.3 DLHs × $69.18 per DLH) ..................................... Unit product cost ............................................................ W82R $11.50 2.00 L48S $ 62.90 13.00 13.84 89.93 $27.34 $165.83 b. ABC Unit Product Costs Supporting direct labor ... Setting up machines........ Parts administration ........ Estimated Overhead Cost $352,000 $201,960 $968,000 Total Expected Activity 22,000 DLHs 1,188 setups 1,936 part types Activity Rate $16 per DLH $170 per setup $500 per part type Overhead cost for W82R Supporting direct labor ... Setting up machines........ Parts administration ........ Total................................ 8-98 Activity Rate $16 per DLH $170 per setup $500 per part type Activity 9,000 DLHs 814 setups 924 part types ABC Cost $144,000 138,380 462,000 $744,380 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Overhead cost for L48S Supporting direct labor ... Setting up machines........ Parts administration ........ Total................................ Activity Rate $16 per DLH $170 per setup $500 per part type Activity 13,000 DLHs 374 setups 1,012 part types Direct materials .............................................................. Direct labor ..................................................................... Manufacturing overhead ($744,400 ÷ 45,000 units; $777,600 ÷ 10,000 units) ............................................ Unit product cost ............................................................ AACSB: Analytic AICPA BB: Critical Thinking Appendix: 8B LO: 7 Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition W82R $11.50 2.00 ABC Cost $208,000 63,580 506,000 $777,580 L48S $62.90 13.00 16.54 77.76 $30.04 $153.66 AICPA FN: Reporting 8-99 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 102. Torri Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, B40W and C63J, about which it has provided the following data: Direct materials per unit .......... Direct labor per unit ................ Direct labor-hours per unit ...... Annual production ................... B40W C63J $34.90 $63.70 $20.80 $62.40 0.80 2.40 35,000 15,000 The company’s estimated total manufacturing overhead for the year is $2,656,000 and the company’s estimated total direct labor-hours for the year is 64,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Activities and Activity Measures Assembling products (DLHs) .............. Preparing batches (batches) ................. Milling (MHs) ..................................... Total..................................................... Activities Assembling products ......... Preparing batches .............. Milling ............................... Estimated Overhead Cost $1,216,000 480,000 960,000 $2,656,000 B40W C63J Total 28,000 36,000 64,000 2,304 2,496 4,800 1,088 2,112 3,200 Required: a. Determine the unit product cost of each of the company's two products under the traditional costing system. b. Determine the unit product cost of each of the company's two products under activity-based costing system. 8-100 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Ans: a. Traditional Unit Product Costs Predetermined overhead rate = $2,656,000 ÷ 64,000 DLHs = $41.50 per DLH Direct materials .............................................................. Direct labor ..................................................................... Manufacturing overhead (0.8 DLHs × $41.50 per DLH; 2.4 DLHs × $41.50 per DLH) ..................................... Unit product cost ............................................................ B40W $34.90 20.80 C63J $ 63.70 62.40 33.20 99.60 $88.90 $225.70 b. ABC Unit Product Costs Assembling products ... Preparing batches ........ Milling ......................... Estimated Overhead Cost $1,216,000 $480,000 $960,000 Total Expected Activity 64,000 DLHs 4,800 batches 3,200 MHs Activity Rate $19 per DLH $100 per setup $300 per MH Overhead cost for B40W Activity Rate Assembling products ... Preparing batches ........ Milling ......................... Total............................. Activity $19 per DLH $100 per setup $300 per MH ABC Cost 28,000 DLHs $ 532,000 2,304 batches 230,400 1,088 MHs 326,400 $1,088,800 Overhead cost for C63J Activity Rate Assembling products ... Preparing batches ........ Milling ......................... Total............................. Activity $19 per DLH $100 per setup $300 per MH ABC Cost 36,000 DLHs $ 684,000 2,496 batches 249,600 2,112 MHs 633,600 $1,567,200 Direct materials .............................................................. Direct labor ..................................................................... Manufacturing overhead ($1,088,800 ÷ 35,000 units; $1,567,200 ÷ 15,000 units) ......................................... Unit product cost ............................................................ AACSB: Analytic AICPA BB: Critical Thinking Appendix: 8B LO: 7 Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition B40W $34.90 20.80 C63J $ 63.70 62.40 31.11 104.48 $86.81 $230.58 AICPA FN: Reporting 8-101 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 103. Welk Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, H16Z and P25P, about which it has provided the following data: Direct materials per unit ................ Direct labor per unit ...................... Direct labor-hours per unit ............ Annual production ......................... H16Z P25P $10.20 $50.50 $8.40 $25.20 0.40 1.20 30,000 10,000 The company’s estimated total manufacturing overhead for the year is $1,464,480 and the company’s estimated total direct labor-hours for the year is 24,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Activities and Activity Measures Supporting direct labor (DLHs) ................. Setting up machines (setups) ..................... Parts administration (part types) ................ Total ........................................................... Supporting direct labor ...... Setting up machines ........... Parts administration ........... Estimated Overhead Cost $ 552,000 132,480 780,000 $1,464,480 H16Z P25P Total 12,000 12,000 24,000 864 240 1,104 600 960 1,560 Required: a. Determine the manufacturing overhead cost per unit of each of the company's two products under the traditional costing system. b. Determine the manufacturing overhead cost per unit of each of the company's two products under activity-based costing system. 8-102 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Ans: a. Traditional Manufacturing Overhead Costs Predetermined overhead rate = $1,464,480 ÷ 24,000 DLHs = $61.02 per DLH Direct labor-hours...................................... Predetermined overhead rate per DLH ...... Manufacturing overhead cost per unit ....... H16Z P25P 0.40 1.20 $61.02 $61.02 $24.41 $73.22 b. ABC Manufacturing Overhead Costs Supporting direct labor ... Setting up machines........ Parts administration ........ Estimated Overhead Cost $552,000 $132,480 $780,000 Total Expected Activity 24,000 DLHs 1,104 setups 1,560 part types Activity Rate $23 per DLH $120 per setup $500 per part type Overhead cost for H16Z Supporting direct labor ... Setting up machines ........ Parts administration ........ Total ................................ Annual production .......... Manufacturing overhead cost per unit ................. Activity Rate $23 per DLH $120 per setup $500 per part type Activity 12,000 DLHs 864 setups 600 part types ABC Cost $276,000 103,680 300,000 $679,680 30,000 $22.66 Overhead cost for P25P Supporting direct labor ... Setting up machines........ Parts administration ........ Total................................ Annual production .......... Manufacturing overhead cost per unit ................. Activity Rate $23 per DLH $120 per setup $500 per part type AACSB: Analytic AICPA BB: Critical Thinking Appendix: 8B LO: 7 Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Activity 12,000 DLHs 240 setups 960 part types ABC Cost $276,000 28,800 480,000 $784,800 10,000 $78.48 AICPA FN: Reporting 8-103 Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making 104. Bullie Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, D31X and U75X, about which it has provided the following data: Direct materials per unit .......... Direct labor per unit ................ Direct labor-hours per unit ...... Annual production ................... D31X U75X $29.20 $47.40 $1.10 $23.10 0.10 2.10 35,000 15,000 The company’s estimated total manufacturing overhead for the year is $1,147,650 and the company’s estimated total direct labor-hours for the year is 35,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Activities and Activity Measures Assembling products (DLHs) ........ Preparing batches (batches) ........... Axial milling (MHs) ...................... Total............................................... Assembling products ......... Preparing batches .............. Axial milling...................... Estimated Overhead Cost $ 140,000 241,150 766,500 $1,147,650 D31X U75X Total 3,500 31,500 35,000 560 1,295 1,855 1,540 1,015 2,555 Required: a. Determine the manufacturing overhead cost per unit of each of the company's two products under the traditional costing system. b. Determine the manufacturing overhead cost per unit of each of the company's two products under activity-based costing system. 8-104 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making Ans: a. Traditional Manufacturing Overhead Costs Predetermined overhead rate = $1,147,650 ÷ 35,000 DLHs = $32.79 per DLH Direct labor-hours...................................... Predetermined overhead rate per DLH ...... Manufacturing overhead cost per unit ....... D31X U75X 0.10 2.10 $32.79 $32.79 $3.28 $68.86 b. ABC Manufacturing Overhead Costs Assembling products ... Preparing batches ........ Axial milling................ Estimated Overhead Cost $140,000 $241,150 $766,500 Total Expected Activity 35,000 DLHs 1,855 batches 2,555 MHs Activity Rate $4 per DLH $130 per batch $300 per MH Overhead cost for D31X Assembling products ........ Preparing batches ............. Axial milling..................... Total.................................. Annual production ............ Manufacturing overhead cost per unit ................... |
Paparo corporation has provided the following data from its activity-based costing system:
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