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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 product-level 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 first-stage 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 BB: Critical Thinking AICPA FN: Reporting LO: 8 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, littleB) low, considerableC) high, littleD) 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 organization-sustaining?
Security AssemblyA) Product UnitB) Batch BatchC) Organization UnitD) 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?
Number of Weight ofmaterial moves material moved
A) Yes YesB) No YesC) Yes NoD) 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 organization-
sustaining 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 machine-
hours 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 LO: 1 Level: Medium
8-8 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 ActivityFabrication......................... 10,000 machine-hoursOrder processing................ 800 ordersOther.................................. 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............. $320,000Depreciation....................... 220,000Occupancy.......................... 120,000 Total................................... $660,000
The distribution of resource consumption across activity cost pools is given below:
Activity Cost Pools
FabricationOrder
Processing Other TotalWages and salaries....... 20% 65% 15% 100%Depreciation................. 15% 35% 50% 100%Occupancy.................... 5% 70% 25% 100%
The activity rate for the Fabrication activity cost pool is closest to:A) $3.30 per machine-hourB) $13.20 per machine-hourC) $10.30 per machine-hourD) $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....... $ 64,000Depreciation: 15% × $220,000................. 33,000Occupancy: 5% × $120,000..................... 6,000 Total.......................................................... $103,000
(a) (b)(a) ÷ (b)
Activity Cost Pool Total Cost Total Activity Activity RateFabrication $103,000 10,000 machine-hours $10.30 per machine-hour
24. Leaper Corporation uses an activity-based costing system with the following three activity cost pools:
Activity Cost Pool Total ActivityFabrication......................... 40,000 machine-hoursOrder processing................ 200 ordersOther.................................. 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....... $360,000Depreciation................. 140,000Occupancy.................... 160,000 Total............................. $660,000
The distribution of resource consumption across activity cost pools is given below:
Activity Cost Pools
FabricationOrder
Processing Other TotalWages and salaries....... 35% 40% 25% 100%Depreciation................. 5% 55% 40% 100%Occupancy.................... 30% 45% 25% 100%
The activity rate for the Order Processing activity cost pool is closest to:A) $1,485 per orderB) $1,540 per orderC) $1,465 per orderD) $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....... $144,000Depreciation: 55% × $140,000................. 77,000Occupancy: 45% × $160,000................... 72,000 Total.......................................................... $293,000
(a) (b)(a) ÷ (b)
Activity Cost Pool Total Cost Total Activity Activity RateOrder Processing $293,000 200 orders $1,465 per order
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 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....... $360,000Depreciation................. 120,000Rent.............................. 180,000 Total............................. $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 ActivityAssembly...................... 60,000 labor-hoursOrder processing.......... 400 ordersOther............................ 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:
Activity Cost Pools
AssemblyOrder
Processing Other TotalWages and salaries....... 25% 65% 10% 100%Depreciation................. 15% 45% 40% 100%Rent.............................. 35% 40% 25% 100%
The activity rate for the Assembly activity cost pool is closest to:A) $2.65 per labor-hourB) $3.85 per labor-hourC) $2.85 per labor-hourD) $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....... $ 90,000Depreciation: 15% × $120,000................. 18,000Rent: 35% × $180,000.............................. 63,000 Total.......................................................... $171,000
(a) (b)(a) ÷ (b)
Activity Cost Pool Total Cost Total Activity Activity RateAssembly $171,000 60,000 labor-hours $2.85 per labor-hour
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 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....... $340,000Depreciation................. 120,000Rent.............................. 140,000 Total............................. $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 Total ActivityAssembly................... 30,000 labor-hoursOrder processing....... 500 ordersOther......................... 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:
Activity Cost Pools
AssemblyOrder
Processing Other TotalWages and salaries....... 40% 35% 25% 100%Depreciation................. 15% 45% 40% 100%Rent.............................. 35% 30% 35% 100%
The activity rate for the Order Processing activity cost pool is closest to:A) $430 per orderB) $420 per orderC) $360 per orderD) $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....... $119,000Depreciation: 45% × $120,000................. 54,000Rent: 30% × $140,000.............................. 42,000 Total.......................................................... $215,000
(a) (b)
(a) ÷ (b)
Activity Cost Pool Total Cost Total Activity Activity RateOrder Processing $215,000 500 orders $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............. $340,000Depreciation....................... 180,000Utilities............................... 200,000 Total................................... $720,000
Distribution of resource consumption:Activity Cost Pools
Assembly Setting Up Other TotalWages and salaries....... 20% 60% 20% 100%Depreciation................. 15% 35% 50% 100%Utilities......................... 5% 55% 40% 100%
How much cost, in total, would be allocated in the first-stage allocation to the Assembly activity cost pool?A) $144,000B) $96,000C) $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....... $ 68,000Depreciation: 15% × $180,000................. 27,000Utilities: 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............. $320,000Depreciation....................... 160,000Utilities............................... 240,000 Total................................... $720,000
Distribution of resource consumption:Activity Cost Pools
Assembly Setting Up Other TotalWages and salaries....... 50% 40% 10% 100%Depreciation................. 10% 55% 35% 100%Utilities......................... 15% 50% 35% 100%
How much cost, in total, would be allocated in the first-stage allocation to the Setting Up activity cost pool?A) $360,000B) $336,000C) $288,000D) $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....... $128,000Depreciation: 55% × $160,000................. 88,000Utilities: 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............. $300,000Depreciation....................... 180,000Utilities............................... 240,000 Total................................... $720,000
Distribution of resource consumption:Activity Cost Pools
Assembly Setting Up Other TotalWages and salaries........ 35% 40% 25% 100%Depreciation.................. 5% 60% 35% 100%Utilities.......................... 10% 60% 30% 100%
How much cost, in total, would be allocated in the first-stage allocation to the Other activity cost pool?A) $138,000B) $210,000C) $180,000D) $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....... $ 75,000Depreciation: 35% × $180,000................. 63,000Utilities: 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............. $420,000Depreciation....................... 240,000Occupancy.......................... 220,000 Total................................... $880,000
The distribution of resource consumption across the three activity cost pools is given below:
Activity Cost Pools
FabricatingOrder
Processing Other TotalWages and salaries........ 10% 75% 15% 100%Depreciation.................. 5% 50% 45% 100%Occupancy..................... 30% 35% 35% 100%
How much cost, in total, would be allocated in the first-stage allocation to the Fabricating activity cost pool?A) $88,000B) $132,000C) $264,000D) $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....... $ 42,000Depreciation: 5% × $240,000................... 12,000Occupancy: 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............. $360,000Depreciation....................... 200,000Occupancy.......................... 100,000 Total................................... $660,000
The distribution of resource consumption across the three activity cost pools is given below:
Activity Cost Pools
FabricatingOrder
Processing Other TotalWages and salaries........ 15% 60% 25% 100%Depreciation.................. 20% 35% 45% 100%Occupancy..................... 25% 50% 25% 100%
How much cost, in total, would be allocated in the first-stage allocation to the Order Processing activity cost pool?A) $336,000B) $319,000C) $330,000D) $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....... $216,000Depreciation: 35% × $200,000................. 70,000Occupancy: 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....... $360,000Depreciation................. 100,000Occupancy.................... 120,000 Total............................. $580,000
The distribution of resource consumption across the three activity cost pools is given below:
Activity Cost Pools
FabricatingOrder
Processing Other TotalWages 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) $123,000B) $174,000C) $58,000D) $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....... $ 36,000Depreciation: 45% × $100,000................. 45,000Occupancy: 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 Total Cost Total ActivityAssembly...................... $1,137,360 84,000 machine-hoursProcessing orders......... $28,479 1,100 ordersInspection..................... $97,155 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 unitB) $4,679.20 per unitC) $3,384.70 per unitD) $16,675.60 per unit
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4,5 Level: Medium
Solution:
(a) (b) (a) ÷ (b)Activity Cost Pool Total Cost Total Activity Activity RateAssembly $1,137,360 84,000 machine-
hours$13.54 per
machine-hourProcessing Orders 28,479 1,100 orders $25.89 per orderInspection 97,155 1,270 inspection-
hours$76.50 per
inspection-hour
Calculation of Overhead Costs:(a) (b) (a) × (b)
Activity Cost Pool Activity Rate Total Activity ABC CostAssembly $13.54 per MH 660 MHs $8,936.40Processing Orders $25.89 per order 50 orders $1,294.50Inspection $76.50 per IH 40 IHs $3,060.00
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-21
Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making
Sales.............................................................................$55,460.00Costs:
Direct materials (470 × $40.30)...............................$18,941.00Direct labor (470 × $42.22)......................................19,843.40Assembly..................................................................8,936.40Processing.................................................................1,294.50Inspection................................................................. 3,060.00 52,075.30
Product margin.............................................................$ 3,384.70
34. Houseal Corporation has provided the following data from its activity-based costing system:
Activity Cost Pool Total Cost Total ActivityAssembly...................... $613,250 55,000 machine-hoursProcessing orders......... $46,170 1,500 ordersInspection..................... $146,110 1,900 inspection-hours
Data concerning one of the company’s products, Product W58B, appear below:
Selling price per unit............................ $113.70Direct materials cost per unit............... $48.14Direct labor cost per unit...................... $11.62Annual unit production and sales......... 360Annual machine-hours......................... 1,040Annual orders....................................... 60Annual inspection-hours...................... 30
According to the activity-based costing system, the product margin for product W58B is:A) $3,668.60B) $5,975.60C) $5,515.40D) $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:
(a) (b) (a) ÷ (b)Activity Cost Pool Total Cost Total Activity Activity RateAssembly $613,250 55,000 machine-
hours$11.15 per
machine-hourProcessing Orders 46,170 1,500 orders $30.78 per orderInspection 146,110 1,900 inspection-
hours$76.90 per
inspection-hour
Calculation of Overhead Costs:(a) (b) (a) × (b)
Activity Cost Pool Activity Rate Total Activity ABC CostAssembly $11.15 per MH 1,040 MHs $11,596.00Processing Orders $30.78 per order 60 orders $1,846.80Inspection $76.90 per IH 30 IHs $2,307.00
Sales (360 × $113.70)..................................................$40,932.00Costs:
Direct materials (360 × $48.14)...............................$17,330.40Direct labor (360 × $11.62)......................................4,183.20Assembly..................................................................11,596.00Processing.................................................................1,846.80Inspection................................................................. 2,307.00 37,263.40
Product margin.............................................................$ 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 Total Cost Total ActivityAssembly...................... $228,060 18,000 machine-hoursProcessing orders......... $34,068 1,200 ordersInspection..................... $125,560 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 unitB) $93.60 per unitC) $74.32 per unitD) $89.93 per unit
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4 Level: Medium
Solution:
(a) (b) (a) ÷ (b)Activity Cost Pool Total Cost Total Activity Activity RateAssembly $228,060 18,000 machine-
hours$12.67 per
machine-hourProcessing Orders 34,068 1,200 orders $28.39 per orderInspection 125,560 1,720 inspection-
hours$73.00 per
inspection-hour
Average Cost of Product D28K:Direct materials.......................................... $48.96Direct labor................................................ 25.36Assembly [($12.67 × 460) ÷ 420].............. 13.88Processing orders [($28.39 × 80) ÷ 420]. . . 5.40Inspection [($73.00 × 10) ÷ 420]............... 1.74
$95.34
8-24 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 Total Cost Total ActivityAssembly...................... $846,040 52,000 machine-hoursProcessing orders......... $64,056 1,700 ordersInspection..................... $102,408 1,360 inspection-hours
Data concerning the company’s product Q79Y appear below:
Annual unit production and sales......... 450Annual machine-hours......................... 1,080Annual number of orders..................... 70Annual inspection hours...................... 20Direct materials cost............................ $44.00 per unitDirect 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 unitB) $85.03 per unitC) $127.43 per unitD) $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:
(a) (b) (a) ÷ (b)Activity Cost Pool Total Cost Total Activity Activity RateAssembly $846,040 52,000 machine-
hours$16.27 per
machine-hourProcessing Orders 64,056 1,700 orders $37.68 per orderInspection 102,408 1,360 inspection-
hours$75.30 per
inspection-hour
Average Cost of Product Q79Y:Direct materials.......................................... $ 44.00Direct labor................................................ 41.03Assembly [($16.27 × 1,080) ÷ 450]........... 39.05Processing orders [($37.68 × 70) ÷ 450]. . . 5.86Inspection [($75.30 × 20) ÷ 450]............... 3.35
$133.29
37. Millner Corporation has provided the following data from its activity-based costing accounting system:
Activity Cost Pools Total Cost Total ActivityDesigning products............ $1,372,448 7,798 product design hoursSetting up batches.............. $33,300 740 batch set-upsAssembling products.......... $126,160 6,640 assembly hours
The activity rate for the “designing products” activity cost pool is closest to:A) $101 per product design hourB) $1,372,448 per product design hourC) $176 per product design hourD) $57 per product design hour
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy
Solution:(a) (b) (a) ÷ (b)
Activity Cost Pool Total Cost Total Activity Activity RateDesigning Products $1,372,448 7,798 PDHs $176 per PDH
8-26 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 Total Cost Total ActivityResearching legal issues.. . . $20,480 640 research hoursMeeting with clients........... $1,182,239 7,253 meeting hoursPreparing documents.......... $91,840 5,740 documents
The activity rate for the “meeting with clients” activity cost pool is closest to:A) $95 per meeting hourB) $61 per meeting hourC) $163 per meeting hourD) $1,182,239 per meeting hour
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy
Solution:(a) (b) (a) ÷ (b)
Activity Cost Pool Total Cost Total Activity Activity RateMeeting with clients $1,182,239 7,253 meeting
hours$163 per meeting hour
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 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 Activity RateSetting up batches.......................... $59.06 per batchProcessing customer orders............ $72.66 per customer orderAssembling products...................... $3.75 per assembly hour
Data concerning two products appear below:
Product K91B Product F65ONumber of batches......................... 84 50Number of customer orders........... 32 43Number of assembly hours............ 483 890
How much overhead cost would be assigned to Product K91B using the activity-based costing system?A) $9,097.41B) $81,146.53C) $4,961.04D) $135.47
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy
Solution:(a) (b) (a) × (b)
Activity Cost Pool Activity Rate Total Activity ABC Cost
Setting up batches$59.06 per
batch84 batches $4,961.04
Processing customer orders
$72.66 per order
32 orders 2,325.12
Assembling products $3.75 per AH 483 AHs 1,811.25 $9,097.41
8-28 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 Activity RateAssembling products...................... $8.90 per assembly hourProcessing customer orders............ $31.23 per customer orderSetting up batches.......................... $43.72 per batch
Data for one of the company’s products follow:
Product U94WNumber of assembly hours............ 389Number of customer orders........... 53Number of batches......................... 61
How much overhead cost would be assigned to Product U94W using the activity-based costing system?A) $42,176.55B) $83.85C) $7,784.21D) $2,666.92
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy
Solution:(a) (b) (a) × (b)
Activity Cost Pool Activity Rate Total Activity ABC CostAssembling products $8.90 per AH 389 AHs $3,462.10Processing customer
orders$31.23 per
order53 orders 1,655.19
Setting up batches$43.72 per
batch61 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 Activity RateProcessing customer orders............ $31.62 per customer orderAssembling products...................... $2.86 per assembly hourSetting up batches.......................... $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) $60,979.68B) $3,588.97C) $5,778.31D) $81.09
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy
Solution:(a) (b) (a) × (b)
Activity Cost Pool Activity Rate Total Activity ABC CostProcessing customer
orders$31.62 per
order9 orders $ 284.58
Assembling products $2.86 per AH 666 AHs 1,904.76
Setting up batches$46.61 per
batch77 batches 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............................. $340,000Factory equipment depreciation.............. $240,000
Distribution of Resource Consumption across Activity Cost Pools:
Activity Cost PoolsCustomer
OrdersProduct
Processing Other TotalIndirect factory wages.................... 25% 65% 10% 100%Factory equipment depreciation..... 40% 40% 20% 100%
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining 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) $188,500B) $181,000C) $290,000D) $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% × $340,000............................................$ 85,000Factory 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) $340,000B) $82,000C) $0D) $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............................................$34,000Factory 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............. $660,000Factory supplies................. $280,000
Distribution of Resource Consumption across Activity Cost Pools:
Activity Cost PoolsBatch
ProcessingUnit
Processing Other TotalSupervisory wages.... 20% 70% 10% 100%Factory supplies........ 45% 35% 20% 100%
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining 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) $940,000B) $470,000C) $305,500D) $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.................................................$132,000Factory 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) $122,000B) $660,000C) $280,000D) $0
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2 Level: Easy
Solution:
Other Cost:Supervisory wages: 10% × $660,000.................................................$ 66,000Factory 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............ $460,000Indirect factory labor.......... $220,000
Distribution of Resource Consumption across Activity Cost Pools:Activity Cost Pools
Batch Set-Up Expediting Other TotalFactory supervision............ 55% 35% 10% 100%Indirect factory labor.......... 60% 20% 20% 100%
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining 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) $680,000B) $385,000C) $391,000D) $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................................................$253,000Indirect 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) $220,000B) $90,000C) $0D) $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................................................$46,000Indirect 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............. $ 80,000Other expenses................... 40,000 Total................................... $120,000
Distribution of resource consumption:Activity Cost Pools
Making Bouquets Delivery Other Total
Wages and salaries.... 60% 30% 10% 100%Other expenses.......... 45% 25% 30% 100%
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
The amount of activity for the year is as follows:
Activity Cost Pool ActivityMaking bouquets....... 40,000 bouquetsDelivery..................... 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) $1.65B) $1.35C) $1.58D) $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...................................................$48,000Other expenses: 45% × $40,000......................................................... 18,000 Total....................................................................................................$66,000
(a) (b) (a) ÷ (b)Activity Cost Pool Total Cost Total Activity Activity RateMaking Bouquets $66,000 40,000 bouquets $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) $7.20B) $6.60C) $6.00D) $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...................................................$24,000Other expenses: 25% × $40,000......................................................... 10,000 Total....................................................................................................$34,000
(a) (b) (a) ÷ (b)Activity Cost Pool Total Cost Total Activity Activity RateDelivery $34,000 5,000 deliveries $6.80 per delivery
8-36 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............................ $440,000Selling and administrative expenses.......... 240,000 Total........................................................... $680,000
Distribution of resource consumption:Activity Cost Pools
Order Size
Customer Support Other Total
Manufacturing overhead...................... 55% 35% 10% 100%Selling and administrative expenses.... 30% 50% 20% 100%
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining 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) $314,000B) $289,000C) $204,000D) $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........................................$242,000Selling 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) $274,000B) $238,000C) $289,000D) $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........................................$154,000Selling 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) $68,000B) $0C) $92,000D) $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........................................$44,000Selling 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:
Wall Mirrors Specialty WindowsTotal expected units produced................... 6,000 3,000Total expected material moves.................. 500 100Expected direct labor-hours per unit.......... 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) $2,449B) $4,144C) $3,499D) $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-HoursWall Mirrors: 6,000 units × 6 DLHs per unit.....................................36,000 DLHsSpecialty Mirrors: 3,000 units × 9 DLHs per unit..............................27,000 DLHsTotal....................................................................................................63,000 DLHs
(a) (b) (a) ÷ (b)Activity Cost Pool Total Cost Total Activity Activity RateDirect labor-hours $6,123.60 63,000 DLHs $.0972 per DLH
Materials Handling Cost for Wall Mirrors:
(a) (b) (a) × (b)Activity Cost Pool Activity Rate Total Activity ABC CostDirect labor-hours $.0972 per DLH 36,000 DLHs $3,499
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 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) $1,021B) $3,674C) $3,062D) $1,980
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4 Level: Easy Source: CMA, adapted
Solution:
(a) (b) (a) ÷ (b)Activity Cost Pool Total Cost Total Activity Activity RateMaterial moves $6,123.60 600 moves* $10.206 per move
*500 + 100 = 600 moves
Materials Handling Cost for Specialty Mirrors:
(a) (b) (a) × (b)Activity Cost Pool Activity Rate Total Activity ABC CostMaterial moves $10.206 per move 100 moves $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:
Modular Homes Prefab BarnsTotal expected units produced............. 3,000 4,000Total expected material moves............ 400 100Expected direct labor-hours per unit.... 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) $16,014B) $19,880C) $36,890D) $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-HoursModular Homes: 3,000 units × 700 DLHs per unit............................2,100,000 DLHsPrefab Barns: 4,000 units × 200 DLHs per unit................................. 800,000 DLHs Total....................................................................................................2,900,000 DLHs
(a) (b) (a) ÷ (b)Activity Cost Pool Total Cost Total Activity Activity RateDirect labor-hours $72,065 2,900,000 DLHs $.02485 per DLH
Materials Handling Cost for Prefab Barns:
(a) (b) (a) × (b)Activity Cost Pool Activity Rate Total Activity ABC CostDirect labor-hours $.02485 per DLH 800,000 DLHs $19,880
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 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) $36,033B) $57,652C) $56,051D) $35,175
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4 Level: Easy Source: CMA, adapted
Solution:
(a) (b) (a) ÷ (b)Activity Cost Pool Total Cost Total Activity Activity RateMaterial moves $72,065 500 moves* $144.13 per move
*400 + 100 = 500 moves
Materials Handling Cost for Modular Homes:(a) (b) (a) × (b)
Activity Cost Pool Activity Rate Total Activity ABC CostMaterial moves $144.13 per move 400 moves $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 PoolEstimated
Cost Product A Product B TotalActivity 1............... $16,660 600 100 700Activity 2............... $18,450 1,100 700 1,800Activity 3............... $9,731 60 160 220
8-42 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) $24.91B) $26.36C) $16.77D) $10.25
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium
Solution:
(a) (b) (a) ÷ (b)Activity Cost Pool Total Cost Total Activity Activity RateActivity 2 $18,450 1,800 $10.25
58. The cost per unit of Product B is closest to:A) $41.58B) $81.53C) $74.73D) $17.69
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Hard
Solution:
(a) (b) (a) ÷ (b)Activity Cost Pool Total Cost Total Activity Activity RateActivity 1 $16,660 700 $23.80Activity 2 $18,450 1,800 $10.25Activity 3 $9,731 220 $44.23
Total Cost of Product B:(a) (b) (a) × (b)
Activity Cost Pool Activity Rate Total Activity ABC CostActivity 1 $23.80 100 $ 2,380.00Activity 2 $10.25 700 7,175.00Activity 3 $44.23 160 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:
Activity Cost Pools(and Activity Measures) Estimated Overhead CostMachine related (machine-hours)................. $46,400Batch setup (setups)...................................... $434,000General factory (direct labor-hours)............. $226,500
Expected ActivityActivity Cost Pools Total Product X Product Y
Machine related............ 4,000 3,000 1,000Batch setup................... 7,000 3,000 4,000General factory............. 15,000 7,000 8,000
59. The activity rate for the batch setup activity cost pool is closest to:A) $62.00B) $101.00C) $144.70D) $108.50
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium
Solution:
(a) (b) (a) ÷ (b)Activity Cost Pool Total Cost Total Activity Activity RateBatch setup $434,000 7,000 $62.00
8-44 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) $353,450B) $303,000C) $326,500D) $434,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Medium
Solution:
(a) (b) (a) ÷ (b)Activity Cost Pool Total Cost Total Activity Activity RateMachine related $46,400 4,000 $11.60Batch setup $434,000 7,000 $62.00General factory $226,500 15,000 $15.10
Total Overhead Cost Allocated to Product X:
(a) (b) (a) × (b)Activity Cost Pool Activity Rate Total Activity ABC CostMachine related $11.60 3,000 $ 34,800Batch setup $62.00 3,000 186,000General factory $15.10 7,000 105,700
$326,500
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 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 activity-based costing system:
Activity Cost Pools Activity RateSize-related..................... $1.13 per guestComplexity-related......... $28.22 per tierOrder-related................... $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:
Tijerina Wedding
Twersky Wedding
Number of reception guests....................... 49 126Number of tiers on the cake....................... 2 4Cost of purchased decorations for cake..... $28.60 $54.64
8-46 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) $74.72B) $215.13C) $28.60D) $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) (a) × (b)
Activity Cost Pool Activity Rate Total Activity ABC CostSize-related $1.13 per guest 49 guests $ 55.37Complexity-related $28.22 per tier 2 tiers 56.44
Order-related$74.72 per
order1 order 74.72
Cost of purchased decorations for cake.........................................................................................................................
28.60
Total cost............................................................................ $215.13
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 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) $135.41B) $80.77C) $384.62D) $155.49
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4,5 Level: Medium
Solution:
(a) (b) (a) × (b)Activity Cost Pool Activity Rate Total Activity ABC CostSize-related $1.13 per guest 126 guests $142.38Complexity-related $28.22 per tier 4 tiers 112.88
Order-related$74.72 per
order1 order 74.72
Cost of purchased decorations for cake.........................................................................................................................
54.64
Total cost............................................................................ $384.62
Sales................................ $465.39Total cost......................... 384.62 Margin on order.............. $ 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 Size-Related 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:Ericson Wedding Haupt Wedding
Number of reception guests...................... 60 162Number of tiers on the cake...................... 4 3Cost of purchased decorations for cake.... $16.89 $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) $61.44B) $387.45C) $16.89D) $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) (a) × (b)
Activity Cost Pool Activity Rate Total Activity ABC CostSize-related $1.13 per guest 60 guests $ 67.80Complexity-related $43.52 per tier 4 tiers 174.08
Order-related$61.44 per
order1 order 61.44
Cost of purchased decorations for cake.........................................................................................................................
16.89
Total cost............................................................................ $320.21
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 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) $86.87B) $413.67C) $148.31D) $125.48
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4,5 Level: Medium
Solution:
(a) (b) (a) × (b)Activity Cost Pool Activity Rate Total Activity ABC CostSize-related $1.13 per guest 162 guests $183.06Complexity-related $43.52 per tier 3 tiers 130.56
Order-related$61.44 per
order1 order 61.44
Cost of purchased decorations for cake.........................................................................................................................
38.61
Total cost............................................................................ $413.67
Sales................................ $500.54Total cost......................... 413.67 Margin on order.............. $ 86.87
8-50 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.... $220,000Other expenses.......... 160,000 Total.......................... $380,000
Distribution of resource consumption:
Activity Cost PoolsFilling Orders
Customer Support Other Total
Wages and salaries....... 35% 55% 10% 100%Other expenses............. 15% 65% 20% 100%
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
The amount of activity for the year is as follows:
Activity Cost Pool ActivityFilling orders................ 4,000 ordersCustomer support......... 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) $25.25B) $23.75C) $33.25D) $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....... $ 77,000Other expenses: 15% × $160,000............. 24,000 Total.......................................................... $101,000
(a) (b) (a) ÷ (b)Activity Cost Pool Total Cost Total Activity Activity RateFilling orders $101,000 4,000 order $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) $10,450B) $11,250C) $12,350D) $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....... $121,000Other expenses: 65% × $160,000............. 104,000 Total.......................................................... $225,000
(a) (b) (a) ÷ (b)Activity Cost Pool Total Cost Total Activity Activity RateCustomer support $225,000 20 customers $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) $5,745B) $10,650C) $6,166D) $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....................................$77,000Allocated to Customer Support: 55% × $220,000.............................$121,000
(a) (b) (a) ÷ (b)Activity Cost Pool Total Cost Total Activity Activity RateFilling orders $77,000 4,000 orders $19.25 per order
Customer support $121,00020 customers $6,050 per
customer
(a) (b) (a) × (b)Activity Cost Pool Activity Rate Total Activity ABC CostFilling orders $19.25 per order 6 orders $ 116Customer support $6,050 per customer 1 customer 6,050
$6,166
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 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 Preparing Meals Arranging FunctionsWages........................ $1.15 $180.00Supplies..................... $0.40 $320.00Other expenses.......... $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) $2,945B) $2,745C) $2,095D) $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)............................630Cost 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).................................................... $2,700.00Green costs:
Supplies−Preparing meals ($0.40 × 150)................. $ 60.00Supplies−Arranging functions.................................. 320.00Raw ingredients ($12.40 × 150)............................... 1,860.00 2,240.00
Green margin............................................................... 460.00Yellow costs:
Wages−Preparing meals ($1.15 × 150).................... 172.50Wages−Arranging functions..................................... 180.00 352.50
Yellow margin............................................................. 107.50Red costs:
Other expenses−Preparing meals ($0.15 × 150)...... 22.50Other expenses−Arranging functions....................... 130.00 152.50
Red margin................................................................... $(45.00)
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 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) $183B) $288C) $233D) $108
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Hard
Solution:
Sales ($18.00 × 150).................................................... $2,700Green costs:
Supplies−Preparing meals ($0.40 × 150)................. $ 60Supplies−Arranging functions.................................. 320Raw ingredients ($12.40 × 150)............................... 1,860 2,240
Green margin............................................................... 460Yellow costs:
Wages−Preparing meals ($1.15 × 150).................... 173Wages−Arranging functions..................................... 180 353
Yellow margin............................................................. $ 108
8-56 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 PoolEstimated
Overhead Costs Product A Product B TotalActivity 1............... $20,272 300 500 800Activity 2............... 29,380 800 500 1,300General Factory...... 21,634 160 420 580Total....................... $71,286
(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) $25.34B) $22.60C) $37.30D) $122.91
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium
Solution:
Total Direct Labor-HoursProduct A: 800 units × .2 DLHs per unit...........................................160 DLHsProduct B: 700 units × .6 DLHs per unit............................................420 DLHsTotal....................................................................................................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) $22.38B) $13.56C) $73.74D) $15.20
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium
Solution:
Total Direct Labor-HoursProduct A: 800 units × .2 DLHs per unit...........................................160 DLHsProduct B: 700 units × .6 DLHs per unit............................................420 DLHsTotal....................................................................................................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 activity-based costing system is closest to:A) $22.60B) $54.84C) $58.76D) $36.73
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium
Solution:
(a) (b) (a) ÷ (b)Activity Cost Pool Estimated Cost Estimated Activity Activity RateActivity 2 $29,380 1,300 $22.60
8-58 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) $73.74B) $56.62C) $22.38D) $47.52
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Hard
Solution:
(a) (b) (a) ÷ (b)Activity Cost Pool Estimated Cost Estimated Activity Activity RateActivity 1 $20,272 800 $25.34Activity 2 $29,380 1,300 $22.60General Factory $21,634 580 $37.30
Total Cost of Product B:(a) (b) (a) × (b)
Activity Cost Pool Activity Rate Activity ABC CostActivity 1 $25.34 500 $12,670Activity 2 $22.60 500 11,300General Factory $37.30 420 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:
P85G C43SDirect materials per unit........... $36.50 $63.10Direct labor per unit................. $20.80 $31.20Direct labor-hours per unit....... 0.80 1.20Annual production................... 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:
Activities and Activity MeasuresEstimated
Overhead CostSupporting direct labor (DLHs)..... $1,160,000Setting up machines (setups)......... 288,000Parts administration (part types).... 816,000 Total............................................... $2,264,000
Expected ActivityP85G C43S Total
DLHs............. 28,000 12,000 40,000Setups............ 1,480 920 2,400Part types....... 1,880 840 2,720
8-60 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) $89.67B) $45.28C) $44.39D) $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) $71.04B) $138.96C) $67.92D) $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:
(a) (b) (a) ÷ (b)
Activity Cost PoolEstimated
CostEstimated Activity Activity Rate
Supporting direct labor $1,160,000 40,000 DLHs $29 per DLHSetting up machines $288,000 2,400 setups $120 per setupParts administration $816,000 2,720 part types $300 per part type
Total Overhead applied to Product C43S:(a) (b) (a) × (b)
Activity Cost Pool Activity Rate Expected Activity ABC CostSupporting direct labor $29 per DLH 12,000 DLHs $348,000Setting up machines $120 per setup 920 setups 110,400Parts administration $300 per part type 840 part types 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:
R58G R09ODirect materials per unit........... $15.90 $52.40Direct labor per unit................. $1.30 $27.30Direct labor-hours per unit....... 0.10 2.10Annual production................... 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:
Activities and Activity MeasuresEstimated
Overhead CostAssembling products (DLHs)................ $ 696,000Preparing batches (batches)................... 252,000Product support (product variations)..... 669,600 Total....................................................... $1,617,600
Expected ActivityR58G R09O Total
DLHs............................ 3,000 21,000 24,000Batches......................... 528 1,152 1,680Product variations........ 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) $6.74B) $16.10C) $22.84D) $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) $113.46B) $255.00C) $141.54D) $17.28
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium
Solution:
(a) (b) (a) ÷ (b)
Activity Cost PoolEstimated
CostEstimated Activity
Activity RateAssembling products $696,000 24,000 DLHs $29 per DLHPreparing batches $252,000 1,680 batches $150 per batchProduct support $669,600 2,232 product
variations$300 per product
variation
Total Overhead applied to Product R09O:(a) (b) (a) × (b)
Activity Cost Pool Activity Rate Expected Activity ABC CostAssembling products $29 per DLH 21,000 DLHs $ 609,000Preparing batches $150 per batch 1,152 batches 172,800
Product support$300 per product
variation1,176 product
variations 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:
U86Y M91FDirect materials per unit........... $19.80 $45.80Direct labor per unit................. $18.20 $49.40Direct labor-hours per unit....... 0.70 1.90Annual production................... 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 MeasuresEstimated
Overhead CostDirect labor support (DLHs)............. $1,175,000Setting up machines (setups)............ 407,960Part administration (part types)......... 958,800 Total.................................................. $2,541,760
Expected ActivityU86Y M91F Total
DLHs................ 28,000 19,000 47,000Setups............... 2,256 658 2,914Part types.......... 1,034 2,162 3,196
8-66 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) $71.15B) $55.50C) $75.86D) $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............................... $19.80Direct labor...................................... 18.20Applied manufacturing overhead.... 37.86 Total................................................. $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) $95.20B) $121.57C) $216.77D) $197.95
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium
Solution:
(a) (b) (a) ÷ (b)
Activity Cost Pool Estimated CostExpected Activity Activity Rate
Direct labor support $1,175,000 47,000 DLHs $25 per DLHSetting up machines $407,960 2,914 setups $140 per setupPart administration $958,800 3,196 part types $300 per part
type
Total Overhead applied to Product M91F:(a) (b) (a) × (b)
Activity Cost Pool Activity Rate Expected Activity ABC CostDirect labor support $25 per DLH 19,000 DLHs $ 475,000Setting up machines $140 per setup 658 setups 92,120
Part administration$300 per part
type2,162 part types
648,600 $1,215,720
Overhead Cost per unit = $1,215,720 ÷ 10,000 units = $121.57 per unit
Unit Product Cost:Direct materials............................... $ 45.80Direct labor...................................... 49.40Applied 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:
R21V D00BDirect materials per unit................. $19.60 $61.70Direct labor per unit....................... $3.90 $19.50Direct labor-hours per unit............. 0.30 1.50Annual production......................... 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:
Activities and Activity MeasuresEstimated
Overhead CostAssembling products (DLHs).................... $ 108,000Preparing batches (batches)....................... 362,880Product support (product variations)......... 792,000 Total........................................................... $1,262,880
Expected ActivityR21V D00B Total
DLHs......................... 13,500 22,500 36,000Batches...................... 1,440 1,152 2,592Product variations..... 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) $34.02B) $24.40C) $41.36D) $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............................... $19.60Direct labor...................................... 3.90Applied manufacturing overhead.... 10.52 Total................................................. $34.02
8-70 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) $111.81B) $133.82C) $81.20D) $30.61
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium
Solution:(a) (b) (a) ÷ (b)
Activity Cost Pool Estimated CostExpected Activity Activity Rate
Assembling products
$108,000 36,000 DLHs $3 per DLH
Preparing batches $362,880 2,592 batches $140 per batchesProduct support $792,000 1,980 product
variations$400 per product
variation
Total Overhead applied to Product D00B:(a) (b) (a) × (b)
Activity Cost Pool Activity Rate Expected Activity ABC CostAssembling products $3 per DLH 22,500 DLHs $ 67,500Preparing batches $140 per batch 1,152 batches 161,280
Product support$400 per product
variation576 product
variations 230,400 $459,180
Overhead Cost per unit = $459,180 ÷ 15,000 units = $30.61 per unit
Unit Product Cost:Direct materials............................... $ 61.70Direct labor...................................... 19.50Applied 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.................... $16,000Factory equipment depreciation..... $193,000
Distribution of Resource Consumption across Activity Cost Pools:
Activity Cost PoolsCustomer
OrdersProduct
Processing Other TotalIndirect factory wages.................... 48% 47% 5% 100%Factory equipment depreciation..... 61% 25% 14% 100%
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining 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)......................... $ 7,520Factory 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)........................... $ 800Factory equipment depreciation (14% × $193,000)....... 27,020 Total................................................................................ $27,820
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2 Level: Easy
8-72 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............. $94,000Factory utilities.................. $128,000
Distribution of Resource Consumption across Activity Cost Pools:
Activity Cost PoolsBatch
Set-UpsUnit
Processing Other TotalSupervisory wages....... 34% 64% 2% 100%Factory utilities............ 49% 35% 16% 100%
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining 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)......... $ 60,160Factory 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)........... $ 1,880Factory utilities (16% × $128,000)............ 20,480 Total........................................................... $22,360
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2 Level: Easy
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 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............. $46,000Factory utilities.................. $199,000
Distribution of Resource Consumption across Activity Cost Pools:
Activity Cost Pools Product
Change-Overs Machining Other TotalSupervisory wages....... 59% 33% 8% 100%Factory utilities............ 18% 69% 13% 100%
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining 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)......... $ 15,180Factory 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)........... $ 3,680Factory utilities (13% × $199,000)............ 25,870 Total........................................................... $29,550
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2 Level: Easy
8-74 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............. $620,000Travel expenses.................. 140,000Other expenses................... 120,000 Total................................... $880,000
Distribution of resource consumption:
Activity Cost PoolsWorking On Engagements
Business Development Other Total
Wages and salaries....... 60% 10% 30% 100%Travel expenses............ 50% 40% 10% 100%Other expenses............. 35% 25% 40% 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.
Working On Engagements
Business Development Other Total
Wages and salaries..... $372,000 $ 62,000 $186,000 $620,000Travel expenses.......... 70,000 56,000 14,000 140,000Other expenses........... 42,000 30,000 48,000 120,000 Total........................... $484,000 $148,000 $248,000 $880,000
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 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 Total Cost Total ActivityCleaning.................... $263,784 34,800 hoursJob support................ 145,180 7,000 jobsClient support............ 4,774 220 clientsOther......................... 170,000 Not applicableTotal.......................... $583,738
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining 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.
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Ans:
a. The computation of the activity rates follow:Total Cost Total Activity Activity Rates
Cleaning........... $263,784 34,800 hours $7.58 per hourJob support....... $145,180 7,000 jobs $20.74 per jobClient support... $4,774 220 clients $21.70 per client
b. The customer margin for the family is computed as follows:Client charges............... $2,000.00Costs:
Cleaning.................... $682.20Job support................ 933.30Client support............ 21.70 1,637.20
Customer margin.......... $ 362.80
Computations for costs:Cleaning: 90 hours × $7.58 per hour = $682.20Job support: 45 jobs × $20.74 per job = $933.30Client 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..................... $2,000.00Allocated costs*................. 1,509.30 Customer margin................ $ 490.70
* 90 hours × $16.77 per hour = $1,509.30
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4,5 Level: Medium
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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 Total Cost Total ActivityCleaning................. $185,752 21,700 hoursJob support............. 171,532 6,100 jobsClient support......... 15,124 760 clientsOther...................... 240,000 Not applicableTotal....................... $612,408
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining 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.
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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 hourJob support............. $171,532 6,100 jobs $28.12 per jobClient support......... $15,124 760 clients $19.90 per client
The customer margin for the family is computed as follows:Client charges............... $1,170.00Costs:
Cleaning.................... $513.60Job support................ 421.80Client support............ 19.90 955.30
Customer margin.......... $ 214.70
Computations for costs:Cleaning: 60 hours × $8.56 per hour = $513.60Job support: 15 jobs × $28.12 per job = $421.80Client 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............... $1,170.00Allocated costs*........... 1,693.20 Customer margin.......... ($523.20)
* 60 hours × $28.22 per hour = $1,693.20
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4,5 Level: Medium
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 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:
Product C Product DEstimated volume........................... 400 units 3,000 unitsDirect labor hours per unit............. 1.20 hours 1.30 hourDirect materials cost per unit......... $4.00 $22.80Direct labor cost per unit................ $12.00 $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
Activity Cost Pool
Estimated Overhead
Costs Product C Product D TotalMachine setups....... $ 10,440 60 120 180Purchase orders...... 78,000 820 1,180 2,000General factory....... 30,660 480 3,900 4,380Total....................... $119,100
Determine the unit product cost of each product for the current period using the activity-based costing approach.
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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........... 480 hoursProduct D: 3,000 units × 1.3 hours per unit........ 3,900 hoursTotal direct labor 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:
Product C Product DDirect materials........................ $ 4.00 $22.80Direct labor.............................. 12.00 13.00Manufacturing overhead.......... 32.63 35.35 Total unit product cost............. $48.63 $71.15
b. The activity rates for each activity cost pool are as follows:
Estimated Overhead
CostsExpected Activity
Activity Rate
Machine setups....... $10,440 180 $58.00Purchase orders...... $78,000 2,000 $39.00General factory....... $30,660 4,380 $7.00
The overhead cost charged to each product is:
Product C Product DActivity Amount Activity Amount
Machine setups.......... 60 $ 3,480 120 $ 6,960Purchase orders......... 820 31,980 1,180 46,020General factory.......... 480 3,360 3,900 27,300 Total overhead cost... $38,820 $80,280
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Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making
Overhead cost per unit:Product C: $38,820 ÷ 400 units = $97.05 per unitProduct D: $80,280 ÷ 3,000 units = $26.76 per unit
Using activity based costing, the unit product cost of each product would be:
Product C Product DDirect materials.............................. $ 4.00 $22.80Direct labor.................................... 12.00 13.00Manufacturing overhead................ 97.05 26.76 Total unit product cost................... $113.05 $62.56
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Hard
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
Activity Cost Pool
Estimated Overhead
Costs Product F Product G TotalMachine setups....... $13,720 140 140 280Purchase orders...... $74,730 630 960 1,590General factory....... $15,000 600 2,400 3,000
Required:
Using the activity-based costing approach, determine the overhead cost per unit for each product.
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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
Overhead Estimated
CostsExpected Activity
Activity Rate
Machine setups............. $13,720 280 $49.00Purchase orders............ $74,730 1,590 $47.00General factory............. $15,000 3,000 $5.00
The overhead cost charged to each product is:
Product F Product GActivity Amount Activity Amount
Machine setups............. 140 $ 6,860 140 $ 6,860Purchase orders............ 630 29,610 960 45,120General factory............. 600 3,000 2,400 12,000 Total overhead cost...... $39,470 $63,980
Overhead cost per unit:Product F: $39,470 ÷ 600 units = $65.78 per unitProduct G: $63,980 ÷ 3,000 units = $21.33 per unit
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4 Level: Medium
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 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 Total Cost Total ActivityDesigning products...... $700,502 3,746 product design hoursSetting up batches........ $12,400 620 batch set-upsAssembling products.... $125,440 8,960 assembly hours
Required:
Compute the activity rates for each of the three cost pools. Show your work!
Ans:
Activity Cost Pools Total Cost Total Activity Activity RateDesigning products............ $700,502 3,746 $187Setting up batches.............. $12,400 620 $20Assembling products.......... $125,440 8,960 $14
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy
93. Data concerning three of Kilmon Corporation's activity cost pools appear below:
Activity Cost Pools Total Cost Total ActivityAssembling products.......... $150,300 8,350 assembly hoursDesigning products............ $1,177,535 7,597 product design hoursSetting up batches.............. $14,400 600 batch set-ups
Required:
Compute the activity rates for each of the three cost pools. Show your work!
Ans:
Activity Cost Pools Total Cost Total Activity Activity RateAssembling products.......... $150,300 8,350 $18Designing products............ $1,177,535 7,597 $155Setting up batches.............. $14,400 600 $24
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy
8-84 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 Activity RateSetting up batches.................... $98.54 per batchProcessing customer orders...... $42.00 per customer orderAssembling products................ $3.53 per assembly hour
Data concerning two products appear below:
Product K52W Product X94TNumber of batches......................... 55 73Number of customer orders........... 9 17Number of assembly hours............ 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:
Product K52W Product X94TSetting up batches....................... $5,419.70 $7,193.42Processing customer orders......... 378.00 714.00Assembling products................... 2,460.41 1,419.06 Total overhead cost..................... $8,258.11 $9,326.48
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 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 Activity RateSetting up batches.......................... $32.22 per batchAssembling products...................... $6.13 per assembly hourProcessing customer orders............ $72.75 per customer order
Data concerning two products appear below:
Product S96U Product Q06FNumber of batches......................... 78 24Number of assembly hours............ 412 178Number of customer orders........... 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 S96USetting up batches (78 batches × $32.22 per batch)........ $2,513.16Assembling products (412 assembly hours × $6.13 per
assembly hour)............................................................ 2,525.56Processing customer orders (53 customer orders ×
$72.75 per customer order)......................................... 3,855.75 Total overhead cost......................................................... $8,894.47
b. Product Q06FSetting up batches (24 batches × $32.22 per batch)........ $ 773.28Assembling products (178 assembly hours × $6.13 per
assembly hour)............................................................ 1,091.14Processing customer orders (18 customer orders ×
$72.75 per customer order)......................................... 1,309.50 Total overhead cost......................................................... $3,173.92
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy
8-86 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 Activity RateSetting up batches.................... $16.68 per batchProcessing customer orders...... $98.60 per customer orderAssembling products................ $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)........ $ 300.24Processing customer orders (4 customer orders ×
$98.60 per customer order)......................................... 394.40Assembling products (103 assembly hours × $7.89 per
assembly hour)............................................................ 812.67 Total overhead cost......................................................... $1,507.31
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 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.... $140,000Office expense............. 140,000 Total............................. $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 organization-sustaining costs.The amount of activity for the year is as follows:
Activity Cost Pool Annual ActivityMaking drapes........ 3,000 yardsJob support............. 140 jobsOther...................... 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 SupportProduction overhead....Office expense.............Total.............................
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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 allocationMaking Drapes Job Support Other Total
Production overhead.... $84,000 $28,000 $28,000 $140,000Office expense............. 21,000 77,000 42,000 140,000Total............................. $105,000 $105,000 $70,000 $280,000Activity........................ 3,000 yards 140 jobs
b. Activity rates (costs divided by activity)Making JobDrapes Support
Activity........................ 3,000 yards 140 jobs
Production overhead.... $28.00 $200.00Office expense............. 7.00 550.00 Total............................. $35.00 $750.00
c. Overhead cost of the job.
Making Drapes Job Support TotalActivity.............................. 85 1Production overhead.......... $2,380 $200 $2,580Office expense................... 595 550 1,145 Total................................... $2,975 $750 $3,725
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Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making
Sales............................................... $6,000Green costs:
Direct materials and labor........... 2,990 Green margin................................. 3,010Yellow costs:
Office expense............................ 1,145 Yellow margin............................... 1,865Red costs:
Production overhead................... 2,580Red margin..................................... ($ 715 )
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 8A LO: 6 Level: Hard
8-90 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.......... $120,000Office expense................... 140,000 Total................................... $260,000
Distribution of resource consumption:
Installing JobActivity 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 organization-sustaining costs.
The amount of activity for the year is as follows:
Activity Cost Pool Annual ActivityInstalling floors...... 800 squaresJob support............. 100 jobsOther...................... 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 JobFloors Support Other Total
Production overhead..........Office expense...................Total...................................
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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 JobFloors 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 allocationInstalling Job
Floors Support Other TotalProduction overhead.... $66,000 $ 30,000 $24,000 $120,000Office expense............. 28,000 70,000 42,000 140,000 Total............................. $94,000 $100,000 $66,000 $260,000
b. Activity rates (costs divided by activity)
Installing JobFloors Support
Activity.............................. 800 squares 100 jobs
Production overhead.......... $ 82.50 $ 300.00Office expense................... 35.00 700.00 Total................................... $117.50 $1,000.00
c. Overhead cost of the job.Installing Job
Floors Support TotalActivity........................ 3.2 1
Production overhead.... $264.00 $ 300.00 $ 564.00Office expense............. 112.00 700.00 812.00 Total............................. $376.00 $1,000.00 $1,376.00
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 8A LO: 6 Level: Medium
8-92 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....... $680,000Nonwage expenses....... 120,000 Total............................. $800,000
Distribution of resource consumption:
Filling ProductActivity 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 organization-sustaining costs.The amount of activity for the year is as follows:
Activity Cost Pool Annual ActivityFilling orders............. 4,000 ordersProduct support......... 40 productsOther......................... 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 ProductOrders 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 allocationFilling ProductOrders Support Other Total
Wages and salaries....... $102,000 $510,000 $68,000 $680,000Nonwage expenses....... 30,000 66,000 24,000 120,000 Total............................. $132,000 $576,000 $92,000 $800,000
Filling ProductOrders Support
Activity....................................... 4,000 orders 40 products
Wages and salaries...................... $25.50 $12,750Nonwage expenses...................... 7.50 1,650 Total............................................ $33.00 $14,400
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 8A LO: 6 Level: Medium
8-94 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 Activity Measure Annual ActivityPainting overhead............... Square meters 10,000 square metersJob support......................... Jobs 200 jobsOther.................................. None Not applicable
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining 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:
JobPainting Support Other Total
Painting overhead...... $ 99,000 $ 45,000 $36,000 $180,000Office expense.......... 6,000 78,000 36,000 120,000 Total.......................... $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.
JobPainting 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)Job
Painting SupportPainting overhead...... $ 9.90 $225.00Office expense.......... 0.60 390.00 Total.......................... $10.50 $615.00
b. Overhead cost of the job.Job
Painting Support TotalActivity........................ 71 1
Painting overhead......... $702.90 $225.00 $ 927.90Office expense............. 42.60 390.00 432.60 Total............................. $745.50 $615.00 $1,360.50
Sales............................................... $3,800.00Green costs:
Direct materials and labor........... 2,410.00 Green margin................................. 1,390.00Yellow costs:
Office expense............................ 432.60 Yellow margin............................... 957.40Red costs:
Painting overhead....................... 927.90 Red margin..................................... $ 29.50
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 8A LO: 6 Level: Medium
8-96 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 L48SDirect materials per unit................. $11.50 $62.90Direct labor per unit....................... $2.00 $13.00Direct labor-hours per unit............. 0.20 1.30Annual 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 Estimated Overhead CostSupporting direct labor (DLHs)........... $ 352,000Setting up machines (setups)............... 201,960Parts administration (part types).......... 968,000 Total..................................................... $1,521,960
Activities W82R L48S TotalSupporting direct labor...... 9,000 13,000 22,000Setting up machines........... 814 374 1,188Parts administration........... 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 CostsPredetermined overhead rate = $1,521,960 ÷ 22,000 DLHs = $69.18 per DLH
W82R L48SDirect materials............................................................... $11.50 $ 62.90Direct labor..................................................................... 2.00 13.00Manufacturing overhead (0.2 DLHs × $69.18 per DLH;
1.3 DLHs × $69.18 per DLH)..................................... 13.84 89.93 Unit product cost............................................................. $27.34 $165.83
b. ABC Unit Product CostsEstimated Overhead
CostTotal Expected
Activity Activity RateSupporting direct labor. . . $352,000 22,000 DLHs $16 per DLHSetting up machines........ $201,960 1,188 setups $170 per setupParts administration........ $968,000 1,936 part types $500 per part type
Overhead cost for W82R
Activity Rate ActivityABC Cost
Supporting direct labor. . . $16 per DLH 9,000 DLHs $144,000Setting up machines........ $170 per setup 814 setups 138,380Parts administration........ $500 per part type 924 part types 462,000 Total................................ $744,380
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Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making
Overhead cost for L48S
Activity Rate ActivityABC Cost
Supporting direct labor. . . $16 per DLH 13,000 DLHs $208,000Setting up machines........ $170 per setup 374 setups 63,580Parts administration........ $500 per part type 1,012 part types 506,000 Total................................ $777,580
W82R L48SDirect materials............................................................... $11.50 $62.90Direct labor..................................................................... 2.00 13.00Manufacturing overhead ($744,400 ÷ 45,000 units;
$777,600 ÷ 10,000 units)............................................. 16.54 77.76 Unit product cost............................................................. $30.04 $153.66
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 8B LO: 7 Level: Medium
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 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:
B40W C63JDirect materials per unit........... $34.90 $63.70Direct labor per unit................. $20.80 $62.40Direct labor-hours per unit....... 0.80 2.40Annual production................... 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 Estimated Overhead CostAssembling products (DLHs).............. $1,216,000Preparing batches (batches)................. 480,000Milling (MHs)...................................... 960,000 Total..................................................... $2,656,000
Activities B40W C63J TotalAssembling products.......... 28,000 36,000 64,000Preparing batches............... 2,304 2,496 4,800Milling................................ 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 CostsPredetermined overhead rate = $2,656,000 ÷ 64,000 DLHs = $41.50 per DLH
B40W C63JDirect materials............................................................... $34.90 $ 63.70Direct labor..................................................................... 20.80 62.40Manufacturing overhead (0.8 DLHs × $41.50 per DLH;
2.4 DLHs × $41.50 per DLH)..................................... 33.20 99.60 Unit product cost............................................................. $88.90 $225.70
b. ABC Unit Product CostsEstimated Overhead
CostTotal Expected
Activity Activity RateAssembling products.... $1,216,000 64,000 DLHs $19 per DLHPreparing batches......... $480,000 4,800 batches $100 per setupMilling.......................... $960,000 3,200 MHs $300 per MH
Overhead cost for B40WActivity Rate Activity ABC Cost
Assembling products.... $19 per DLH 28,000 DLHs $ 532,000Preparing batches......... $100 per setup 2,304 batches 230,400Milling.......................... $300 per MH 1,088 MHs 326,400 Total............................. $1,088,800
Overhead cost for C63JActivity Rate Activity ABC Cost
Assembling products.... $19 per DLH 36,000 DLHs $ 684,000Preparing batches......... $100 per setup 2,496 batches 249,600Milling.......................... $300 per MH 2,112 MHs 633,600 Total............................. $1,567,200
B40W C63JDirect materials............................................................... $34.90 $ 63.70Direct labor..................................................................... 20.80 62.40Manufacturing overhead ($1,088,800 ÷ 35,000 units;
$1,567,200 ÷ 15,000 units).......................................... 31.11 104.48 Unit product cost............................................................. $86.81 $230.58
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 8B LO: 7 Level: Medium
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 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:
H16Z P25PDirect materials per unit................. $10.20 $50.50Direct labor per unit....................... $8.40 $25.20Direct labor-hours per unit............. 0.40 1.20Annual production......................... 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 Estimated Overhead CostSupporting direct labor (DLHs)................. $ 552,000Setting up machines (setups)..................... 132,480Parts administration (part types)................ 780,000 Total........................................................... $1,464,480
H16Z P25P TotalSupporting direct labor...... 12,000 12,000 24,000Setting up machines........... 864 240 1,104Parts administration........... 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 CostsPredetermined overhead rate = $1,464,480 ÷ 24,000 DLHs = $61.02 per DLH
H16Z P25PDirect labor-hours...................................... 0.40 1.20Predetermined overhead rate per DLH...... $61.02 $61.02Manufacturing overhead cost per unit....... $24.41 $73.22
b. ABC Manufacturing Overhead Costs
Estimated Overhead
CostTotal Expected
Activity Activity RateSupporting direct labor. . . $552,000 24,000 DLHs $23 per DLHSetting up machines........ $132,480 1,104 setups $120 per setupParts administration........ $780,000 1,560 part types $500 per part type
Overhead cost for H16Z
Activity Rate ActivityABC Cost
Supporting direct labor. . . $23 per DLH 12,000 DLHs $276,000Setting up machines........ $120 per setup 864 setups 103,680Parts administration........ $500 per part type 600 part types 300,000 Total................................ $679,680Annual production.......... 30,000Manufacturing overhead
cost per unit................. $22.66
Overhead cost for P25P
Activity Rate ActivityABC Cost
Supporting direct labor. . . $23 per DLH 12,000 DLHs $276,000Setting up machines........ $120 per setup 240 setups 28,800Parts administration........ $500 per part type 960 part types 480,000 Total................................ $784,800Annual production.......... 10,000Manufacturing overhead
cost per unit................. $78.48
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 8B LO: 7 Level: Medium
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 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:
D31X U75XDirect materials per unit........... $29.20 $47.40Direct labor per unit................. $1.10 $23.10Direct labor-hours per unit....... 0.10 2.10Annual production................... 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 Estimated Overhead CostAssembling products (DLHs)........ $ 140,000Preparing batches (batches)........... 241,150Axial milling (MHs)...................... 766,500 Total............................................... $1,147,650
D31X U75X TotalAssembling products.......... 3,500 31,500 35,000Preparing batches............... 560 1,295 1,855Axial milling...................... 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 CostsPredetermined overhead rate = $1,147,650 ÷ 35,000 DLHs = $32.79 per DLH
D31X U75XDirect labor-hours...................................... 0.10 2.10Predetermined overhead rate per DLH...... $32.79 $32.79Manufacturing overhead cost per unit....... $3.28 $68.86
b. ABC Manufacturing Overhead Costs
Estimated Overhead
CostTotal Expected
Activity Activity RateAssembling products.... $140,000 35,000 DLHs $4 per DLHPreparing batches......... $241,150 1,855 batches $130 per batchAxial milling................ $766,500 2,555 MHs $300 per MH
Overhead cost for D31X
Activity Rate ActivityABC Cost
Assembling products........ $4 per DLH 3,500 DLHs $ 14,000Preparing batches.............. $130 per batch 560 batches 72,800Axial milling..................... $300 per MH 1,540 MHs 462,000 Total.................................. $548,800Annual production............ 35,000Manufacturing overhead
cost per unit................... $15.68
Overhead cost for U75X
Activity Rate ActivityABC Cost
Assembling products........ $4 per DLH 31,500 DLHs $126,000Preparing batches.............. $130 per batch 1,295 batches 168,350Axial milling..................... $300 per MH 1,015 MHs 304,500 Total.................................. $598,850Annual production............ 15,000Manufacturing overhead
cost per unit................... $39.92
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 8B LO: 7 Level: Medium
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-105
Chapter 8 Activity-Based Costing: A Tool to Aid Decision Making
8-106 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
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