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Chapter 4 Homework Problems and Solutions for Cost accounting 8th edition by Romney
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23. LO.3 (Levels of costs) The following costs are incurred in a fast-food restaurant that relies on computer-controlled equipment to prepare customers’ food. Classify each cost as unit level (U), batch level (B), product/process level (P), or organizational level (O):
Unit Level: Product / Process Level:
Organizational Level:
Batch Level:
Cardboard boxes for food order
Refrigeration of raw materials
Maintenance of the restaurant building
Deep-fat fryer oil (changed every 4 hours)
Store manager’s salary
Electricity expense for the pizza oven
Electricity expense for the pizza oven if left on all the time
Depreciation on equipment
Wages of employees who clear & clean tables
Property taxes
French fries Per Order
31. LO.4 (ABC) Briones Books is concerned about the profitability of its regular dictionaries. Company managers are considering producing only the top-quality, hand-sewn dictionaries with gold-edged pages. Briones is currently assigning the $2,000,000 of overhead costs to both types of dictionaries based on machine hours. Of the overhead, $800,000 is utilities related and the remainder is primarily related to quality control inspectors’ salaries. The following information about the products is also available:
Number Produced
Machine Hours
Inspection Hours
Revenues Direct Costs
Regular: 2,000,000 170,000 10,000 $6,400,000 $5,000,000Hand Sewn: 1,400,000 30,000 50,000 $5,600,000 $4,400,000
a. Determine the total overhead cost assigned to each type of dictionary using the current allocation system.
b. Determine the total overhead cost assigned to each type of dictionary if more appropriate cost drivers were used.
c. Should the company stop producing the regular dictionaries? Explain.