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REVIEW 5-14
(a)
Cost Pool
Machine set-up
Machinin
g
Packing
Est.
MOH
$20,000
Est.
Usage
40
$110,000
$30,000
5,000
500
(b)
Cost Pool
Machine set-up
Machinin
g
Packing
Rate
$500 per set-up
$22 per machine hr.
$60 per order
Assignment of overhead:
Machine set-up ($500 25; 15)
Machining ($22 1,000; 4,000)
Packing ($60 150; 350)
Overhead assigned
(c) Overhead cost per unit:
Total overhead assigned
Number of units produced
Rate
$500 per set-up
$22 per machine hr.
$60 per order
Usage
BC113
AD908
25
15
1,000
150
4,000
350
BC113
AD908
$12,500
$7,500
$22,000 $88,000
$ 9,000 $21,000
$43,500 $116,500
BC113
AD908
$43,500 $116,500
3,000
1,400
$14.50
$83.21
(d) The data shows that while the total overhead assigned to the
lower-volume product is three times the total amount assigned to
the higher-volume product, the per unit cost ends up being almost
six times more.
EXERCISE 5-21
(a) Estimated Overhead Expected use of Cost = Activity-based
Drivers per Activity
Overhead Rates
Scheduling & travel: $84, 000 1,680 = $50 per travel hour
Set-up time: $77,000 700 = $110 per set-up
Supervision: $56,000 $400,000 = 14% of direct labour cost
$50,000
$30,000
100,000
113,500
Residential
$34,000
49,500
14,000
$113,500
Commercial
Revenues
Direct material costs
Direct labour costs
Overhead costs applied
Operating income (loss)
(c)
Commercial
$300,000
243,500
$56,500
27,500
42,000
$103,500
Residential
$70,000
300,000
103,500
$480,000
473,500
$6,500
PROBLEM 5-37A
(a) The total manufacturing cost per unit using activity-based
costing is as follows:
Activity-based overhead applied
Purchasingpurchase orders
$30 11,250; 13,750
Machine set-ups# of set-ups
$30 10,000; 10,000
Machiningmachine hours
$31 40,000; 60,000
Inspections# of inspections
$90 2,250; 2,750
Total overhead applied
Number of units manufactured
Per unit overhead cost
(b)
Royale
$337,500
Majestic
$412,500
300,000
300,000
1,240,000
1,860,000
202,500
247,500
$2,080,000
20,000
$2,820,000
10,000
$104.00
$282.00
Royale
Majestic
$600.00
100.00
104.00
$320.00
80.00
282.00
$804.00
$682.00
Gross Profit:
Selling price
Less: per unit cost
Royale
$1,400.00
804.00
Majestic
$1,100.00
682.00
Gross profit
$ 596.00
$ 418.00
(c) Managements future plans for the two television models are not
sound. Under ABC costing, the Royale model is $178.00 ($596.00
$418.00) per unit more profitable than the Majestic model. If any
product should be phased out, it is the Majestic.
PROBLEM 5-45B
(a)
(b)
$300
9,000
120
1,150
$10,570
6,000
$ 1.762
$1.350
1.850
1.762
$4.962
1.240
$6.202
PROBLEM 5-47B
(a) Quality control costs assigned to the Varnish line under the
traditional system:
30% $100,000 direct labour cost = $30,000 quality control
costs
(b) Quality control costs assigned to the Varnish line under
activity-based costing:
Incoming material inspection:
$25 50 types of material
In-process inspection:
$0.30 30,000 units
Product certification:
$150 80 orders
Total quality control cost applied to this line
$1,250
9,000
12,000
$22,250
PROBLEM 5-51B
(a)
Thunderbolt
Earthquake
$23,000
$31,000
3,493
4,708
58,111
44,888
$84,604
$80,596
CASE 5-52
(a) Computation of the average hourly charge-out rate:
Total overhead
Total billable hours
$3,516,000
=
120,000
$2,700,000
=
120,000
MGMT
Consult
$675,000
105,000
720,000
240,000
180,000
$1,920,000
EXEC
Train
$225,000
45,000
1,080,000
120,000
126,000
$1,596,000
$1,920,000
=
90,000
Executive Training:
Total overhead
$1,596,000
=
=
Total billable hours
30,000
Charge-out rate:
Management Consulting:
Direct Labour Cost
$20.00 ($1,800,000 90,000 hrs)
Overhead
21.33 (as above)
$41.33 2 = $82.66 per hour
Executive Training:
Direct Labour Cost
Overhead
(c) Three ways that ABC leads to more accurate product costs:
i)
ii)