MANAGERIAL ACCOUNTING

PERSONAL ASSIGNMENT

By : NIMAS KARTIKA DEWI

1. In what fundamental ways does activity-based costing differ from traditional costing
method?

Fundamental ways does activity-based costing differ from traditional costing

method : Activity-based costing differs from traditional costing systems :
- In activity-based costing, nonmanufacturing as well as manufacturing costs may be
assigned to products. And, some manufacturing costsincluding the costs of idle
capacitymay be excluded from product costs.
- An activity-based costing system typically includes a number of activity cost pools,
each of which has its unique measure of activity.
- These measures of activity often differ from the allocation bases used in traditional
costing systems.

2. Why is direct labor a poor base for allocating overhead in many companies?

Direct labor is a poor base for allocating overhead in many companies because it
is being replaced by automated equipment., which is a component of overhead. Relying
on traditional allocation bases posed the risk of distorting the unit product costs that are
used for decision-making purposes

3. Swagg Jewelry Corporation manufactures custom jewelry. In the past, Swagg has
been Using a traditional overhead allocation system based solely on direct labor
hours. Sensing that this system was distorting costs and selling prices, Swagg has
decided to switch to an activity-based costing system using three activity cost pools.
Information on these activity cost pools are as follows:

Activity Cost Pool Estimated Activity Estimated Overhead Cost

Labor related............ 8,000 direct labor hours $40,000
Machine related....... 12,500 machine hours $50,000
Quality control......... 800 number of inspections $12,000

Job #309 incurred $900 of direct material, 30 hours of direct labor at $40 per hour, 80
machine hours, and 5 inspection
Required:

a. What is the cost of the job under the activity-based costing system?

The activity rates are cumputed :

Activity Cost Total
Total Activity Activity Rate
Pools Cost
Labor related $40,000 8,000 direct labor hours $5 / direct labor
Machine related $50,000 12,500 machine hours $4 / machine hours
Quality control $12,000 800 number of inspections $15 / inspections

The overhead cost charged to Job #309 is :

Activity Cost ABC
Activity Rate Activity
Pools Cost

Labor related $5 / direct labor 30 direct labor hours $150

Machine related $4 / machine hour 80 machine hours $320
Quality control $15 / inspection 5 inspections $75
Total Overhead Cost $545
Direct materials $900
Direct labor (30 direct labor hour X $40 per direct labor hour) $1,200
ABC overhead $545 +
Product cost $2,645

b. Relative to the activity-based costing system, would Job #309 have been overcosted
or undercosted under the traditional system and by how much?

Under traditional costing, the predetermined overhead rate would have been :

Predetermined overhead rate = Estimated total manufacturing overhead cost

Estimated total amount of allocation base
= $40,000 + $50,000 + $12,000
8,000
= $102,000
8,000
= $12.75 per direct labor hour

Direct materials $900.00

 Direct labor (30 direct labor hour X $40 per direct labor hour) $1,200.00
Traditional overhead (30 direct labor hours X $12.75/direct labor hour) $382.50 +
Product cost $2,482.50

Relative to the activity-based costing system, the traditional costing system undercosts
the job by $162.5

4. Imai 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.... $240,000
Office expense.............. 160,000
Total............................. $400,000

Distribution of resource consumption:

Makin
g Job
Suppor Othe
Activity Cost Pools Drapes t r Total
Production overhead.......... 35% 45% 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:

Annual
Activity Cost Pool Activity
Making drapes...... 4,000 yards
Job support............ 100 jobs
Other..................... Not applicable

Required:

a. Prepare the first-stage allocation of overhead costs to the activity cost pools by
filling in the table below:
Makin
g Job
Suppor Othe
Drapes t r Total
 Production overhead......
Office expense...............
Total...............................

Making Job
Other Total
Drapes Support
Production overhead $84,000 $108,000 $48,000 $240,000
Office expense $24,000 $88,000 $48,000 $160,000
Total $108,000 $196,000 $96,000 $400,000

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:

Makin
g Job
Suppor
Drapes t
Production overhead......
Office expense...............
Total...............................

JAWABAN:

Makin
g Job
Drape Support
s
Production $21.0 $1,080.0
overhead 0 0
Office expense $6.00 $880.00
$27.0 $1,960.0
Total
0 0

c. Prepare an action analysis report in good form of a job that involves making 53
yards of drapes and has direct materials and direct labor cost of $1,480. The
sales revenue from this job is $5,200. 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.

JAWABAN:
 Making Job
Total
Drapes Support
53 1
Production $1,113.0 $1,080.0
$2,193
overhead 0 0
Office expense $318.00 $880.00 $1,198
$1,431.0 $1,960.0
Total $3,391
0 0
*53 X cost per unit

Action analysis report, : direct materials and direct labor - Green cost; production
overhead - Red cost; and office expense - Yellow cost

Action Analysis Report of Imai Draperles

Sales $5,200
Green cost
Direct material & Direct Labor cost $1,480 $1,480 -
Green margin $3,720

Yellow cost
Office expense $1,198 $1,198
Yellow margin $2,522

Red cost
Production Overhead $2,193 $2,193
Red margin $329

5. Hastings 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.... $110,000
Office expense.............. 130,000
Total............................. $240,000

Distribution of resource consumption:

 Installing Job
Suppor Othe
Activity Cost Pools Floors t r Total
Production overhead.......... 50% 30% 20% 100%
Office expense.................... 5% 65% 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:

Annual
Activity Cost Pool Activity
Installing floors...... 400 squares
Job support............. 100 jobs
Other...................... 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 Job
Suppor Othe Tota
Floors t r l
Production overhead......
Office expense...............
Total...............................

JAWABAN:

Installing Job
Other Total
Floors Support
Production
$55,000 $33,000 $22,000 $110,000
overhead
Office expense $6,500 $84,500 $39,000 $130,000
Total $61,500 $117,500 $61,000 $240,000

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 Job
 Suppor
Floors t
Production overhead......
Office expense...............
Total...............................

JAWABAN:

Installing Job
Floors Support
Production
$137.50 $330.00
overhead
Office expense $16.25 $845.00
Total $153.75 $1,175.00

c. Compute the overhead cost, according to the activity-based costing system, of a

job that involves installing 1.8 squares.

JAWABAN:

Installing Job
Floors Support
Total
1.8
1
Squares
Production
$247.50 $330.00 $577.50
overhead
Office expense $29.25 $845.00 $874.25
Total $276.75 $1,175.00 $1,451.75