ACCT 610 Chapter 5
Second-stage allocations
$/order, $/change, $/machine hour, $/customer, other is unallocated
Meester Corporation has an activity-based costing system with three activity cost pools--Machining, Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to three activity cost pools based on resource consumption. Data used in the first stage allocations follow: Overhead costs: Equipment depreciation $ 96,000 Supervisory expense $ 8,000 Distribution of Resource Consumption Across Activity Cost Pools: Activity Cost Pools Machining ,Order Filling ,Other Equipment depreciation 0.30 0.10 0.60 Supervisory expense 0.60 0.10 0.30 Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow: Activity: MHs (Machining) Orders (Order Filling) Product M0 4,500 400 Product H2 5,500 600 Total 10,000 1,000 How much overhead cost is allocated to the Order Filling activity cost pool under activity-based costing?
$10,400 Assign overhead costs to activity cost pools by applying the percentages in the Distribution of Resource Consumption Across Activity Cost Pools table to the respective costs. For example, the second entry in the table is computed as follows: $96,000 × 0.30 = $9,600. Activity Cost Pools Machining Order Filling Equipment depreciation $ 28,800 $ 9,600 Supervisory expense 4,800 800 Total $ 33,600 $ 10,400
Abel Corporation uses activity-based costing. The company makes two products: Product A and Product 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 total cost and activity as follows: Total Activity Activity Cost Pools Total Cost , Product A , Product B ,Total Activity 1: $16,660 600 100 700 Activity 2: $18,450 1,100 700 1,800 Activity 3: $9,731 60 160 220 The activity rate for Activity 2 is closest to:
$10.25 $18,450 ÷ 1,800 = $10.25
Bartow Corporation uses an activity based costing system to assign overhead costs to products. In the first stage, two overhead costs--equipment expense and indirect labor--are allocated to the three activity cost pools--Processing, Supervising, and Other--based on resource consumption. Data to perform these allocations appear below: Overhead costs: Equipment expense $ 29,000 Indirect labor $ 8,000 Distribution of Resource Consumption Across Activity Cost Pools: Activity Cost Pools Proc'g Supervising Other Equipment expense 0.20 0.60 0.20 Indirect labor 0.50 0.30 0.20 In the second stage, Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow: Activity: MHs Batches (Processing) (Supervising) Product H3: 6,700 700 Product O5: 3,300 1,300 Total 10,000 2,000 What is the overhead cost assigned to Product H3 under activity-based costing?
$13,496 Assign overhead costs to products: Processing: $9,800 ÷ 10,000 MHs = $0.98 per MH Supervising: $19,800 ÷ 2,000 batches = $9.90 per batch Overhead cost for Product H3: Processing $0.98 per MH × 6,700 MHs $6,566 Supervising $9.90 per batch × 700 batches 6,930 _____________________________________________ Total $13,496
The controller of Hendershot Corporation 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 Windows Total expected units produced 11,900 1,710 Total expected material moves 1,190 1,610 Expected direct labor-hours per unit 7 8 The total materials handling cost for the year is expected to be $17,148.70. If the materials handling cost is allocated on the basis of direct labor-hours, the total materials handling cost allocated to the wall mirrors is closest to:
$14,727 Wall Mirrors Specialty Windows Total expected units produced (a) 11,900 1,710 Expected direct labor-hours per unit (b) 7 8 Total direct labor-hours (a) × (b) 83,300 13,680 Total 96,980 Cost per direct labor-hour = Total materials handling cost ÷ Total direct labor-hours = $17,148.70 ÷ 96,980 direct labor-hours = $0.1768 per direct labor-hour Cost allocated to wall mirrors = $0.1768 per direct labor-hour × 83,300 direct labor-hours = $14,727
he controller of Hendershot Corporation 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 Windows Total expected units produced 8,800 1,850 Total expected material moves 880 1,750 Expected direct labor-hours per unit 14 12 The total materials handling cost for the year is expected to be $17,404.50. If the materials handling cost is allocated on the basis of direct labor-hours, the total materials handling cost allocated to the wall mirrors is closest to:
$14,747 Wall Mir. Specialty Wind. Total Total expected units produced (a)8,800 1,850 Expected direct labor-hours per unit (b)14 12 Total direct labor-hours (a) × (b) 123,200 22,200 145,400 Cost per direct labor-hour = Total materials handling cost ÷ Total direct labor-hours = $17,404.50 ÷ 145,400 direct labor-hours = $0.1197 per direct labor-hour Cost allocated to wall mirrors = $0.1197 per direct labor-hour × 123,200 direct labor-hours = $14,747
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 $1.22 per guest. (The greater the number of guests, the larger the cake.) The activity rate for the Complexity-Related cost pool is $36.21 per tier. (Cakes with more tiers are more complex.) Finally, the activity rate for the Order-Related activity cost pool is $83.33 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 Wed. Haupt Wedding Number of reception guests 72.00 191.00 Number of tiers on the cake 6.00 4.00 Cost of purchased decorations for cake $ 21.45 $ 77.65 Assuming that the company charges $553.51 for the Haupt wedding cake, what would be the overall margin on the order?
$14.67 Price of cake $ 553.51 Costs: Size related ($1.22 per guest × 191.00 guests) $ 233.02 Complexity-related ($36.21 per tier × 4.00 tiers) 144.84 Order-related ($83.33 per order × 1 order) 83.33 Cost of purchased decorations for cake 77.65 538.84 _______________________ Customer margin $ 14.67
Mirabile Corporation uses activity-based costing to compute product margins. Overhead costs have already been allocated to the company's three activity cost pools--Processing, Supervising, and Other. The costs in those activity cost pools appear below: Processing $ 4,625 Supervising $ 31,500 Other $ 10,900 Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data appear below: MHs Batches (Processing) (Supervising) Product M0 12,000 750 Product M5 500 750 ________________________________________ Total 12,500 1,500 Finally, sales and direct cost data are combined with Processing and Supervising costs to determine product margins. Product M0 Product M5 Sales (total) $79,600 $92,400 Direct materials (total) $29,000 $31,900 Direct labor (total) $28,300 $42,200 What is the overhead cost assigned to Product M5 under activity-based costing?
$15,935 Processing: $4,625 ÷ 12,500 MHs = $0.37 per MH Supervising: $31,500 ÷ 1,500 batches = $21.00 per batch Overhead cost for Product M5: Processing $0.37 per MH × 500 MHs $185 Supervising $21.00 per batch × 750 batches 15,750 _________________________________________ Total $15,935
Data concerning three of the activity cost pools of Salcido LLC, a legal firm, have been provided below: Activity Cost Pool Total Cost Total Activity Researching legal issues $ 20,480 640 research hours Meeting with clients $ 1,182,239 7,253 meeting hours Preparing documents $ 91,840 5,740 documents The activity rate for the "meeting with clients" activity cost pool is closest to:
$163 per meeting hour Meeting with clients activity rate: $1,182,239 ÷ 7,253 meeting hours = $163 per meeting hour
Deemer Corporation has an activity-based costing system with three activity cost pools--Processing, Supervising, and Other. In the first stage allocations, costs in the two overhead accounts, equipment expense and indirect labor, are allocated to the three activity cost pools based on resource consumption. Data used in the first stage allocations follow: Overhead costs: Equipment expense $ 48,000 Indirect labor $ 7,300 Distribution of Resource Consumption Across Activity Cost Pools: Activity Cost Pools Processing Supervising Other Equipment expense 0.30 0.60 0.10 Indirect labor 0.30 0.40 0.30 Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow: Activity: MHs Batches (Processing) (Supervising) Product F6 18,100 890 Product X0 1,150 980 ___________ ________________ Total 19,250 1,870 What is the overhead cost assigned to Product X0 under activity-based costing?
$17,610.00 Processing: $16,590 ÷ 19,250 MHs = $.86 per MH Supervising: $31,720 ÷ 1,870 batches = $16.96 per batch Overhead cost for Product X0: Processing $.86 per MH × 1,150 MHs $ 989.00 Supervising $16.96 per batch × 980 batches 16,620.80 _________________________ Total $ 17,610 (rounded)
Tomasini Corporation has provided the following data from its activity-based costing accounting system: Supervisory wages $ 680,000 Factory supplies $ 280,000 Distribution of Resource Consumption across Activity Cost Pools: Activity Cost Pools Batch Unit Other Processing Processing Supervisory wages 25% 65% 10% Factory supplies 35% 25% 40% The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products. How much supervisory wages and factory supplies cost would NOT be assigned to products using the activity-based costing system?
$180,000 Allocations to the Other activity cost pool: Supervisory wages (10% × $680,000) $ 68,000 Factory supplies (40% × $280,000) 112,000 _____________________________ Total $ 180,000
Wedd Corporation uses activity-based costing to assign overhead costs to products. Overhead costs have already been allocated to the company's three activity cost pools as follows: Processing, $44,400; Supervising, $32,800; and Other, $21,300. Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data appear below: MHs Batches (Processing) (Supervising) Product O6 16,800 800 Product D7 970 660 ________________________________________________ Total 17,770 1,460 The activity rate for the Processing activity cost pool under activity-based costing is closest to:
$2.50 per MH Processing: $44,400 ÷ 17,770 MHs = $2.50 per MH
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 $ 300,000 Depreciation 180,000 Utilities 240,000 Total $ 720,000 Distribution of resource consumption: Activity Cost Pools Ass. ,Setting Up , Other , Total Wages 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?
$210,000 Allocations to the Other activity cost pool: Wages and salaries (25% × $300,000) $75,000 Depreciation (35% × $180,000) 63,000 Utilities (30% × $240,000) 72,000 _______________________________________________ Total $210,000
Nissley Wedding Fantasy Corporation 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 Rate Size-related $1.15/guest Complexity-related $28.24/ tier Order-related $74.74/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 Wed. Twersky Wedding Number of reception guests 45 120 Number of tiers on the cake 3 5 Cost of purchased decorations for cake $28.40 $54.66 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?
$239.61 The company would have to cover all of the avoidable costs of the wedding cake which are: Size related ($1.15 per guest × 45 guests) $51.75 Complexity-related ($28.24 per tier × 3 tiers) 84.72 Order-related ($74.74 per order × 1 order) 74.74 Cost of purchased decorations for cake 28.40 ______________________________________________ Total cost $239.61
Deemer Corporation has an activity-based costing system with three activity cost pools--Processing, Supervising, and Other. In the first stage allocations, costs in the two overhead accounts, equipment expense and indirect labor, are allocated to the three activity cost pools based on resource consumption. Data used in the first stage allocations follow: Overhead costs: Equipment expense $ 127,000 Indirect labor $ 14,800 Distribution of Resource Consumption Across Activity Cost Pools: Activity Cost Pools Processing Supervising Other Equipment expense 0.50 0.40 0.10 Indirect labor 0.50 0.30 0.20 Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow: Activity: MHs Batches (Processing) (Supervising) Product F6 11,000 1,010 Product X0 1,390 530 _________________________________________ Total 12,390 1,540 What is the overhead cost assigned to Product X0 under activity-based costing? (Round your intermediate calculations to 2 decimal places.)
$26,962.00 Processing: $70,900 ÷ 12,390 MHs = $5.72 per MH Supervising: $55,240 ÷ 1,540 batches = $35.87 per batch Overhead cost for Product X0: Processing $5.72 per MH × 1,390 MHs $7,950.80 Supervising $35.87 per batch × 530 batches 19,011.10 __________________________ Total $ 26,962 (rounded)
Angara 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 Pool (and Activity Measure) Total Cost Machine related (machine-hours) $ 137,600 Batch setup (setups) $ 532,800 Order size (direct labor-hours) $ 105,300 Total Activity Activity Cost Pools Product X , Product Y , Total Machine related 1,000 7,000 8,000 Batch setup 3,000 5,000 8,000 Order size 7,000 2,000 9,000 The total amount of overhead cost allocated to Product X would be closest to:
$298,900 Activity Cost Pool , Total Cost Total Activity, Activity Rate Machine related $137,600 8,000 machine-hrs $17.20/ machine hr Batch setup $532,800 8,000 setups $66.60/setup Order size $105,300 9,000 direct labor-hrs $11.70 per direct labor-hour The overhead cost charged to Product X is: Act. Rate , Activity , ABC Cost Machine related: $17.20/machine-hr 1,000 machine-hours $17,200 Batch setup: $66.60/setup 3,000 setups $199,800 Order size: $11.70/direct labor - hr 7,000 direct labor-hrs $81,900 _______ $298,900 (total of ABC costs)`
Angara 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 Pool (and Activity Measure) Total Cost Machine related (machine-hours) $ 137,600 Batch setup (setups) $ 532,800 Order size (direct labor-hours) $ 105,300 Total Activity Activity Cost Pools Product X Product Y Total Machine related 1,000 7,000 8,000 Batch setup 3,000 5,000 8,000 Order size 7,000 2,000 9,000 The total amount of overhead cost allocated to Product X would be closest to:
$298,900 Activity Cost Pool Total Cost Total Activity Activity Rate Machine related $137,600 8,000 machine-hrs $17.20 per machine-hour Batch setup $532,800 8,000 setups $66.60 per setup Order size $105,300 9,000 direct labor-hrs $11.70 per direct labor-hr The overhead cost charged to Product X is: Activity Rate Activity ABC Cost Machine related: $17.20 per machine-hour 1,000 machine-hours $17,200 Batch setup: $66.60 per setup 3,000 setups $199,800 Order size: $11.70 per direct labor - hour 7,000 direct labor-hours $81,900 $ 298,900 (total of ABC costs)
Feldpausch Corporation has provided the following data from its activity-based costing system: Activity Cost Pool Total Cost Total Activity Assembly $1,660,260 59,000 machine-hours Processing orders $69,456 2,290 orders Inspection $126,338 1,810 inspection-hrs The company makes 780 units of product W26B a year, requiring a total of 1,140 machine-hours, 64 orders, and 36 inspection-hours per year. The product's direct materials cost is $58.21 per unit and its direct labor cost is $14.69 per unit. The product sells for $124.00 per unit. According to the activity-based costing system, the product margin for product W26B is:
$3,324.48 The activity rates for each activity cost pool are computed as follows: Tot. Cost Total Act. Activity Rate Assembly $1,660,260 59,000 machine-hrs $28.14/machine-hr Processing orders $69,456 2,290 orders $30.33/order Inspection $126,338 1,810 inspection-hrs $69.80/inspection-hr The overhead cost charged to Product W26B is: Activity Rate Activity ABC Cost Assembly $28.14/machine-hr 1,140 machine-hrs $32,079.60 Processing orders $30.33/order 64 Orders 1,941.12 Inspection $69.80/inspection-hr 36 inspection-hrs 2,512.80 ________________________________________________ Total overhead cost $36,533.52 Sales (780 units × $124.00 per unit) $96,720.00 Direct materials (780 units × $58.21 per unit) $45,403.80 Direct labor (780 units × $14.69 per unit) 11,458.20 Overhead 36,533.52 93,395.52 _______________________________________________ Product margin $3,324.48
Scheuer Corporation uses activity-based costing to compute product margins. In the first stage, the activity-based costing system allocates two overhead accounts--equipment expense and indirect labor--to three activity cost pools--Processing, Supervising, and Other--based on resource consumption. Data to perform these allocations appear below: Overhead costs: Equipment expense $ 55,000 Indirect labor $ 7,000 Distribution of Resource Consumption Across Activity Cost Pools: Activity Cost Pools Processing Supervising Other Equipment expense 0.10 0.70 0.20 Indirect labor 0.50 0.10 0.40 In the second stage, Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow: Activity: MHs Batches (Processing) (Supervising) Product Q1 1,000 700 Product S6 19,000 1,300 Total 20,000 2,000 Finally, sales and direct cost data are combined with Processing and Supervising costs to determine product margins. Sales and Direct Cost Data: Product Q1 Product S6 Sales (total) $ 134,600 $ 186,300 Direct materials (total) $ 76,000 $ 64,800 Direct labor (total) $ 40,800 $ 78,400 What is the product margin for Product Q1 under activity-based costing?
$3,630 Sales 134,600 Direct materials $76,000 Direct labor 40,800 Processing 450 Supervising 13,720 130,970 _______________________________________________ Product margin $3,630
Angara 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 Pool (and Activity Measure) Total Cost Machine related (machine-hours) $ 132,000 Batch setup (setups) $ 494,250 Order size (direct labor-hours) $ 94,350 Total Activity Activity Cost Pools Product X Product Y Total Machine related 1,100 6,400 7,500 Batch setup 3,400 4,100 7,500 Order size 6,300 2,200 8,500 The total amount of overhead cost allocated to Product X would be closest
$313,350 Activity Cost Pool Tot. Cost Tot. Activity Activity Rate Machine related $132,000 7,500machine-hrs $17.60/machine-hr Batch setup $494,250 7,500 setups $65.90/setup Order size $94,350 8,500 direct labor-hours $11.10/direct labor-hour The overhead cost charged to Product X is: Activity Rate Activity ABC Cost Machine related $17.60/machine-hour 1,100 machine-hours $19,360 Batch setup $65.90/setup 3,400 setups 224,060 Order size $11.10/direct labor - hour 6,300 direct labor-hours 69,930 ____________________ $ 313,350
Eccles Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system: Costs: Wages and salaries $ 340,000 Depreciation 263,000 Utilities 145,000 Total $ 748,000 Distribution of resource consumption: Activity Cost Pools Ass. Setting Up Other Total Wages and salaries 65% 25% 10% 100% Depreciation 30% 35% 35% 100% Utilities 20% 50% 30% 100% How much cost, in total, would be allocated in the first-stage allocation to the Assembly activity cost pool?
$328,900 Allocations to the Assembly activity cost pool: Wages and salaries (65% × $340,000) $221,000 Depreciation (30% × $263,000) 78,900 Utilities (20% × $145,000) 29,000 ________________ Total $ 328,900
Dercole Corporation uses activity-based costing to assign overhead costs to products. Overhead costs have already been allocated to the company's three activity cost pools as follows: Machining, $43,200; Order Filling, $13,900; and Other, $14,900. Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data appear below: MHs (Machining) Orders (Order Filling) Product N8 7,300 600 Product Y4 2,700 1,400 What is the overhead cost assigned to Product N8 under activity-based costing?
$35,706 Total MHs = 7,300 MHs + 2,700 MHs = 10,000 MHs Total orders = 600 orders + 1,400 orders = 2,000 orders Machining: $43,200 ÷ 10,000 MHs = $4.32 per MH Order Filling: $13,900 ÷ 2,000 orders = $6.95 per order Overhead cost for Product N8: Machining $4.32 per MH × 7,300 MHs $ 31,536 Order Filling $6.95 per order × 600 orders 4,170 Total $ 35,706
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 $1.18 per guest. (The greater the number of guests, the larger the cake.) The activity rate for the Complexity-Related cost pool is $29.15 per tier. (Cakes with more tiers are more complex.) Finally, the activity rate for the Order-Related activity cost pool is $83.25 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 71 228 Number of tiers on the cake 7 6 Cost of purchased decorations for cake $ 19.95 $ 71.55 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?
$391.03 Size related ($1.18 per guest × 71 guests) $ 83.78 Complexity-related ($29.15 per tier × 7 tiers) 204.05 Order-related ($83.25 per order × 1 order) 83.25 Cost of purchased decorations for cake 19.95 Total cost $ 391.03
Deemer Corporation has an activity-based costing system with three activity cost pools--Processing, Supervising, and Other. In the first stage allocations, costs in the two overhead accounts, equipment expense and indirect labor, are allocated to the three activity cost pools based on resource consumption. Data used in the first stage allocations follow: Overhead costs: Equipment expense $107,000 Indirect labor $12,300 Distribution of Resource Consumption Across Activity Cost Pools: Activity Cost Pools Proces'g Supervising Other Equipment expense 0.30 0.50 0.20 Indirect labor 0.30 0.40 0.30 Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow: Activity: MHs Batches (Processing) (Supervising) Product F6 13,600 780 Product X0 1,670 590 ____________________________________________ Total 15,270 1,370 The activity rate for the Supervising activity cost pool under activity-based costing is closest to:
$42.64 per batch Supervising: $58,420 ÷ 1,370 batches = $42.64 per batch
Bennette Corporation has provided the following data concerning its overhead costs for the coming year: Wages and salaries $ 340,000 Depreciation 120,000 Rent 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 Activity Assembly 30,000 labor-hours Order processing 500 orders Other Not applicable The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs. The distribution of resource consumption across activity cost pools is given below: Activity Cost Pools Ass. , Order Proc'g , Other , Total Wages 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:
$430 per order Allocations to the Order Processing activity cost pool: Wages and salaries (35% × $340,000) $119,000 Depreciation (45% × $120,000) 54,000 Rent (30% × $140,000) 42,000 _______________________________________ Total $ 215,000 Order Processing: $215,000 ÷ 500 orders = $430 per order
Bennette Corporation has provided the following data concerning its overhead costs for the coming year: Wages and salaries $ 470,000 Depreciation 185,000 Rent 205,000 Total $ 860,000 The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year: Activity Cost Pool Total Activity Assembly 45,000 labor-hours Order processing 550 orders Other Not applicable The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs. The distribution of resource consumption across activity cost pools is given below: Activity Cost Pools Assembly Order Processing Other Wages and salaries 30% 25% 45% Depreciation 20% 50% 30% Rent 30% 25% 45% The activity rate for the Order Processing activity cost pool is closest to:
$475 per order Allocations to the Order Processing activity cost pool: Wages and salaries (25% × $470,000) $ 117,500 Depreciation (50% × $185,000) 92,500 Rent (25% × $205,000) 51,250 ____________________ Total $ 261,250 Order Processing: $261,250 ÷ 550 orders = $475 per order
Arrojo Corporation manufactures two products: Product X71B and Product C91I. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products X71B and C91I. Activity Cost Pool Activity Measure Total Cost Total Activity Machining: Machine-hours $ 275,000 11,000 MHs Machine setups: Number of setups $ 210,000 350 setups Product design: Number of products $ 48,000 2 products Order size: Direct labor-hours $ 300,000 10,000 DLHs Activity Measure Product X71B Product C91I Machine-hours 5,000 6,000 Number of setups 220 130 Number of products 1 1 Direct labor-hours 6,000 4,000 Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product X71B?
$499,800 The company's plantwide overhead rate is computed as follows: Machining $ 275,000 Machine setups 210,000 Product design 48,000 Order size 300,000 _______________________________________________ Total estimated overhead cost (a) $ 833,000 Total expected direct labor-hours (b) 10,000 DLHs Predetermined overhead rate (a) ÷ (b) $ 83.30 per DLH Using the plantwide overhead rate, the manufacturing overhead cost that would be allocated to Product X71B is computed as follows: Product X71B Total direct labor hours (a) 6,000 Plantwide overhead rate per DLH (b) $ 83.30 Manufacturing overhead assigned (a) × (b) $ 499,800
Meester Corporation has an activity-based costing system with three activity cost pools--Machining, Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to three activity cost pools based on resource consumption. Data used in the first stage allocations follow: Overhead costs: Equipment depreciation $ 84,000 Supervisory expense $ 5,500 Distribution of Resource Consumption Across Activity Cost Pools: Activity Cost Pools Machining Order Filling Other Equipment depreciation 0.50 0.20 0.30 Supervisory expense 0.50 0.10 0.40 Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow: Activity: MHs Orders (Machining) (Order Filling) Product M0 1,430 1,240 Product H2 9,170 2,230 _____________________________________________ Total 10,600 3,470 The activity rate for the Order Filling activity cost pool under activity-based costing is closest to:
$5.00 per order Order Filling: $17,350 ÷ 3,470 orders = $5.00 per order
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 $1.20 per guest. (The greater the number of guests, the larger the cake.) The activity rate for the Complexity-Related cost pool is $28.55 per tier. (Cakes with more tiers are more complex.) Finally, the activity rate for the Order-Related activity cost pool is $84.55 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 Wed Haupt Wedding Number of reception guests 74 257 Number of tiers on the cake 13 4 Cost of purchased decorations for cake $ 19.15 $ 80.84 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?
$563.65 Size related ($1.20 per guest × 74 guests) $ 88.80 Complexity-related ($28.55 per tier × 13 tiers) 371.15 Order-related ($84.55 per order × 1 order) 84.55 Cost of purchased decorations for cake 19.15 _______________________ Total cost $ 563.65
Goertz Corporation has an activity-based costing system with three activity cost pools--Machining, Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to the three activity cost pools based on resource consumption. Data used in the first stage allocations follow: Overhead costs: Equipment depreciation $ 51,000 Supervisory expense $ 3,000 Distribution of Resource Consumption Across Activity Cost Pools: Activity Cost Pools Machining ,Order Filling ,Other Equipment depreciation 0.40 0.10 0.50 Supervisory expense 0.20 0.30 0.50 Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow: Activity: MHs (Machining) Orders (Order Filling) Product J3 9,100 100 Product F7 900 900 Total 10,000 1,000 Finally, the costs of Machining and Order Filling are combined with the following sales and direct cost data to determine product margins. Sales and Direct Cost Data: Product J3 Product F7 Sales (total) $ 145,200 $ 90,700 Direct materials (total) $ 81,400 $ 38,600 Direct labor (total) $ 37,700 $ 42,400 The activity rate for the Order Filling activity cost pool under activity-based costing is closest to:
$6.00 per order Order Filling: $6,000 ÷ 1,000 orders = $6.00 per order
Foster 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 $ 158,000 Other expenses 86,000 Total $ 244,000 Distribution of resource consumption: Activity Cost Pools Making Bouquets Delivery Other Wages and salaries 65% 25% 10% Other expenses 45% 50% 5% 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 Activity Making bouquets 80,800 bouquets Delivery 12,800 deliveries 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?
$6.45 Allocations to the Delivery activity cost pool: Wages and salaries (25% × $158,000) $ 39,500 Other expenses (50% × $86,000) 43,000 _________________ Total cost $ 82,500 Overhead cost per delivery = Total cost ÷ Number of deliveries = $82,500 ÷ 12,800 deliveries = $6.45 per delivery
Wedd Corporation uses activity-based costing to assign overhead costs to products. Overhead costs have already been allocated to the company's three activity cost pools as follows: Processing, $51,300; Supervising, $35,200; and Other, $22,200. Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data appear below: MHs Batches (Processing) (Supervising) Product O6 12,500 1,500 Product D7 740 840 Total 13,240 2,340 What is the overhead cost assigned to Product O6 under activity-based costing?
$70,935.00 Processing: $51,300 ÷ 13,240 MHs = $3.87 per MH Supervising: $35,200 ÷ 2,340 batches = $15.04 per batch Overhead cost for Product O6: Processing $3.87 per MH × 12,500 MHs $48,375.00 Supervising $15.04 per batch × 1,500 batches 22,560.00 _____________________________________________ Total $ 70,935.00
Scheuer Corporation uses activity-based costing to compute product margins. In the first stage, the activity-based costing system allocates two overhead accounts--equipment expense and indirect labor--to three activity cost pools--Processing, Supervising, and Other--based on resource consumption. Data to perform these allocations appear below: Overhead costs: Equipment expense $ 55,000 Indirect labor $ 7,000 Distribution of Resource Consumption Across Activity Cost Pools: Activity Cost Pools Processing ,Supervising ,Other Equipment expense 0.10 0.70 0.20 Indirect labor 0.50 0.10 0.40 In the second stage, Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow: Activity: MHs Batches (Processing) (Supervising) Product Q1 1,000 700 Product S6 19,000 1,300 Total 20,000 2,000 Finally, sales and direct cost data are combined with Processing and Supervising costs to determine product margins. Sales and Direct Cost Data: Product Q1 Product S6 Sales (total) $ 134,600 $ 186,300 Direct materials (total) $ 76,000 $ 64,800 Direct labor (total) $ 40,800 $ 78,400 How much overhead cost is allocated to the Processing activity cost pool under activity-based costing in the first stage of allocation?
$9,000 Assign overhead costs to activity cost pools by applying the percentages in the Distribution of Resource Consumption Across Activity Cost Pools table to the respective costs. For example, the first entry in the table is computed as follows: $55,000 × 0.10 = $5,500. Activity Cost Pools Processing Supervising Equipment expense $ 5,500 $ 38,500 Indirect labor 3,500 700 Total $ 9,000 $ 39,200
Nissley Wedding Fantasy Corporation 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 Rate Size-related $ 1.17 per guest Complexity-related $ 28.26 per tier Order-related $ 74.76 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 Wed Twersky Wedding Number of reception guests 46 121 Number of tiers on the cake 2 4 Cost of purchased decorations for cake $ 28.50 $ 54.68 Assuming that the company charges $475.81 for the Twersky wedding cake, what would be the overall margin on the order?
$91.76 Price of cake $ 475.81 Costs: Size related ($1.17 per guest × 121 guests) $ 141.57 Complexity-related ($28.26 per tier × 4 tiers) 113.04 Order-related ($74.76 per order × 1 order) 74.76 Cost of purchased decorations for cake 54.68 384.05 ____________________ Customer margin $ 91.76
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 $0.96 per guest. (The greater the number of guests, the larger the cake.) The activity rate for the Complexity-Related cost pool is $33.51 per tier. (Cakes with more tiers are more complex.) Finally, the activity rate for the Order-Related activity cost pool is $86.48 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 Wed. Haupt Wedding Number of reception guests 73.00 185.00 Number of tiers on the cake 7.00 6.00 Cost of purchased decorations for cake $21.65 $73.75 Assuming that the company charges $636.53 for the Haupt wedding cake, what would be the overall margin on the order?
$97.64 Price of cake $636.53 Costs: Size related ($0.96 per guest × 185.00 guests) $177.60 Complexity-related ($33.51 per tier × 6.00 tiers) 201.06 Order-related ($86.48 per order × 1 order) 86.48 Cost of purchased decorations for cake 73.75 538.89 _______________________________________________ Customer margin $97.64
Manufacturing companies typically combine their activities into five classifications:
1. unit-level activity 2. batch-level activity 3. customer-level activity 4. organization-sustaining activity 5. product-level activity
Abel Corporation uses activity-based costing. The company makes two products: Product A and Product B. The annual production and sales of Product A is 380 units and of Product B is 760 units. There are three activity cost pools, with total cost and activity as follows: Total Activity Activity Cost Pools Total Cost Prod. A Prod. B Total Activity 1 $ 25,530 950 200 1,150 Activity 2 $ 40,140 2,000 1,600 3,600 Activity 3 $ 10,649 150 250 400 The activity rate for Activity 2 is closest to:
11.15 $40,140 ÷ 3,600 = $11.15
Hails Corporation manufactures two products: Product Q21F and Product H44W. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products Q21F and H44W. Act. Cost Pool Activity Measure Total Cost Total Activity Machining Machine-hours $195,000 13,000 MHs Machine setups # of setups $90,000 150 setups Product design # of products $64,000 2 products Order size Direct labor-hours $280,000 10,000 DLHs Activity Measure Product Q21F Product H44W Machine-hours 9,000 4,000 Number of setups 80 70 Number of products 1 1 Direct labor-hours 6,000 4,000 Using the ABC system, the percentage of the total overhead cost that is assigned to Product H44W is closest to:
39.11% -find activity rates of each activity by multiplying est overhead cost by expected activity -find each activity ABC cost by multiplying the activity rates by activity amounts for product H44W -add up all the ABC costs for product H44W -repeat above steps for product Q21F -find total ABC costs by adding those of H44W and Q21F -find percentage of total overhead cost by diving total ABC costs of H44W into total ABC costs of both H44W and Q21F
Production order processing is an example of a:
Batch-level activity.
Machining a part for a product is an example of a:
Unit-level activity.
Testing a prototype of a new product is an example of a:
Product-level activity.
Gould Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products: Activity Cost Pool Activity Rate Setting up batches $ 59.66 per batch Processing customer orders $ 73.02 per customer order Assembling products $ 4.35 per assembly hour Data concerning two products appear below: Product K91B Product F65O Number of batches 91 62 Number of customer orders 41 55 Number of assembly hours 495 902 How much overhead cost would be assigned to Product K91B using the activity-based costing system?
The overhead cost charged to Product K91B is: Activity Rt Activity ABC Cost Setting up batches $59.66/ batch 91 batches $5,429.06 Processing customer orders $73.02/customer order 41 orders 2,993.82 Assembling products $4.35/assembly hour 495 hours 2,153.25 ________________________________________________ Total overhead cost $10,576.13
The second step in calculating product margins is to incorporate the previously computed activity-based cost assignments pertaining to each product
The third step is to deduct each product's direct and indirect costs from sales
The first step in computing customer margin is to gather sales and direct cost data The second step is to incorporate the company's previously computed activity-based cost assignments
Third step is to compute company's customer margin by deducting all its direct and indirect costs form its sales
Two common types of activity measures: transaction driver and duration driver
Transaction driver: simple count of the number of times an activity occurs Duration driver: a measure of the amount of time needed for an activity
Direct labor and machine hours work correctly when
changes in the quantity of the base are correlated with changes in the overhead costs being assigned using the base
First stage allocation (of overhead costs)
customer orders, design changes, order size, customer relations, other
add 5.5
here
Relying exclusively on direct labor hours and/or machine hours to assign overhead costs to products has come under
increased scrutiny since, on an economy-wide basis, direct labor and overhead costs have been moving in the opposite direction and the variety of products produced by companies has increased.
ABC (activity based costing) differs from traditional cost accounting because
numerous overhead cost pools are used
Departmental overhead rates may not correctly assign overhead costs due to:
overreliance on volume as a basis for allocating overhead costs where products differ regarding the number of units produced, lot size, or complexity of production.
Each ABC cost pool has its own unique measure of activity, while traditional cost systems
rely on direct labor hours and/or machine hours to allocae overhead costs to products
The first step in calculating product margins is to gather each product's sales and direct cost data
where direct costs include direct material, direct labor, shipping
