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10-102
112.
Vargas Financial (VF) only offers checking accounts. Customers can write checks and use
a network of automated teller machines. VF earns revenue by investing the money
deposited (subject to reserve requirements). Currently VF averages 6% return annually on
its investments. In order to compete with larger banks, VF pays depositors 1% on all
deposits. A recent study classified the operating costs of the bank into four activities. Data
on these activities are:
Activity
Cost Driver
Cost
Driver
Volume
Use ATM
number of
uses
$2,00,000
10,000,000
uses
Visit branch
number of
visits
6,000,000
750,000
visits
Process
transaction
number of
transactions
4,000,000
40,000,000
transactions
General
bank
overhead
total
deposits
8,000,000
$450,000,000
Total
overhead
$20,000,000
Data on two representative customers are shown below:
Customer
A
Customer
B
ATM uses
300
50
Branch visits
5
20
Number of
transactions
60
1,200
Average deposit
$450
$10,000
Required:
(a) Compute the operating profits of the Vargas Financial.
10-103
10-104
10-106
113.
Mobile Repair Company is preparing its annual profit plan. As part of its analysis of the
cost of its purchasing activity, management estimates that the $125,000 for purchasing
support should be assigned to the individual vendors from the information given as
follows:
Vendor
A
Vendor
B
Vendor
C
Units purchased
100,000
200,000
200,000
Purchase orders
(annual)
6
24
100
Number of
shipments received
12
52
25
10-108
114.
Bison Creek Company is preparing its annual profit plan. As part of its analysis of the cost
of its purchasing activity, management estimates that the $250,000 for purchasing support
should be assigned to the individual vendors from the information given as follows:
Vendor
A
Vendor
B
Vendor
C
Units purchased
100,000
100,000
500,000
Purchase orders
(annual)
12
24
50
Number of
shipments received
12
52
100
10-109
115.
Hidden Valley Company produces precision components. Hidden Valley has six customers,
one accounts for 40 percent of the sales, with the remaining five accounting for the rest of
the sales. The five smaller customers purchase components in roughly equal quantities.
Orders placed by the smaller customers are about the same size. Data concerning Hidden
Valley 's customer activity follow:
Large
Customer
Five Small
Customers
Units purchased
200,000
300,000
Orders placed
10
350
Number of sales calls
20
230
Manufacturing cost
$600,000
$900,000
10-110
116.
Kingston Company produces precision components. Kingston has 11 customers, one
accounts for 60 percent of the sales, with the remaining ten accounting for the rest of the
sales. The ten smaller customers purchase components in roughly equal quantities.
Orders placed by the smaller customers are about the same size. Data concerning
Kingston's customer activity follow:
Large
Customer
Ten Small
Customers
Units purchased
300,000
200,000
Orders placed
12
420
Number of sales calls
20
230
Manufacturing cost
$900,000
$600,000
10-111
117.
Kingston Company produces precision components. Kingston has 11 customers, one
accounts for 60 percent of the sales, with the remaining ten accounting for the rest of the
sales. The ten smaller customers purchase components in roughly equal quantities.
Orders placed by the smaller customers are about the same size. Data concerning
Kingston's customer activity follow:
Large
Customer
Ten Small
Customers
Units purchased
300,000
200,000
Orders placed
12
420
Number of sales calls
20
230
Manufacturing cost
$900,000
$600,000
Sales
$1,800,000
$1,200,000
10-113
118.
Bountiful Harvest Distribution delivers supplies to small grocers throughout the region.
Bountiful currently adds 5% to the order cost to cover the delivery cost. The delivery fee is
meant to just cover the cost of delivery. A consultant has analyzed the delivery service
using activity-based costing methods and identified four activities. Data on these activities
are:
Activity
Cost Driver
Cost
Driver
Volume
Process
order
number of
orders
$50,000
4,000
orders
Load truck
number of
items
100,000
80,000
items
Deliver
goods
number of
orders
60,000
4,000
orders
Process
invoice
number of
invoices
48,000
6,000
invoices
Total
overhead
$258,000
Three of Bountiful's customers are Rosy's Corner Market, Katy's Fine Foods, and Amy's
City Market. Below are data on orders and deliveries to these three customers:
Rosy’s
Katy’s
Amy’s
Order value
$48,000
$64,000
$120,000
Number of orders
50
100
25
Number of items
550
1,600
1,750
Number of invoices
12
120
18
Required:
(a) What would be the delivery charge for each customer under the current policy of 5% of
order value?
(b) What would the activity-based costing system estimate as the cost of delivering to
each customer?
10-116
119.
Gruber Industries provides the following information about resources:
Cost
Driver
Rate
Cost Driver
Volume
Resources used
Materials
$12
15,000 pounds
Energy
48
675 machine
hours
Setups
300
150 setups
Purchasing
240
160 purchase
orders
Customer
service
160
175 returns
Long-term
labor
80
640 labor hours
Administrative
60
840
administrative
hours
Resources supplied
Materials
$192,000
Energy
36,480
Setups
50,400
Purchasing
44,000
Customer service
35,200
Long-term labor
53,000
Administrative
54,000
In addition, sales for the period totaled $600,000.
Required:
Compute the unused resource capacity for each preceding item.
10-118
120.
Jones Industries provides the following information about resources:
Cost
Driver
Rate
Cost Driver
Volume
Resources used
Materials
$24
25,000 gallons
Energy
90
870 machine
hours
Setups
450
130 setups
Purchasing
350
170 purchase
orders
Customer
service
210
85 returns
Long-term
labor
80
1,600 labor hours
Administrative
75
2,200
administrative
hours
Resources supplied
Materials
$625,000
Energy
86,480
Setups
60,400
Purchasing
74,000
Customer service
35,200
Long-term labor
153,000
Administrative
188,000
Required:
Compute the unused resource capacity for each preceding item.
10-120
121.
Morrison Supply provides the following information about resources:
Cost
Driver
Rate
Cost Driver
Volume
Resources used
Administrative
$50
1,200
administrative
hours
Customer
service
310
65 returns
Energy
80
770 machine
hours
Long-term
labor
90
1,600 labor hours
Materials
12
50,000 units
Purchasing
145
120 purchase
orders
Setups
450
115 setups
Resources used
Administrative
$68,000
Customer service
31,200
Energy
66,480
Long-term labor
163,000
Materials
625,000
Purchasing
34,000
Setups
60,400
Required:
Compute the unused resource capacity for each preceding item.
