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124. The Thompson Company uses activity-based costing to determine product cost. Three activities and their rates have
been calculated as shown below.
Setting up equipment = $500 per setup
Moving goods = $20 per move
Machining = $4 per machine hour
Thompson provided the following data from the job order cost sheet for Job #345
Direct materials $2,000
Direct labor 1,800
Setups 1
Moves 30
Machine hours 900
A. Calculate the overhead applied to Job #345.
B. Calculate the total cost of Job #345.
C. If price is calculated by applying a 30% markup on cost, what is the price for Job #345?
D. Assume Job #345 required two setups, 15 moves, and 700 machine hours. Calculate the overhead applied to Job
#345.
E. Assuming a 50% markup on cost, what is the price of Job #345 using the overhead rate calculated in part D.
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125. Assume that the accounts payable department of a company has 5 clerks; each one is paid $25,000 per year
($125,000 total clerical salaries). On average, the clerks spend:
20% of their time on processing payments
30% of their time matching invoices, receiving documents, and billing statement
50% of their time correcting errors in the various documents
In addition, long distance telephone costs of $1,700 are directly traced to the activity “correcting errors.”
A. Assign the clerical salary cost to each of the three activities.
B. What is the total cost of the “correcting errors” activity?
126. Assume that the accounts payable department of a company has 10 clerks; each one is paid $25,000 per year
($250,000 total clerical salaries). Six of the clerks spend the following percentages of time on the three activities:
20% of their time on processing payments
30% of their time matching invoices, receiving documents, and billing statement
50% of their time correcting errors in the various documents
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One clerk, the head clerk, spends 50% of her time on administrative duties, and the remainder on error correction. The
remaining three clerks spend 30% of their time on processing payments and the remaining 70% of their time on matching
documents.
Long distance telephone costs of $1,700 are directly traced to the activity “correcting errors.”
A. Assign the clerical salary cost to each of the three activities, and to administration.
B. What is the total cost of the “correcting errors” activity?
127. Sallisaw Savings & Loan has requested an analysis of checking account profitability by customer type. Customers
are categorized according to size of their account: low balances, medium balances, and high balances. The activities
associated with the three different customer categories and their associated annual costs are as follows:
Opening and closing statements $ 100,000
Issuing monthly statements $ 150,000
Processing transactions $1,025,000
Customer inquiries $ 200,000
Providing ATM services $ 560,000
Total cost $2,035,000
Additional data concerning the usage of the activities by the various customers are also provided:
Account Balance
Low Medium High
Number of accounts opened/closed 7,500 1,500 1,000
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Number of statements issued 225,000 50,000 25,000
Processing transactions 9,000,000 1,000,000 250,000
Number of telephone minutes 500,000 300,000 200,000
Number of ATM transactions 675,000 100,000 25,000
Number of checking accounts 19,000 4,000 2,000
A. Calculate the total number of checking accounts.
B. Calculate the yearly overall cost per checking account.
C. Calculate the monthly overall cost per checking account.
128. Sallisaw Savings & Loan has requested an analysis of checking account profitability by customer type. Customers
are categorized according to size of their account: low balances, medium balances, and high balances. The activities
associated with the three different customer categories and their associated annual costs are as follows:
Opening and closing statements $ 100,000
Issuing monthly statements $ 150,000
Processing transactions $1,025,000
Customer inquiries $ 200,000
Providing ATM services $ 560,000
Total cost $2,035,000
Additional data concerning the usage of the activities by the various customers are also provided:
Account Balance
Low Medium High
Number of accounts opened/closed 7,500 1,500 1,000
Number of statements issued 225,000 50,000 25,000
Processing transactions 9,000,000 1,000,000 250,000
Number of telephone minutes 500,000 300,000 200,000
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Number of ATM transactions 675,000 100,000 25,000
Number of checking accounts 19,000 4,000 2,000
Sallisaw uses an activity-based costing system. The activity rate for opening and closing statements is based on the
number of accounts opened and closed. The activity rate for issuing monthly statements is based on the number of
statements issued. The activity rate for processing transactions is based on the number of transactions processed. The
activity rate for customer inquiries is based on the number of telephone minutes. The rate for ATM services is based on
the number of ATM transactions.
A. Calculate the activity rate for opening and closing accounts.
B. Calculate the activity rate for issuing monthly statements.
C. Calculate the activity rate for processing transactions.
D. Calculate the activity rate for customer inquiries.
E. Calculate the activity rate for providing ATM services.
F. Calculate the cost per account by customer category using the five activity rates.
G. Sallisaw Savings & Loan offers free checking to all its customers. Overall, the interest revenues average $105 per
account; however, the interest revenues earned per account by category are $95, $115, and $180 from the low, medium
and high balance accounts, respectively. Calculate the overall average profit per account. Then calculate the average profit
per account for each of the three customer categories. Refer to part F for the cost per account by customer category.
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129. Heedy Company makes a product using two departments − Department 1 and Department 2. Information on these
departments is as follows:
Department 1 Department 2
Direct labor hours 10,000 90,000
Machine hours 40,000 10,000
Overhead cost $240,000 $180,000
A. Calculate the department overhead rate for each department. Use machine hours as the base in Department 1 and
direct labor hours as the base in Department 2.
B. A job has prime cost of $270. It uses 10 machine hours in Department 1 and 15 direct labor hours in Department
2. Calculate the total product cost for the job.
C. Recalculate the department overhead rate for each department. Use direct labor hours as the base in Department 1
and machine hours as the base in Department 2.
D. A job has prime cost of $270. It uses 10 direct labor hours in Department 1 and 15 machine hours in Department
2. Using the rates calculated in part C, calculate the total product cost for the job.
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A. Determine the overhead rate for each cost pool, using the most appropriate allocation base for each pool.
B. Job 80130 required $45,000 for direct materials, $20,000 for direct labor, 2,000 direct labor hours, 800 machine
hours, five setups, and four design changes. Determine the cost of Job 80130.
131. Russell Company uses Beltran Company and Southern Express Inc. to buy the electronic chip used in the
manufacturing of its GPS device. Russell Co. has been using these two companies for several years and would like to cut
down to only one supplier to purchase the 1,200,000 chips needed per year. In order to determine which supplier is the
most cost effective Russell Co. compiled the following data:
Activity Activity Cost
Testing 800,000
Warranty work 3,600,000
Beltran Co. Southern Express Inc.
Unit price $ 60 $ 63
Units purchased 865,000 335,000
Testing hours 1,200 550
Warranty hours 5,000 1,400
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Required:
A. Calculate the activity rate for each activity. Round your answer to two decimal places.
B. Calculate the cost per chip for each supplier.
C. Which supplier should Russell Company choose?
132. Stinler Corporation manufactures curtains for retail stores and for individual customers. The retail chain buys 70% of
the curtains produced. The individual customers purchase curtains in approximately equal quantities, where the orders are
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about the same size. Data concerning Stinler’s customer activity are as follows:
Retail Stores Individual Customers
Units sold 56,000 24,000
Orders placed 8 492
Number of sales calls 4 156
Manufacturing costs 8,000,000 3,500,000
Order filling costs allocated 375,000 225,000
Sales force costs allocated 265,000 135,000
Currently customer-driven costs are assigned to customers based on units sold, a unit-level driver.
Required:
A. Assign costs to customers by using an ABC approach.
B. Determine the selling (order filling and sales force) cost per unit sold for each type of customer.
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133. Flynn Company has a JIT system in place. Each manufacturing cell is dedicated to the production of a single product
or major subassembly. One cell, dedicated to the production of guitar pickups, has four operations: machining, finishing,
assembly, and testing.
For the coming year, the pickup cell has the following budgeted costs and cell time (both at theoretical capacity):
Cell time: 8,000 hours
Theoretical output: 60,000 pickups
During the year, the following actual results were obtained:
Actual cell time: 8,000 hours
Actual output: 50,000 pickups
A. Compute the theoretical velocity for the cell per hour.
B. Compute the theoretical cycle time in minutes.
C. Compute the actual velocity for the cell per hour.
D. Compute the actual cycle time in minutes.
134. Lorimer Company had sales of $2,500,000 for last year. Data on quality-related costs for last year are as follows:
Inspection $ 80,000
Scrap 10,000
Rework 45,000
Quality training 20,000
Warranty work 100,000
Customer complaints 30,000
A. Classify each of the quality-related costs as control (prevention and appraisal), internal failure, or external failure.
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B. What percentage of sales is accounted for by quality-related costs?
C. If quality-related costs could be reduced to 2% of sales, by how much would Lorimer’s profit increase?
135. Consider the following information on activities:
Amount of Actual
Driver That Amount Cost per unit
Activity (driver) Should be Used Used of driver
Purchasing (purchase orders) 48,000 53,000 $40
Inspection (inspection hours) 0 22,000 $30
Rework (labor hours) 0 13,000 $20
A. Which of the three activities, if any, is value-added?
B. What is the nonvalue-added cost of each activity?
C. What is the total value-added cost of the activities?
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136. Charlotte Company produces folding chairs. It takes the company 18,000 hours to produce 90,000 chairs.
Required:
A. What is the velocity in hours?
B. What is the cycle time in hours?
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137. Activities that are performed each time a unit is produced.
138. Factors that measure the consumption of activities by products and other cost objects.
139. Financial and nonfinancial information items that describe individual activities.
140. System that emphasizes direct tracing and driver tracing.
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141. Factors that measure the consumption of resources by activities.
142. Resources consumed by the activity in producing its output.
143. Result or product of an activity.
144. The number of times an activity is performed.
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145. Process that answers the question “How many people perform the activities?“
146. Costs necessary to perform value-added activities with perfect efficiency.
147. Involves choosing among different sets of activities that are caused by competing strategies.
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148. Increases the efficiency of necessary activities by using economies of scale.
149. The length of time it takes to produce a unit of output from the time raw materials are received until the good is
delivered to finished goods inventory.
150. Activities necessary to remain in business
151. Cost assignment method used for a cost of a resource that is exclusively used by an activity.