1. An action analysis report provides more detail about costs and how they might adjust to
changes in activity than a conventional activity-based costing analysis.
2. Which of the following statements concerning ease of adjustment codes is incorrect?
3. If a cost object such as a product or customer has a negative red margin, then:
4. If a cost object such as a product or customer has a positive green margin, then:
5. If a cost object such as a product or customer has a positive yellow margin, then:
6A-4
Escher Company is a wholesale distributor that uses activity-based costing for all of its
overhead costs. The company has provided the following data concerning its annual overhead
costs and its activity based costing system:
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:
6. What would be the total overhead cost per order according to the activity based costing
system? In other words, what would be the overall activity rate for the filling orders activity cost
pool? (Round to the nearest whole cent.)
7. What would be the total overhead cost per customer according to the activity based
costing system? In other words, what would be the overall activity rate for the customer support
activity cost pool? (Round to the nearest whole dollar.)
8. To the nearest whole dollar, how much wages and salaries cost would be allocated to a
customer who made 4 orders in a year?
6A-8
Groenen Catering uses activity-based costing for its overhead costs. The company has
provided the following data concerning the activity rates in its activity-based costing system:
The number of meals served is the measure of activity for the Preparing Meals activity cost pool.
The number of functions catered is used as the activity measure for the Arranging Functions
activity cost pool.
Management would like to know whether the company made any money on a recent function at
which 120 meals were served. The company catered the function for a fixed price of $20.00 per
meal. The cost of the raw ingredients for the meals was $13.05 per meal. This cost is in addition
to the costs of wages, supplies, and other expenses detailed above.
For the purposes of preparing action analyses, management has assigned ease of adjustment
codes to the costs as follows: wages are classified as a Yellow cost; supplies and raw ingredients
as a Green cost; and other expenses as a Red cost.
9. According to the activity-based costing system, what was the total cost (including the
costs of raw ingredients) of the function mentioned above? (Round to the nearest whole dollar.)
10. Suppose an action analysis report is prepared for the function mentioned above. What
would be the “red margin” in the action analysis report? (Round to the nearest whole dollar.)
11. Suppose an action analysis report is prepared for the function mentioned above. What
would be the “yellow margin” in the action analysis report? (Round to the nearest whole dollar.)
6A–12
12. Inskeep 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.
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:
Required:
a. Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in the
table below:
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:
6A–13
c. Prepare an action analysis report in good form of a job that involves making 70 yards of drapes
and has direct materials and direct labor cost of $1,870. The sales revenue from this job is
$3,700.
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.
13. Hasher 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:
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:
A “square” is a measure of area that is roughly equivalent to 1,000 square feet.
Required:
6A–16
14. Goluski Company, a wholesale distributor, uses activity-based costing for its overhead
costs. The company has provided the following data concerning its annual overhead costs and its
activity based costing system:
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:
Required:
Compute the activity rates (i.e., cost per unit of activity) for the Filling Orders and Product
Support activity cost pools:
6A–18
15. Jansen Painting paints the interiors and exteriors of homes and commercial buildings.
The company uses an activity-based costing system for its overhead costs. The company has
provided the following data concerning its activity-based costing system.
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining
costs.
The company has already finished the first stage of the allocation process in which costs were
allocated to the activity cost centers. The results are listed below:
Required:
a. Compute the activity rates (i.e., cost per unit of activity) for the Painting and Job Support
activity cost pools. Round off all calculations to the nearest whole cent.
b. Prepare an action analysis report in good form of a job that involves painting 97 square meters
and has direct materials and direct labor cost of $3,150. The sales revenue from this job is
$4,200.
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.