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131.
132.
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133.
Brenda’s Big Burgers, a small hamburger restaurant and take-out drive-through, has
identified the following resources that it uses in its business:
Required:
Suggest a proper cost driver for each of the following items
Example
A. Bread for burger
buns
B. Take-out bags
assuming one per drive-
through customer order
C. Ground sirloin
D. Mayonnaise, catsup,
pickles, and onions
E. Salary of the
restaurant manager
F. Restaurant rent
G. Workers hourly
wages
H. Coupons for
Brenda’s Colossal
Burger
I. Utilities
J. Brenda’s Buy-Any
One Burger and Get one
Free Burger Promotion
Example
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134.
Required:
For each of the following important costs in manufacturing companies, identify a cost
driver and explain why it is appropriate.
Manufacturing Costs
Driver and why
appropriate
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A. Equipment
maintenance
B. Building utilities
C. Computer operations
D. Quality control
E. Material handling
F. Material storage
G. Factory depreciation
H. Set up costs
I. Engineering changes
J. Advertising expense
D. Quality control
135.
136.
137.
138.
139.
140.
141.
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142.
Lamar Company manufactures two products, Product K9 and Product L43. Product L43 is
of fairly recent origin, having been developed as an attempt to enter a market closely
related to that of Product K9. Product L43 is the more complex of the two products,
requiring 2.0 hours of direct labor time per unit to manufacture compared to 1.0 hour of
direct labor time for Product K9. Product L43 is produced on an automated production
line.
Overhead currently is applied to the products on the basis of direct labor-hours. The
company estimated it would incur $510,000 in manufacturing overhead costs and produce
10,000 units of Product L43 and 40,000 units of Product K9 during the current year.
Unit costs for materials and labor are:
Product K9
Product L43
$11
$24
$6
$12
Required:
a. Compute the predetermined overhead rate under the current method, and determine
the unit product cost of each product for the current year.
b. The company is considering the use of activity-based costing as an alternative to its
traditional costing method for manufacturing overhead. Data relating to the company’s
activity cost pools for the current year are given below:
Total Activity
Activity Cost
Pool
Total
Cost
Product
K9
Product
L43
Total
Machine
setups
required
$204,000
800
1,600
2,400
Purchase
orders issued
43,500
500
100
600
Machine-
105,000
7,000
10,500
17,500
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hours
required
Maintenance
requests
issued
157,500
650
850
1,500
$510,000
hours
hours
hours
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143.
Sylvia’s Housecleaning Service provides housecleaning services to its clients. The
company uses an activity–based costing system for its overhead costs. The company has
provided the following data from its activity-based costing system.
Activity Cost Pool
Total Cost
Total Activity
Cleaning
$252,787
44,900
hours
Job support
73,758
5,700
jobs
Client support
7,668
270
clients
Other
230,000
Not applicable
Total
$564,213
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144.
Harrison Industries has an activity-based costing system with three activity cost pools–
Processing, Batch Setup, and Other. The company’s overhead costs, which consist of
factory utilities and indirect labor, are allocated to the cost pools in proportion to the
activity cost pools’ consumption of resources. Costs in the Processing cost pool are
assigned to products based on machine-hours (MHs) and costs in the Batch Setup cost
pool are assigned to products based on the number of batches. Costs in the Other cost
pool are not assigned to products. Data concerning the two products and the company’s
costs and activity-based costing system appear below:
Factory utilities (total)
$29,000
Indirect labor (total)
$7,000
Distribution of Resource Consumption Across
Activity Cost Pools
Processing
Setting Up
Other
Factory
utilities
0.40
0.10
0.50
Indirect
labor
0.50
0.20
0.30
MHs
Batches
Product #1
2,900
700
Product #2
7,100
300
Total
10,000
1,000
Product #1
Product #2
$54,000
$85,100
$19,100
$33,500
$26,300
$35,000
Required: