The following information relates to each size of bird cage and next year’s anticipated manufacturing operations:
Large
Medium
Small
Units to be produced
350
400
600
Orders to be shipped
180
200
250
Number of parts per unit
8
6
4
Machine hours per unit
4
2
1
Labor hours per unit
2
2
2
Refer to Exhibit 17-3. What is Bird’s Eye View cost per cost driver for parts insertion for next year (rounded)?
45. Exhibit 17-3
Bird’s Eye View manufactures three different sizes of bird cages: small (for finches and canaries), medium (for
cockatiels and small parrots), and large (for cockatoos and other large parrots). The company has recently
implemented an activity-based costing system. Bird’s Eye View has identified five different production
activities as well as the best cost driver for each activity. Each activity and driver is listed below, along with the
budgeted amount that is associated with each activity for next year.
Budgeted
Activity
Cost Driver
Costs
Materials handling
Labor hours
$ 55,000
Automated processing
Machine hours
40,000
Plastic parts insertion
Number of parts
6,000
Inspections
Labor hours
29,000
Packaging
Orders shipped
31,000
Total indirect manufacturing cost
$161,000
The following information relates to each size of bird cage and next year’s anticipated manufacturing operations:
Large
Medium
Small
Units to be produced
350
400
600
Orders to be shipped
180
200
250
Number of parts per unit
8
6
4
Machine hours per unit
4
2
1
Labor hours per unit
2
2
2
Refer to Exhibit 17-3. What is Bird’s Eye View cost per cost driver for automated processing for next year (rounded)?
46. Exhibit 17-3
Bird’s Eye View manufactures three different sizes of bird cages: small (for finches and canaries), medium (for
cockatiels and small parrots), and large (for cockatoos and other large parrots). The company has recently
implemented an activity-based costing system. Bird’s Eye View has identified five different production
activities as well as the best cost driver for each activity. Each activity and driver is listed below, along with the
budgeted amount that is associated with each activity for next year.
Budgeted
Activity
Cost Driver
Costs
Materials handling
Labor hours
$ 55,000
Automated processing
Machine hours
40,000
Plastic parts insertion
Number of parts
6,000
Inspections
Labor hours
29,000
Packaging
Orders shipped
31,000
Total indirect manufacturing cost
$161,000
The following information relates to each size of bird cage and next year’s anticipated manufacturing operations:
Large
Medium
Small
Units to be produced
350
400
600
Orders to be shipped
180
200
250
Number of parts per unit
8
6
4
Machine hours per unit
4
2
1
Labor hours per unit
2
2
2
Refer to Exhibit 17-3. What is Bird’s Eye View cost per cost driver for inspections for next year (rounded)?
47. Exhibit 17-3
Bird’s Eye View manufactures three different sizes of bird cages: small (for finches and canaries), medium (for
cockatiels and small parrots), and large (for cockatoos and other large parrots). The company has recently
implemented an activity-based costing system. Bird’s Eye View has identified five different production
activities as well as the best cost driver for each activity. Each activity and driver is listed below, along with the
budgeted amount that is associated with each activity for next year.
Budgeted
Activity
Cost Driver
Costs
Materials handling
Labor hours
$ 55,000
Automated processing
Machine hours
40,000
Plastic parts insertion
Number of parts
6,000
Inspections
Labor hours
29,000
Packaging
Orders shipped
31,000
Total indirect manufacturing cost
$161,000
The following information relates to each size of bird cage and next year’s anticipated manufacturing operations:
Large
Medium
Small
Units to be produced
350
400
600
Orders to be shipped
180
200
250
Number of parts per unit
8
6
4
Machine hours per unit
4
2
1
Labor hours per unit
2
2
2
Refer to Exhibit 17-3. Under an activity-based costing system, what is the per unit cost for manufacturing overhead of a small cage (rounded)?
48. Exhibit 17-3
Bird’s Eye View manufactures three different sizes of bird cages: small (for finches and canaries), medium (for
cockatiels and small parrots), and large (for cockatoos and other large parrots). The company has recently
implemented an activity-based costing system. Bird’s Eye View has identified five different production
activities as well as the best cost driver for each activity. Each activity and driver is listed below, along with the
budgeted amount that is associated with each activity for next year.
Budgeted
Activity
Cost Driver
Costs
Materials handling
Labor hours
$ 55,000
Automated processing
Machine hours
40,000
Plastic parts insertion
Number of parts
6,000
Inspections
Labor hours
29,000
Packaging
Orders shipped
31,000
Total indirect manufacturing cost
$161,000
The following information relates to each size of bird cage and next year’s anticipated manufacturing operations:
Large
Medium
Small
Units to be produced
350
400
600
Orders to be shipped
180
200
250
Number of parts per unit
8
6
4
Machine hours per unit
4
2
1
Labor hours per unit
2
2
2
Refer to Exhibit 17-3. Under an activity-based costing system, what is the per unit cost for manufacturing overhead of a medium cage (rounded)?
49. Exhibit 17-3
Bird’s Eye View manufactures three different sizes of bird cages: small (for finches and canaries), medium (for
cockatiels and small parrots), and large (for cockatoos and other large parrots). The company has recently
implemented an activity-based costing system. Bird’s Eye View has identified five different production
activities as well as the best cost driver for each activity. Each activity and driver is listed below, along with the
budgeted amount that is associated with each activity for next year.
Budgeted
Activity
Cost Driver
Costs
Materials handling
Labor hours
$ 55,000
Automated processing
Machine hours
40,000
Plastic parts insertion
Number of parts
6,000
Inspections
Labor hours
29,000
Packaging
Orders shipped
31,000
Total indirect manufacturing cost
$161,000
The following information relates to each size of bird cage and next year’s anticipated manufacturing operations:
Large
Medium
Small
Units to be produced
350
400
600
Orders to be shipped
180
200
250
Number of parts per unit
8
6
4
Machine hours per unit
4
2
1
Labor hours per unit
2
2
2
Refer to Exhibit 17-3. Under an activity-based costing system, what is the per unit cost for manufacturing overhead of a large cage (rounded)?
50. Exhibit 17-4
The Dormir Company uses an activity-based costing system to account for its process of manufacturing
camping tents. Each tent has $140 of direct materials, includes 15 parts, and requires 3 hours of machine time.
Information on conversion costs, manufacturing activities, and cost drivers is listed below.
Cost Per
Manufacturing Activity
Cost Driver
Unit
Material handling
Number of parts
$ 3.00
Sewing
Machine hours
20.00
Assembling
Number of parts
1.00
Testing
Number of finished units
8.00
Refer to Exhibit 17-4. The cost of material handling per tent is:
51. Exhibit 17-4
The Dormir Company uses an activity-based costing system to account for its process of manufacturing
camping tents. Each tent has $140 of direct materials, includes 15 parts, and requires 3 hours of machine time.
Information on conversion costs, manufacturing activities, and cost drivers is listed below.
Cost Per
Manufacturing Activity
Cost Driver
Unit
Material handling
Number of parts
$ 3.00
Sewing
Machine hours
20.00
Assembling
Number of parts
1.00
Testing
Number of finished units
8.00
Refer to Exhibit 17-4. The cost of sewing per tent is:
52. Exhibit 17-4
The Dormir Company uses an activity-based costing system to account for its process of manufacturing
camping tents. Each tent has $140 of direct materials, includes 15 parts, and requires 3 hours of machine time.
Information on conversion costs, manufacturing activities, and cost drivers is listed below.
Cost Per
Manufacturing Activity
Cost Driver
Unit
Material handling
Number of parts
$ 3.00
Sewing
Machine hours
20.00
Assembling
Number of parts
1.00
Testing
Number of finished units
8.00
Refer to Exhibit 17-4. The cost of assembling per tent is:
53. Exhibit 17-4
The Dormir Company uses an activity-based costing system to account for its process of manufacturing
camping tents. Each tent has $140 of direct materials, includes 15 parts, and requires 3 hours of machine time.
Information on conversion costs, manufacturing activities, and cost drivers is listed below.
Cost Per
Manufacturing Activity
Cost Driver
Unit
Material handling
Number of parts
$ 3.00
Sewing
Machine hours
20.00
Assembling
Number of parts
1.00
Testing
Number of finished units
8.00
Refer to Exhibit 17-4. The total manufacturing cost per tent is:
54. The result of cross-subsidization is that:
55. Which of the following products usually consumes the highest amount of overhead costs per unit?
56. Exhibit 17-5
The following information is available for Dakota Company:
Product 1
Product 2
Sales
$1,400,000
$1,800,000
Direct materials
(200,000)
(400,000)
Direct labor
(600,000)
(600,000)
Manufacturing overhead*
(500,000)
(500,000)
Gross margin
$ 100,000
$ 300,000
*allocated based on direct labor hours
Dakota Company has decided to allocate its manufacturing overhead cost using activity-based costing. Manufacturing overhead will be allocated
based on batch-level and product line manufacturing as follows:
Total
Manufacturing
Overhead Costs
Product 1
Product 2
Batch-level manufacturing overhead
$600,000
20 batches
60 batches
Product line manufacturing overhead
$400,000
10 lines
40 lines
Refer to Exhibit 17-5. What is Dakota Company’s gross margin for Product 1 using activity based costing?
57. Exhibit 17-5
The following information is available for Dakota Company:
Product 1
Product 2
Sales
$1,400,000
$1,800,000
Direct materials
(200,000)
(400,000)
Direct labor
(600,000)
(600,000)
Manufacturing overhead*
(500,000)
(500,000)
Gross margin
$ 100,000
$ 300,000
*allocated based on direct labor hours
Dakota Company has decided to allocate its manufacturing overhead cost using activity-based costing. Manufacturing overhead will be allocated
based on batch-level and product line manufacturing as follows:
Total
Manufacturing
Overhead Costs
Product 1
Product 2
Batch-level manufacturing overhead
$600,000
20 batches
60 batches
Product line manufacturing overhead
$400,000
10 lines
40 lines
Refer to Exhibit 17-5. What is Dakota Company’s gross margin for Product 2 using activity based costing?
58. Define activity-based costing and list the five steps in implementing and using an activity-based costing
system.
Activity-based costing is a method of attributing overhead costs to products based on measurable factors that
relate to activities that create overhead costs.
Steps in implementing and using an activity-based costing system:
Identify overhead cost activities
Analyze individual overhead costs in terms of those cost activities
Identify measurable cost drivers
Assign overhead
Use the activity-based costing data to make decisions
59. BigPlay Company manufactures playground equipment. BigPlay is shifting from a traditional costing
system to an activity-based costing system. The company started by identifying four overhead cost activities.
Listed below is the table that the controller for BigPlay created identifying the cost activities and the percentage
of time spent on each activity by various factory employees.
Hiring and
training
Ordering
Assembling
Engineering
workers
equipment
structures
changes
Maintenance people
0%
0%
70%
30%
Production foreman
60%
15%
10%
15%
Factory superintendent
10%
40%
20%
30%
Accounting Department
60%
0%
0%
40%
BigPlay’s controller also gathered the total overhead cost associated with each factory employee which is shown below:
Maintenance people
$ 90,000
Production foreman
110,000
Factory superintendent
125,000
Accounting Department
90,000
From the information given, compute the amount of the cost pool associated with each of the four overhead cost activities.
60. In the spaces provided, write the letter of the cost driver that best matches the overhead activity.
A.
Number of product setups
B.
Number of inspections
C.
Number of parts used
D.
Number of machine hours used
E.
Receiving orders per product line
F.
Number of maintenance hours worked in each division
G.
Number of engineering changes
H.
Amount of machine floor space
1.
Receiving costs
2.
Inspection costs
3.
Engineering design
4.
Setup costs
5.
Material handling
6.
Maintenance costs
7.
Building lease
8.
Machine depreciation
Cost pool for hiring and training workers: ($110,000 ´ 60%) + ($125,000 ´ 10%) + ($90,000 ´ 60%) = $132,500
b.
Cost pool for ordering equipment: ($110,000 ´ 15%) + ($125,000 ´ 40%) = $66,500
Cost pool for assembling structures: ($90,000 ´ 70%) + ($110,000 ´ 10%) + ($125,000 ´ 20%) = $99,000
d.
Cost pool for engineering changes: ($90,000 ´ 30%) + ($110,000 ´ 15%) + ($125,000 ´ 30%) + ($90,000 ´ 40%) = $117,000
61. Jantar Company makes three different styles of kitchen tables: round, oblong, and rectangle. The following
information is provided about the company’s costs:
Round
Oblong
Rectangle
Tables made
500
600
300
Overhead
Overhead Allocation
Cost
Cost Drivers
Quality control
$22,000
Number of setups
Maintenance
45,000
Number of hours worked in each production area
Machine depreciation
27,000
Number of cuts
Cost Drivers
Round
Oblong
Rectangle
Total number of setups
7
9
4
Total maintenance hours worked in each
area of production
45
50
30
Number of cuts per unit
15
20
10
Total
Total
Cost Per
Cost Drivers
Round
Oblong
Rectangle
Drivers
Costs
Unit
Number of setups
7
9
4
20
$22,000
$1,100.00
Maintenance hours
worked
45,000
360.00
Number of cuts
7,500
12,000
3,000
22,500
27,000
1.20
62. Carolina manufactures two products. The following information is available concerning the manufacturing
overhead costs:
Overhead Costs
Cost
Cost Drivers
Administration
$ 456,210
Production volume
Building lease
4,536,000
Machine floor space
Equipment depreciation
280,800
Machine hours
Engineering costs
223,200
Engineering hours
Maintenance
384,408
Machine hours
$5,880,618
1.
E
G
4.
A
5.
C
6.
F
H
8.
D
Product AB
Product YZ
Production volume
13,400
17,600
Machine floor space
60,000
140,000
Machine hours per unit
30
70
Total engineering hours
80
400
a.
Compute the overhead cost per unit for each cost driver.
b.
Compute the total overhead cost for both Product AB and Product YZ.
c.
Compute the unit overhead cost per unit for Product AB and Product YZ.
63. Custom Woods Inc. makes three different door styles for kitchen cabinets: standard, flat panel, and raised
panel. The following information is provided about the company’s costs:
Standard
Flat Panel
Raised Panel
Doors made
4,250
3,052
2,964
Direct materials
$19,125
$11,445
$20,007
Direct labor
$42,500
$42,728
$56,316
Overhead
Overhead Allocation
Cost
Cost Drivers
Quality control
$13,440
Number of setups
Maintenance
12,384
Number of hours worked in each production area
Machine depreciation
25,456
Number of cuts
Unit cost per cost driver (rounded):
Cost Per
Total
Total Cost
Driver
Production volume
13,400
17,600
31,000
$ 456,210
$ 14.72
Machine floor space
60,000
140,000
200,000
4,536,000
22.68
Machine hours
402,000
1,232,000
1,634,000
665,208
0.41
Engineering hours
80
400
480
223,200
465.00
Cost Per
Driver
Total
Production volume
13,400
$ 14.72
$ 197,248
Machine floor space
60,000
22.68
1,360,800
Machine hours
402,000
0.41
164,820
Engineering hours
80
465.00
37,200
Total overhead costs for Product AB
$1,760,068
Unit overhead costs per Product AB
$131.35
Cost Per
Driver
Total
Production volume
17,600
$ 14.72
$ 259,072
Machine floor space
140,000
22.68
3,175,200
Machine hours
1,232,000
0.41
505,120
Engineering hours
400
465.00
186,000
Total overhead costs for Product YZ
$4,125,392
Unit overhead costs per Product YZ
$234.40
Cost Drivers
Standard
Flat Panel
Raised Panel
Total number of setups
2
5
8
Total maintenance hours worked in
each area of production
36
48
60
Number of cuts per unit
6
22
26
a.
Determine the overhead cost per unit for each cost driver.
b.
Determine the overhead cost for each door style.
c.
Determine the total cost per door.
64. Westvaco Inc. has two divisions. Gross profit computations for these two divisions for the year 2012 are
given below:
Foods
Goods
Division
Division
Sales
$ 450,000
$ 550,000
Direct materials
(150,000)
(75,000)
Direct labor
(150,000)
(150,000)
Manufacturing overhead*
(200,000)
(200,000)
Gross Profit
$ (50,000)
$ 125,000
Flat
Raised
Total
Total
Cost Per
Cost Drivers
Standard
Panel
Panel
Drivers
Costs
Unit
Number of setups
2
5
8
$13,440
$896.00
Maintenance hours
worked
36
48
60
144
12,384
86.00
Panel
Number of
Maintenance
hrs worked
3,096
4,128
5,160
2
Total over-
0
Total cost per door (rounded):
Standard
Flat Panel
Raised Panel
Direct materials
$19,125
$11,445
$ 20,007
Direct labor
42,500
42,728
56,316
Overhead
8,713
18,680
23,888
Total costs
$70,338
$72,853
$100,211
Total doors
¸ 4,250
¸ 3,052
¸ 2,964
Cost per door
$ 16.55
$ 23.87
$ 33.81
*Manufacturing overhead is allocated to products based on the amount of direct labor dollars.
Westvaco has determined that its total manufacturing overhead cost of $400,000 is a mixture of batch-level and product line costs. The following
information has been assembled regarding overhead:
Total
Foods
Goods
Overhead
Division
Division
Batch-level overhead
$250,000
12 batches
38 batches
Product line overhead
$150,000
10 lines
30 lines
a.
Prepare gross profit calculations for Westvaco’s two divisions assuming that manufacturing overhead is allocated based on the number of
batches and number of product lines.
b.
Under the direct labor dollar method of overhead allocation, which division received costs from another division and what was the amount
of that cost?
Batch
Product line
Total
Manufacturing overhead costs
$250,000
$150,000
$400,000
Total units of activity
50 batches
40 lines
Overhead application rate
$5,000/batch
$3,750/line
Overhead applied to Foods Division
$60,000
$37,500
$ 97,500
Overhead applied to Goods Division
$190,000
$112,500
$302,500
Foods
Goods
Division
Division
Sales
$ 450,000
$ 550,000
Direct materials
(150,000)
(75,000)
Direct labor
(150,000)
(150,000)
Manufacturing overhead
(97,500)
(302,500)
Gross Profit
$ 52,500
$ 22,500
The Foods Division received costs of $102,500 ($125,000 –
22,500) from the Goods Division.