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Chapter 26(11): Cost Allocation and Activity-Based Costing
96.
The Sawtooth Leather Company manufactures leather handbags and moccasins. For simplicity, the company has
decided to use a single plantwide factory overhead rate method to allocate factory overhead. Calculate the
amount
of factory overhead to be allocated to each unit using direct labor hours.
Handbags = 60,000 units, 2 hours of direct labor
Moccasins = 40,000 units, 3 hours of direct labor
Total budgeted factory overhead cost = $360,000
97.
Bugaboo Co. manufactures three types of cookies: Fluffs, Crinkles, and Snaps. The production process is
relatively
simple, and factory overhead costs are allocated to products using a single plantwide factory rate based
on direct
labor hours. Information for the month of May, Bugaboo's first month of operations, follows:
Budgeted
Unit Volume
Direct Labor
Hours Per Unit
Fluffs
80,000 boxes
0.10
Crinkles
60,000 boxes
0.20
Snaps
20,000 boxes
0.50
Bugaboo has budgeted direct labor costs for May at $8.50 per hour. Budgeted direct materials costs for May are:
Fluffs, $0.75/unit; Crinkles $0.40/unit; and Snaps $0.30/unit.
Bugaboo's budgeted overhead costs for May are:
Indirect labor
$280,000
Utilities
65,000
Supplies
45,000
Depreciation
30,000
Total
$420,000
Assume that Bugaboo sells all the boxes it produces in May.
(a)
Compute Bugaboo's plantwide factory overhead rate for May.
(b)
Compute the product cost in May for each type of cookie.
(c)
Does Bugaboo's use of a plantwide factory overhead rate in any way distort the
product costs for May?
98.
Kettle Factory produces two similar products—gloves and mittens. The total plant budget is $1,050,000 with
600,000 estimated direct labor hours. It is further estimated that glove production will require 375,000 direct
labor hours and mitten production will require 225,000 direct labor hours.
(a)
Determine the single plant factory overhead rate based on direct labor hours.
(b)
How much is the factory overhead cost per pair of gloves if each pair requires
2 hours to produce?
(c)
How much is the factory overhead cost per pair of mittens if each pair takes
1.5 hours to produce?
(d)
How much total factory overhead will be allocated to glove production if
187,500 pairs are budgeted and 190,000 pairs are actually produced during
the
period?
(e)
How much total factory overhead will be allocated to mitten production if
150,000 pairs are budgeted and 140,000 pairs are actually produced during
the
period?
99.
Condelezza Co. manufactures two products, A and B, in two production departments, Assembly and Finishing.
Condelezza Co. expects to produce 10,000 units of Product A and 20,000 units of Product B in the coming
year.
Budgeted factory overhead costs for the coming year are:
The machine hours expected to be used in the coming year are as follows:
Assembly
Dept.
Finishing
Dept.
Product A
15,100
9,000
Product B
4,900
11,000
Total
20,000
20,000
(a)
Compute the plantwide factory overhead rate.
Compute the production department factory overhead rates.
(b)
Compute the factory overhead per unit for each product using (1) the single
plantwide rate and (2) production department factory overhead rates.
(c)
Which method is better (plantwide or department)? Why?
Assembly
$310,000
Finishing
240,000
Total
$550,000
100.
Tulip Company produces two products, T and U. The indirect labor costs include the following two items:
Plant supervision
$ 700,000
Setup labor (indirect)
300,000
Total indirect labor
$1,000,000
The following activity-base usage and unit production information is available for the two products:
Number of
Setups
Direct Labor
Hours
Units
Product T
200
20,000
900
Product U
200
30,000
1,100
Total
400
50,000
2,000
(a)
Determine the single plantwide factory overhead rate, using direct labor
hours
as the activity base.
(b)
Determine the factory overhead cost per unit for Products T and U, using the
single plantwide factory overhead rate.
(c)
Determine the activity rate for plant supervision and setup labor, assuming
that
the activity base for supervision is direct labor hours and the activity base
for
setup labor is number of setups.
(d)
Determine the factory overhead cost per unit for Products T and U, using
activity-based costing.
(e)
Why is the factory overhead cost per unit different for the two products
under
the two methods?
Chapter 26(11): Cost Allocation and Activity-Based Costing
101.
Explain why it is imperative that proper factory overhead be allocated in factories that produce multiple products.
102.
The Camper’s Edge Factory produces two products—canopies and tents. It has two separate departments—
Cutting and Sewing. The budget is $350,000 for the Cutting Department and $400,000 for the Sewing
Department.
Each canopy requires 2 hours of cutting and 1 hour of sewing. Each tent requires 1 hour of cutting
and 6 hours of
sewing. The budget estimates that 20,000 canopies and 10,000 tents will be manufactured during
the year. Determine (a) the total number of budgeted direct labor hours for the year in each department, (b) the
departmental
factory overhead rates for both departments, and (c) the factory overhead allocated per unit of each
product using
the department factory overhead allocation rates using direct labor hours as the base.
103.
Ratchford Clocks manufactures alarm clocks and wall clocks and allocates overhead based on direct labor
hours.
The production process is set up in three departments: Assembly, Finishing, and Calibrating. The
following is
information regarding the direct labor used to produce one unit of the two clocks:
Per Unit Hours
Assembly
Finishing
Calibrating
Alarm clocks
3
1
1
Wall clocks
2
3
2
5
4
3
The budget includes the following factory overhead by department:
Assembly Department
$595,000
Finishing Department
200,000
Calibrating Department
140,000
Total
$935,000
Ratchford Clocks is planning to manufacture 50,000 alarm clocks and 10,000 wall clocks.
(a)
Determine the total number of hours that will be needed by department.
(b)
Determine the factory overhead rate by department using the
multiple
production department factory overhead rate method.
(c)
Determine the amount of factory overhead to be allocated to each unit of
alarm clocks and wall clocks.
(d)
Determine the amount of total factory overhead to be allocated to the
alarm
clocks and wall clocks.
104.
The Anazi Leather Company manufactures leather handbags and moccasins. The company has been using the
factory overhead rate method but has decided to evaluate the multiple production department factory overhead
rate
to allocate factory overhead. The factory overhead estimated per unit together with direct materials and
direct
labor will help determine selling prices.
Handbags = 60,000 units, 3 hours of direct labor
Moccasins= 40,000 units, 2 hours of direct labor
Total budgeted factory overhead cost = $360,000
The company has two different production departments: Cutting and Sewing. The Cutting Department has a
factory overhead budget of $80,000. Each unit will require 1 direct labor hour or a total of 100,000 direct
labor
hours.
The Sewing Department estimates factory overhead in the amount of $280,000. Handbags require 2 hours of
sewing time and Moccasins require 1 hour for a total of 160,000 labor hours.
Calculate the total factory overhead to be allocated to each product using direct labor hours.
105.
The Valhalla Company manufactures small lamps and desk lamps. The following shows the activities per product:
Setups
Inspections
Assembly (dlh)
Small Lamps–8,000 units
10,000
32,000
8,000
Desk Lamps–16,000 units
30,000
14,000
46,000
Using the following information prepared by the Valhalla Company, determine (a) the activity rates for each
activity
and (b) the activity-based factory overhead per unit for each product.
Activity Pool
Activity Base
Budgeted Amount
Setups
40,000
$160,000
Inspections
46,000
$230,000
Assembly (dlh)
54,000
$324,000
106.
The Klamath Corp. produces two products, saws and drills. Three activities are used in their manufacture. These
activities and their associated costs and bases are as follows:
Activity
Stamping
Budgeted Costs
$200,000
Activity Base
Machine hours
Assembly
$400,000
Labor hours
Setup
$30,000
Number of setups
Activity Base
Machine hours
Saws
4,000
Drills
6,000
Total
10,000
Labor hours
7,000
13,000
20,000
Number of setups
3
12
15
Units produced
Requirements:
500
600
a)
Determine the activity rate for each activity.
b)
Determine the overhead cost per unit for each product.
107.
The Pikes Peak Leather Company manufactures leather handbags and moccasins. The company has been using
the factory overhead rate method but has decided to evaluate activity based costing to allocate factory overhead.
The factory overhead estimated per unit together with direct materials and direct labor will help determine
selling
prices.
Total budgeted factory overhead cost = $360,000
Products
Cutting—
Direct Labor
Hours
Sewing—
Direct Labor
Hours
Set-Ups
QC—
Inspections
Purchase
Orders
Handbags
60,000
60,000
500
200
100
Moccasins
40,000
80,000
300
800
300
Total
100,000
140,000
800
1,000
400
Budget
$40,000
$210,000
$80,000
$20,000
$10,000
Calculate the amount of factory overhead to be allocated to each unit using activity based costing. The factory
plans to produce 60,000 handbags and 40,000 moccasins.
108.
Shanghai Company sells glasses, fine china, and everyday dinnerware. They use activity-based costing to
determine
the cost of the shipping and handling activity. The shipping and handling activity has an activity rate of
$14 per
pound. A box of glasses weighs 2 lbs., the box of china weighs 4 lbs., and a box of everyday dinnerware
weighs 6
lbs. (a) Determine the shipping and handling activity for each product and (b) determine the total
shipping and
receiving costs for the china if 3,500 boxes are shipped.
Chapter 26(11): Cost Allocation and Activity-Based Costing
The Beauty Beyond Words Salon uses an activity-based costing system in its beauty salon to determine the cost
of
services. The salon has determined the costs of services by activity as follows:
Activity
Activity Rate
Hair washing
$4.00
Conditioning
$3.50
Chemical treatment
$25.00
Styling
$10.00
Hair
Washing
Conditioning
Chemical
Treatment
Styling
Haircut
1
1
0
0
Complete style
1
1
0
1
Perm
2
3
1
1
Highlights
3
4
2
1
109.
Calculate the cost of services for a highlight.
110.
Transformations Hair Salon uses an activity-based costing system in its beauty salon to determine the cost
of
services. The salon has determined the costs of services by activity as follows:
Activity
Activity Rate
Hair washing
$1.50
Conditioning
$2.00
Chemical treatment
$20.00
Styling
$10.00
(a)
Using the information provided, determine the cost of services for each of
the
following services provided by the salon:
Hair
Washing
Conditioning
Chemical
Treatment
Styling
Haircut
1
1
0
0
Complete style
1
1
0
1
Perm
2
3
1
1
Highlights
3
4
2
1
(b)
If the company budgets 10,000 haircuts, 4,000 complete styles, 3,500 perms,
and 5,500
highlights, determine the budget for cost of services.
