978-0078025600 Chapter 17 Solution Manual Part 1

subject Type Homework Help
subject Pages 9
subject Words 2807
subject Authors Barbara Chiappetta, John Wild, Ken Shaw

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Chapter 17
Activity-Based Costing and Analysis
QUESTIONS
1. Manufacturing overhead costs cannot be traced to units of product like direct
3. Direct labor hours and machine hours are commonly used to assign overhead costs
because they are readily available. Companies keep track of direct labor hours for
payroll purposes anyway and machine hours can be measured easily. The ready
4. A single plantwide overhead rate is easy to use. All the overhead costs are put into
5. The assumptions underlying the use of a single plantwide overhead rate are (a) the
6. Anything to which costs would be assigned is considered a “cost object.” Common
7. If the assumptions mentioned in question 5 are violated, there will be distortions.
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8. Departmental overhead rates reflect the unique costs and drivers in various
9. Departmental overhead rates are similar to plantwide overhead rates in the fact that
they pool together costs that may be incurred differently. Distorted cost
10. Companies may choose to use an alternative, more expensive method of assigning
12. An activity cost driver is the measure of the activity that causes costs to be
13. Value-added activities are those that increase the value of a product or service.
14. Unit level activities: Activities that must be performed for each unit of product.
Batch level activities: Activities that are related to the number of batches, lots, or
15. Activity-based costing may be used in any type of organization. The premise of
ABC is that activities cause costs. Since all organizations engage in activities,
16. While ABC may provide more accurate cost assignments, the additional cost to
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QUICK STUDIES
Quick Study 17-1 (10 minutes)
Quick Study 17-2 (5 minutes)
Quick Study 17-3 (5 minutes)
The three main advantages are: (1) They are based on readily available
Quick Study 17-4 (10 minutes)
Quick Study 17-5 (5 minutes)
Quick Study 17-6 (10 minutes)
Departmental overhead rates
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Quick Study 17-7 (10 minutes)
1. Plantwide overhead rate: $2,480,000/125,000 DLH = $19.84/DLH
2. Assign overhead costs to Deluxe and Basic models
Deluxe
Basic
Quick Study 17-8 (15 minutes)
Expected Activity Activity
Activity Cost Driver Rate
Handling material $ 625,000 100,000 parts $6.25/part
Inspecting product 900,000 1,500 batches $600/batch
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Quick Study 17-9 (15 minutes)
Note: Activity rates are from Quick Study 17-8.
Assign overhead to Deluxe and Basic model using ABC
Deluxe
Handling material $6.25/part 20,000 parts $ 125,000
Inspecting product $600/batch 250 batches 150,000
Processing orders $150/order 50 orders 7,500
Basic
Handling material $6.25/part 30,000 parts $ 187,500
Inspecting product $600/batch 100 batches 60,000
Processing orders $150/order 20 orders 3,000
Quick Study 17-10 (5 minutes)
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Quick Study 17-11 (10 minutes)
10,000
$250,000
2. Assign technical support costs to each model
Quick Study 17-12 (10 minutes)
Expected Activity Activity
Activity Cost Driver* Rate
Quick Study 17-13 (15 minutes)
Overhead cost allocation of indirect labor and supplies to Department 1
Total overhead allocated to Department 1
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Quick Study 17-14 (15 minutes)
1.
Expected Activity Activity
Activity Cost Driver Rate
2. Standard Deluxe
Activity 1
2,500 x $12 30,000
5,250 x $12 63,000
Activity 2
4,500 x $9.20 41,400
Quick Study 17-15 (10 minutes)
Quick Study 17-16 (5 minutes)
The two key components of lean accounting are (1) eliminating waste in the
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EXERCISES
Exercise 17-1 (10 minutes)
Exercise 17-2 (10 minutes)
There are two basic stages to activity-based costing. The first stage cost
Exercise 17-3 (10 minutes)
Exercise 17-4 (10 minutes)
Part (1) Part (2)
Control Activity
Activity Level Driver
A. Registering patients U Number of patients
B. Cleaning beds U Beds, patients, labor hours
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Exercise 17-5 (15 minutes)
1. Overhead rate: €630,000/270,400 DLH = €2.33/DLH
2. Overhead rate: €630,000/1,000 set-ups = €630/setup
3. Assigning the setup costs based on the activity that drives these
Exercise 17-6 (25 minutes)
1. $1,004,000 + $465,300 + $232,000 = $283.55/machine hour
6,000 machine hours
Model 145
$ 340.26/unit
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Exercise 17-6 (concluded)
2. Model 145
Materials and labor $250.00
Overhead 340.26
3. Model 145 Model 212
Price per unit $820.00 $480.00
Cost per unit 590.26 520.26
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Exercise 17-7 (25 minutes)
1. Components $1,004,000/6,000 MH $167.33/machine hour*
Finishing $465,300/3,000 WH $155.10/welding hour
Support $232,000/450 PO $515.56/purchase order*
*rounded
Model 145 Model 212
Component Overhead
1,800 MH x $167.33/MH $ 301,194*
4,200 MH x $167.33/MH $ 702,786*
2. Model 145 Model 212
Materials & labor per unit $250.00 $180.00
3. Model 145 Model 212
Price per unit $820.00 $480.00
Cost per unit 636.63 500.38
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Exercise 17-8 (35 minutes)
1.
Components
Changeover $500,000 / 800 batches $625/batch
Machining $279,000 / 6,000 machine hours $46.50/MH
Setups $225,000 / 120 setups $1,875/setup
and utilities $97,000 / 5,000 units $ 19.40/unit
Model 145 Model 212
Changeover
400 batches x $625/batch $ 250,000 $ 250,000
Machining
1,800 MH x $46.50/MH 83,700
4,200 MH x $46.50/MH 195,300
Setups
60 setups x $1,875/setup 112,500 112,500
Welding
300 purchase orders x $300/PO 90,000
150 purchase orders x $300/PO 45,000
Space & Utilities
1,500 units x $19.40/unit 29,100
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Exercise 17-8 (concluded)
2. Model 145 Model 212
3. Model 145 Model 212
Price per unit $820.00 $480.00
Total cost per unit 765.59 445.12
Profit (loss) per unit $ 54.41 $ 34.88
Both product lines appear profitable. Using ABC we see that Model
Exercise 17-9 (10 minutes)
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Exercise 17-10 (15 minutes)
1. Molding
2. Part A27C
Molding 5,100 MH x $23.93/MH $122,043
Trimming 700 DLH x $12.29/DLH 8,603
3. A27C
Departmental $130,646 ÷ 9,800 units $13.33/unit*
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Exercise 17-11 (25 minutes)
2.
Direct materials $ 280,000
Direct labor
3.
Fabricating $300,000 / 80,000 MH = $3.75/MH
4.
Direct materials $ 280,000
Direct labor
Fabricating $140,000
Implementation 464,000 604,000

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