Exercise 17-8 (25 minutes)
1. Components $1,004,000/6,000 MH $167.33/machine hour*
*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*
Finishing
800 WH x $155.10/WH 124,080
2,200 WH x $155.10/WH 341,220
Support
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
Model 145 appears profitable and Model 212 appears unprofitable.
Management may be inclined to stop producing Model 212, or may
Exercise 17-9 (35 minutes)
1.
Components
Changeover $500,000 / 800 batches $625/batch
Finishing
Welding $180,300 / 3,000 welding hours $60.10/WH
Support
Purchasing $135,000 / 450 purchase orders $300/PO
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
Rework
160 rework orders x $250/rework order 40,000
140 rework orders x $250/rework order 35,000
Purchasing
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
Exercise 17-9 (concluded)
2. Model 145 Model 212
Materials & labor cost per unit $250.00 $180.00
3. Model 145 Model 212
Price per unit $820.00 $480.00
Both product lines appear profitable. Using ABC we see that Model
145 is not generating nearly as much profit as it appeared to generate
using the volume-based systems in Exercise 17-7 and Exercise 17-8.
Exercise 17-10 (35 minutes)
1. Total direct labor hours:
Product A: 10,000 units x 0.20 DLH/unit = 2,000 DLH
Plant-wide overhead rate:
$249,000/2,500 DLH = $99.60/DLH
Product A Product B
Direct materials
A: 10,000 units x $2/unit $ 20,000
B: 2,000 units x $3/unit $ 6,000
Direct labor
A: 2,000 DLH x $24/DLH 48,000
B: 500 DLH x $24/DLH 12,000
2. Product A Product B
Price per unit $20.00 $60.00
Cost per unit 26.72 33.90
Exercise 17-10 (concluded)
3. Overhead rates
Machine setup $121,000/(10 + 12) setups $5,500/setup
Material handling $48,000/16,000 parts* $3/part
Product A Product B
Direct Materials (from part 1) $ 20,000 $ 6,000
Direct labor (from part 1) 48,000 12,000
Overhead
Machine setup
A: 10 setups x $5,500/setup 55,000
B: 12 setups x $5,500/setup 66,000
Material handling
A: 10,000 parts x $3/part 30,000
B: 6,000 parts x $3/part 18,000
Quality control
4. Product A Product B
Price per unit $20.00 $ 60.00
Using this approach (activity based costing) the company sees that
Product B is not profitable, and Product A is profitable. The company
should evaluate the activities used to produce Product B and
Exercise 17-11 (15 minutes)
Overhead cost allocation of indirect labor and supplies to Department 1
Rate: ($5,400 + $2,600) / $32,000 = $0.25 / $ of labor cost
Overhead cost allocation of rent and utilities, general office, and
depreciation to Department 1
Total overhead allocated to Department 1
Exercise 17-12 (15 minutes)
1.
Expected Activity Activity
Activity Cost Driver Rate
1 $ 93,000 7,750 $ 12.00
2 92,000 10,000 9.20
2. and 3. 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
5,500 x $9.20 50,600
Exercise 17-13 (20 minutes)
1.
Client consultation $270,000/1,500 contact hours $180/con.hr.
Drawings $115,000/2,000 design hours $57.50/design hr.
Modeling $30,000/40,000 sq. ft. $0.75/sq. ft.
2.
Client consultation 450 contact hours x $180/con. hr. $ 81,000
Drawings 340 design hrs. x $57.50/design hr. 19,550
Modeling 9,200 sq. ft. x $0.75/sq. ft. 6,900
Exercise 17-14 (30 minutes)
Calculation of predetermined overhead rates to apply ABC
Overhead Cost
Category (Activity
Cost Pool)
Total
Cost
Total
Amount of
Cost Driver Predetermined Overhead Rate
Supervision…….………......$ 5,400 $36,000 15% of direct labor cost
1. Assignment of overhead costs to the two products using ABC
Rounded edge
Cost
Driver
Cost per
Driver Unit Assigned Cost
Supervision…………..…………... $12,200 15% $ 1,830
Machinery depreciation......... 500 hours $ 28.30 14,150
Squared edge
Cost
Driver
Cost per
Driver Unit Assigned Cost
Supervision…………..…………... $23,800 15% $ 3,570
2. Average cost per foot of the two products
Rounded edge Squared edge
Direct materials ….….…….……...... $19,000 $ 43,200
Direct labor ……………………………. 12,200 23,800
Overhead (using ABC) …….......... 23,340 84,660
*rounded
3. Using ABC, the average cost of rounded edge shelves declines and the
average cost of squared edge shelves increases. Under the current