978-0077633059 Chapter 17 Solution Manual Part 3

subject Type Homework Help
subject Pages 9
subject Words 1841
subject Authors John Wild, Ken Shaw

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Exercise 17-15 (40 minutes)
Part 1
Determination of cost per driver unit
Cost Center Cost Driver Cost per Driver
Professional salaries.......................$1,600,000 10,000 hours $160 per hour
Part 2
Allocation of cost to the surgical departments using ABC
General Surgery
Cost
Driver
Cost per
Driver Unit
Allocated
Cost
Professional salaries............. 2,500 hours $160 per hr. $400,000
Patient services & supplies.......400 patients $45 per patient 18,000
Orthopedic Surgery
Cost
Driver
Cost per
Driver Unit
Allocated
Cost
Professional salaries............. 7,500 hours $160 per hr. $1,200,000
Patient services & supplies.......200 patients $45 per patient 9,000
[Note that the sum of the amounts allocated to General Surgery and Orthopedic
Surgery ($478,000 + $1,299,000) equals the total amount of indirect costs ($1,777,000).]
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Exercise 17-16 (15 minutes)
1. Overhead rate: €630,000/270,400 DLH = €2.33/DLH
Wine glasses: 254,000 DLH x €2.33/DLH = €591,820
€591,820/211,000 units = €2.80/unit
2. Overhead rate: €630,000/1,000 set-ups = €630/setup
Wine glasses: €630/setup x 200 setups = €126,000
€126,000/211,000 units = €0.60/unit
3. Assigning the setup costs based on the activity that drives these
Exercise 17-17 (10 minutes)
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Exercise 17-18 (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
C. Stocking exam rooms F Number of rooms
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PROBLEM SET A
Problem 17-1A (45 minutes)
1. Plantwide rate
Engineering support $ 24,500
Electricity 34,000
Setup costs 52,500
Product A Product B
Direct materials per unit $15.00 $24.00
Direct labor per unit
A: 0.3 DLH/unit @ $20/DLH 6.00
B: 1.6 DLH/unit @ $20/DLH 32.00
Manufacturing overhead per unit
A: 0.3 DLH/unit @ $17.90/DLH 5.37
2. Product A Product B
Gross margin per unit $ 3.63 $35.36
x Units purchased per customer
A: 10,000 units/500 customers x 20 units
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Problem 17-1A (continued)
We see that the gross margin per customer from Product A ($72.60) is not
3. Engineering Support $24,500/(12 + 58) modifications $350/modification
Electricity $34,000/3,400* machine hours $10/MH
Product A Product B
Engineering support
A: 12 modifications @ $350 $ 4,200
B: 58 modifications @ $350 $20,300
Electricity
Selling price per unit $30.00 $120.00
Total manufacturing cost per unit 24.30 95.03
Gross profit per unit $ 5.70 $ 24.97
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Problem 17-1A (concluded)
4. Product A Product B
Gross profit per unit (from above) $5.70 $24.97
x units per customer (part 2) x 20 units x 5 units
Gross profit per customer $114.00 $ 124.85
5. Activity based costing gives better information than the plantwide rate
based on volume-related measures because ABC associates the cost of
the various activities that must be performed in order to make, sell, and
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Problem 17-2A (25 minutes)
1. When companies experience strong price pressure on their high-
volume, commodity-type products, they should be concerned. Many
managers will blame competitive price cutting on attempts by
2. The company may be charging less for its low-volume, custom-order
products than the competitors because the company is using a volume-
3. While prices are really set in the marketplace based on customer
demand and supply of the product, companies still look at costs to
4. Custom-order furniture requires handling special fabrics, buying in
smaller quantities (which may be more expensive than buying “in bulk”),
5. In addition to obtaining a more accurate picture of the costs of making
various products, activity based costing also gives information about
the cost of the activities that are performed. Managers may be surprised
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Problem 17-3A (40 minutes)
1. Grinding............................................................................... Unit level
Polishing.............................................................................. Unit level
2. Grinding & Polishing ($320,000+$135,000)/13,000 MH $35/MH
Product modification $600,000/1,500 Eng. hrs. $400/Eng. hr.
3.
Job 3175 Job 4286
Grinding & polishing 550 MH x $35.............
$19,250 5,500 MH x $35............$192,500
Product modification 26 Eng.hrs. x $400....10,400 32 Eng. hr. x $400........ 12,800
4. Job 3175 Job 4286
Total overhead cost of job $74,650 $383,425
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Problem 17-3A (concluded)
5. Plantwide rate:
Grinding............................................................................... $ 320,000
Polishing.............................................................................. 135,000
Product modification.......................................................... 600,000
Job 3175 Job 4286
Overhead
500 DLH x $106.47 $ 53,235
4,375 DLH x $106.47 $ 465,806
*rounded
6. Average overhead cost
Job 3175 Job 4286
Using ABC $ 373.25 $ 153.37
Using plantwide rate $ 266.18 $ 186.32
The plantwide rate, which is closely associated with the volume of
production, overstates the cost of the high-volume product (in this case
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Problem 17-4A (25 minutes)
1. Liquid materials $2,304/(1,400 + 37,000) gallons $0.06/gallon
Dry materials $6,941/(620 + 12,000) pounds $0.55/pound*
*rounded
** Hi-Voltage: 12,500 bottles x 3 labels/bottle = 37,500 labels
EasySlim: 180,000 bottles x 1 label / bottle = 180,000 labels
Total labels 217,500 labels
Hi-Voltage EasySlim
Liquid material 1,400 gal x $0.06.......... $ 84 37,000 gal x $0.06..........$ 2,220
Dry material 620 pounds x $0.55.... 341 12,000 pounds x $0.55. . 6,600
Utilities 200 MH x $0.36............ 72 3,750 MH x $0.36............ 1,350
2. Hi-Voltage EasySlim
Total cost of line $19,122 $95,070
3. Price for Hi-Voltage $3.75
4. The price of EasySlim must cover the costs associated with the product,
so the minimum price for this product is $0.53/bottle.

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