Chapter 09 – Activity-Based Costing
9-11
9-28. (35 min.) Activity-Based versus Traditional Costing: Rodent Corporation.
a.
Rate
Wired
Wireless
Direct labora …………………………..
$290,100
$ 109,900
Direct materialsb ……..……………………
$187,500
$ 171,000
Overhead costs
Prod. runs …………………………..
$6,600
c
$ 132,000
f
$ 33,000
Quality tests …………………………..
9,900
d
59,400
g
89,100
Ship. orders …………………………..
620
e
31,000
h
15,500
Total overhead …….…………………….
$ 222,400
$ 137,600
Total costs …………………………..
$700,000
$418,500
Total unit cost ………….……………….
$5.00
i
$8.37
j
aData given in the first table of the exercise in the text.
bData given in the first table of the exercise in the text.
c$6,600 per run = $165,000 in production run costs ÷ 25 total runs.
d$9,900 per test = $148,500 in quality costs ÷ 15 total tests.
e$620 per order = $46,500 in shipping costs ÷ 75 processed orders.
f$132,000 = $6,600 per production run x 20 runs for Wired.
g$59,400 = $9,900 per quality test x 6 tests for Wired.
h$31,000 = $620 per order shipped x 50 orders shipped for Wired.
i$5.00 = $700,000 total costs for Wired ÷ 140,000 units produced.
j$8.27 = $418,500 ÷ 50,000 units produced.
Reading from the table above, we can see that the total overhead assigned is $222,400
Chapter 09 – Activity-Based Costing
9-12
9-28. (continued)
b.
Rate
Wired
Wireless
Total
Direct labora ……………….………….
$290,100
$ 109,900
$400,000
Direct materialsb …………………………..
187,500
171,000
358,500
Total overhead …………………………..
90%
c
261,090
d
98,910
360,000
Total costs ………………….……….
$738,690
$379,810
$1,118,500
Total unit cost ……………..……………
$5.28
e
$7.60
aData given in the first table in the exercise.
bData given in the first table in the exercise.
c90% = $360,000 total overhead ÷ $400,000 total direct labor.
d$261,090 = $290,100 0.90
e$5.28 = $738,690 ÷ 140,000 units produced (rounded).
Chapter 09 – Activity-Based Costing
9-13
9-29. (35 min.) Activity-Based versus Traditional Costing: Doaktown Products.
a.
Rate
M-008
M-123
Direct materialsa ……..……………………
$100,000
$ 80,000
Direct laborb …………………………..
$100,000
$ 40,000
Overhead costs
Machine-hours ……..……………………
$ 15
c
$ 75,000
f
$ 45,000
Production runs …………………………..
3,500
d
35,000
g
35,000
Inspections ………….……………….
1,500
e
30,000
h
60,000
Total overhead …….…………………….
$140,000
$140,000
Total costs …………………………..
$340,000
$260,000
Total unit cost ………….……………….
$28.33
i
$130.00
j
aData given in the first table of the exercise in the text.
bData given in the first table of the exercise in the text.
c$15 per machine-hour = $120,000 in production run costs ÷ 8,000 machine-hours.
d$3,500 per run = $70,000 in quality costs ÷ 20 total runs.
e$1,500 per inspection = $90,000 in shipping costs ÷ 60 inspections.
f$75,000 = $15 per machine-hour x 5,000 machine-hours for M-008.
g$35,000 = $3,500 per run x 10 runs for M-008.
h$30,000 = $1,500 per inspection x 20 inspections for M-008.
i$28.33 = $340,000 total costs for M-008 ÷ 12,000 units produced (rounded).
j$130 = $260,000 ÷ 2,000 units produced.
Chapter 09 – Activity-Based Costing
9-14
9-29. (continued)
b.
Rate
M-008
M-123
Total
Direct materialsa …………………………..
$100,000
$ 80,000
$180,000
Direct laborb ……………….………….
100,000
40,000
140,000
Total overhead …………………………..
200%
c
200,000
d
80,000
280,000
Total costs ………………….……….
$400,000
$200,000
$600,000
Total unit cost ……………..……………
$33.33
e
$100.00
aData given in the first table in the exercise.
bData given in the first table in the exercise.
c200% = $280,000 total overhead ÷ $140,000 total direct labor.
d$200,000 = $100,000 2.0.
123.
Chapter 09 – Activity-Based Costing
9-15
9-30. (30 min.) Activity-Based Costing in a Service Environment: We-Clean, Inc.
Note: Answers may vary slightly due to rounding.
a.
Commercial
Residential
Total
Revenuea ……………………………..……………………
$378,000
$910,000
$1,288,000
Direct Laborb ………………………..…
210,000
390,000
600,000
Overheadc …………………………...……………………
43,400
80,600
124,000
Profit ……………………………………………………….
$ 124,600
$439,400
$ 564,000
a$378,000 = 14,000 hours x $27 per hour; $910,000 = 26,000 hours x $35 per hour.
b$210,000 = 14,000 hours x $15 per hour; $390,000 = 26,000 hours x $15 per hour.
c$43,400 = ($124,000 ÷ 40,000 hours) x 14,000 hours;
$80,600 = ($124,000 ÷ 40,000 hours) x 26,000 hours.
b.
Rate
Commercial
Residential
Total
Revenue …………….…………….
$378,000
$910,000
$1,288,000
Direct Labor ………..…………………
210,000
390,000
600,000
Overhead
Traveling …………………………..
$250.00
a
$ 4,250
b
$ 11,750
c
$ 16,000
Equipment ……….………………….
6.00
d
22,500
e
13,500
f
36,000
Supplies ………….……………….
0.36
g
46,800
h
25,200
i
72,000
Total Overhead …………………………..
$ 73,550
$ 50,450
$ 124,000
Profit ………………….……….
$ 94,450
$469,550
$ 564,000
a $250 per client = $16,000 ÷ 64 clients served.
b $4,250 = 17 clients x $250 per client.
Chapter 09 – Activity-Based Costing
9-16
9-30. (continued)
9-31. (35 min.) Activity-Based versus Traditional Costing: Isadore’s
Implements, Inc.
a.
Cost Driver
Rate
Pencils
Pens
Setting up………………………………..…………………
$1,440
a
$28,800
d
$ 43,200
Inspecting ……………………………….…………………
2,160
b
8,640
e
12,960
Packaging and Shipping …………………………..
0.36
c
16,200
f
27,000
Total Overhead ………………………..…
$53,640
$83,160
a $1,440 per setup = $72,000 ÷ 50 setups.
b $2,160 per part = $21,600 ÷ 10 parts.
c $0.36 per unit shipped = $43,200 ÷ 120,000 boxes shipped.
d $28,800 = $1,440 x 20 setups.
e $8,640 = $2,160 x 4 parts.
f $16,200 = $0.36 x 45,000 boxes shipped.
b.
Pencils
Pens
Total
Direct Labor Hours …………………………..
4,500
a
15,000
19,500
Overhead …………………..………
$31,569
b
$105,231
$ 136,800
a 4,500 hours = 0.1 hours per box of pencils x 45,000 boxes produced.
b $31,569 = ($136,800 OH ÷ 19,500 hours) x 4,500 hours (rounded).
Chapter 09 – Activity-Based Costing
c. Not necessarily. Activity-based costing provides a more accurate allocation of
9-32. (35 min.) Activity-Based versus Traditional Costing—Ethical Issues:
Windy City Coaching.
a.
Account
Rate
Teen
Counseling
Executive
Coaching
Total
Revenue …………………………..
$66,000
$135,000
$201,000
Expenses:
Administrative support …………………………..
$4,000
a
24,000
d
16,000
40,000
Transportation …………………………..
144
b
14,400
e
21,600
36,000
Equipment. …………………..………
12.50
c
11,250
f
8,750
20,000
Profit ……………………………………………………….
$ 16,350
$88,650
$105,000
a $4,000 per client = $40,000 ÷ 10 clients.
b $144 per visit = $36,000 ÷ 250 visits.
c $12.50 per computer hour = $20,000 ÷ 1,600 hours.
d $24,000 = $4,000 per client x 6 clients.
e $14,400 = $144 per hour x 100 visits.
Revenue ……………………..……
Expenses …………………………..
a
b
Chapter 09 – Activity-Based Costing
9-18
with the volume-related allocation base. In this case, labor-hours were distributed
9-32. (continued)
e. Activity-based costing assigns higher costs to teen counseling than the traditional
9-33. (30 min.) Activity-Based Costing—Cost Flows Through T-accounts: Delta
Parts, Inc.
Materials Inventory
$300,000
Wages Payable
$150,000
Overhead Applied:
Materials Handling
3,750 pounds x
$18.00 per pound =
$67,500 to WIP
Overhead Applied:
Quality Inspections
750 inspections x
$225 per inspection
= $168,750 to WIP
Overhead Applied:
Machine Setups
40 setups x $2,700
per setup =
$108,000 to WIP
9-19
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Overhead Applied:
Running Machines
15,000 hours x
$22.50 per hour =
$337,500 to WIP
9-33. (continued)
Work in Process (WIP) Inventory
Fabrication Department
Direct Materials
300,000
Direct Labor
150,000
Material Handling OH
67,500
Quality Inspect. OH
168,750
Machine Setup OH
108,000
Running Machines OH
337,500
1,131,750
Finished Goods Inventory
1,131,750
9-34. (30 min.) Activity-Based Costing—Cost Flows Through T-accounts:
Carolina Fashions.
Materials Inventory
$200,000 to WIP
Wages Payable
$100,000 to WIP
Overhead Applied:
Materials Handling
40,000 yards x $1
per yard = $40,000
to WIP
9-20
Overhead Applied:
Quality Inspections
800 inspections x
$100 per inspection
= $80,000 to WIP
Overhead Applied:
Machine Setups
100 setups x $800
per setup = $80,000
to WIP
Overhead Applied:
Running Machines
20,000 hours x $10
per hour = $200,000
to WIP
9-34. (continued)
Work in Process (WIP) Inventory
Building S
Direct Materials
200,000
Direct Labor
100,000
Material Handling
40,000
Quality Inspect.
80,000
Machine Setup
80,000
Running Machines
200,000
700,000
Finished Goods Inventory
700,000