Title: Problem C-3B
QA_Ori:
1. The major costs of making the boxes are designing the boxes, setting up
machines to make the right cuts, cutting the cardboard, printing the boxes,
3. Yes. Lakeside’s old customers bought the same type of boxes over and
4. Possibly. If ABC had been used rather than a volume-based system,
Lakeside would have realized that small customers who want
custom-designed and custom-made boxes require different activities than
5. ABC gives managers information about the activities and the costs of these
Title: Problem C-4B
QA_Ori:
1.
Plantwide overhead rate:
Engineering support $56,250
Electricity 112,500
:
Standard Deluxe
Direct materials cost per unit $4.00 $8.00
Direct labor cost per unit
2.
Profit per customer Standard Deluxe
Gross profit per unit $3.80 $12.80
x units per customer
This comparison shows that gross profit per customer exceeds service cost per
customer for both products. Thus, both products appear to be profitable.
3.
Eng. support $56,250/(50 + 25) modifications = $750/modification
* From part 1
Standard Deluxe
Engineering 50 mods. x $750 $37,500 25 mods. x $750 $ 18,750
Electricity 120,000 MH x $0.75 90,000 30,000 MH x $0.75 22,500
Direct labor 80.00 100.00
4.
Standard Deluxe
Gross profit per unit $4.09 $11.64
x units per customer* x 40 units x 10 units
*From Part 2
This analysis shows that the Standard product is in fact profitable, but the high cost of
production and service for the small volume of the Deluxe product is unprofitable.
5. ABC gives more appropriate information to managers because it identifies the
resources consumed by each product line, and assigns the costs of these activities
Title: Problem C-5B
QA_Ori:
1.
Plantwide rate:
*Rounded
Using this plantwide rate, the same overhead cost would be assigned to each case
of salsa, regardless of whether it is Extra Fine or Family Style.
2.
Extra Fine Family Style
3.
Extra Fine Family Style
Selling price per case $18.00 $9.00
It appears that Family Style salsa is not profitable and the company may be inclined to
stop producing this product if the costs cannot be reduced (or price cannot be
increased) to a profitable level.
4.
Mixing & Cooking ($4,500 + $11,250)/1,500 MH $10.50/MH
Product testing $112,500/600 batches $187.50/batch
Extra Fine Family Style
Mixing & cooking 500 MH x $10.50……….. $ 5,250 1,000 MH x $10.50…… $ 10,500
Product testing 200 batch. X $187.50…. 37,500 400 batch. x $187.50. . 75,000
5.
Extra Fine Family Style
Using ABC, the Extra Fine salsa is not profitable, but the Family Style is profitable; this
conclusion is opposite to the one that we would make if the plantwide rate was used for
assigning cost.
6. Departmental overhead rates would be a modest improvement over the plantwide
rate because they could show differences across departments. However, the
Title: Problem C-6B
QA_Ori:
Part 1
Determination of cost per driver unit
Cost Center Cost Driver Cost per Driver
Professional salaries………………$600,000 10,000 hours $60 per hour
Part 2
Allocation of costs to the landscaping departments using ABC
GENERAL LANDSCAPING
Cost
Driver
Cost per
Driver Unit
Allocated
Cost
Professional salaries…………………2,500 hours $60 per hr. $150,000
CUSTOM DESIGN LANDSCAPING
Cost
Driver
Cost per
Driver Unit
Allocated
Cost
Professional salaries…………………7,500 hours $60 per hr. $ 450,000
Title: Serial problem 1
QA_Ori:
Direct materials $2,500
Title: Serial problem 2
QA_Ori:
Setting up machines $20,000/25 batches $800/batch
Inspecting components $7,500/5,000 parts $1.50/part
Title: Serial problem 3
QA_Ori:
ABC gives a better representation of the cost of producing Job 6.15 because it