Problem C-2B (45 minutes)
1. Wrapping $500,000/100,000 units = $5/unit
Assembling* $400,000/20,000 direct labor hours = $20/DLH
* The costs of Assembling and Obtaining business licenses should NOT be combined
because they are different with respect to their control level. From part 1, assembling
is a unit level activity while obtaining business licenses is a facility level activity.
2.
Holiday Basket
Executive Basket
Wrapping
8,000 units x $5 ………………….
$ 40,000
1,000 units x $5 ………………….
Assembling
2,000 DLH x $20 …………………
40,000
500 DLH x $20 ……………………
Product design
40 design hrs x$60 …………….
2,400
40 design hrs x$60 …………….
Obtaining Lic.
2,000 DLH x $5 …………………..
10,000
500 DLH x $5 ……………………..
Cooking
80 batches x $270 ………………
21,600
200 batches x $270 …………….
Total ovhd. cost
$114,000
3. Cost per unit Holiday Basket Executive Basket
Total overhead cost $114,000 $73,900
4. Plantwide overhead rate
Wrapping ($300,000 + $200,000) $ 500,000
Assembling 400,000
Product Design 180,000
Problem C-2B (concluded)
Holiday Basket
Overhead assigned (2,000 DLH x $72.50/DLH) $ 145,000
*Rounded
Executive Basket
Overhead assigned (500 DLH x $72.50/DLH) $ 36,250
5.
Holiday Basket Executive Basket
Activity based cost per unit $14.25 $73.90
The plantwide overhead rate assigns too much cost to the Holiday
Basket (which is a comparatively high-volume product) and understates
the cost of the Executive Basket because it is a low-volume product.
Problem C-3B (25 minutes)
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, obtaining the cardboard material, labor, and utilities, and
2. Lakeside has taken on more custom-made boxes for smaller-volume
customers.
3. Yes. Lakeside’s old customers bought the same type of boxes over
and over, so the design costs were spread over many units. The new
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
5. ABC gives managers information about the activities and the costs of
Problem C-4B (45 minutes)
1. Plantwide overhead rate:
Engineering support $ 56,250
Electricity 112,500
Setup costs 41,250
Total overhead cost $ 210,000
*Standard: 40,000 units x 3 MH/unit = 120,000 MH
Deluxe: 10,000 units x 3 MH/unit = 30,000 MH
Total machine hours 150,000 MH
Standard Deluxe
Direct materials cost per unit $ 4.00 $ 8.00
Direct labor cost per unit
Standard: 4 DLH x $20/DLH 80.00
Deluxe: 5 DLH x $20/DLH 100.00
Overhead cost per unit 4.20 4.20
Manufacturing cost per unit $ 88.20 $112.20
2.
Profit per customer Standard Deluxe
Gross profit per unit $3.80 $ 12.80
x units per customer
Standard (40,000 units/1,000 cust.) x 40 units/cust.
Deluxe (10,000 units/1,000 cust.) ___________ x 10 units/cust.
©2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
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Fundamental Accounting Principles, 21st Edition
1558
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
Setups
175 batches x $165
28,875
75 batches x $165
12,375
Total overhead
$156,375
$53,625
÷ units
÷ 40,000
÷ 10,000
Overhead/unit
$ 3.91
$ 5.36
Direct material
4.00
8.00
Direct labor
80.00
100.00
Mfg. cost/unit
$ 87.91
$ 113.36
Selling price
$ 92.00
$ 125.00
Mfg. cost/unit
87.91
113.36
Gross profit/unit
$ 4.09
$ 11.64
4. Standard Deluxe
Gross profit per unit $ 4.09 $ 11.64
x units per customer* x 40 units x 10 units
Gross profit per customer $ 163.60 $ 116.40
*From Part 2
This analysis shows that the Standard product is in fact profitable, but
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 accordingly. Using volume-based methods
Problem C-5B (45 minutes)
1. Plantwide rate:
Total overhead cost = $128,250 + $268,000 + $182,000 = $578,250 .
Total volume 20,000 + 100,000 cases 120,000 cases
2.
Extra Fine Family Style
Direct materials + Direct Labor $ 6.00 $ 5.00
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
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Fundamental Accounting Principles, 21st Edition
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4. Mixing & Cooking ($4,500 + $11,250)/1,500 MH $10.50/MH
Product testing $112,500/600 batches $187.50/batch
Machine calibration $250,000/400 production runs $625/run
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
Mach. calibration
200 runs x $625 ……………….
125,000
200 runs x $625 …………….
125,000
Labeling & defects
20,000 cases x $0.15 ………..
3,000
100,000 cases x $0.15 …
15,000
Recipe formulation
30 groups x $2,000 ………….
60,000
15 groups x $2,000 ………..
30,000
Heat, light, & water
500 MH x $18 …………………..
9,000
1,000 MH x $18 ……………..
18,000
Material handling
5 types x $8,125 ………………
40,625
3 types x $8,125 ……………
24,375
Total overhead
$280,375
$297,875
÷ cases
÷ 20,000
÷100,000
Overhead/case
$ 14.02
$ 2.98
Material & labor
6.00
5.00
Total cost/case
$ 20.02
$ 7.98
5. Extra Fine Family Style
Selling price per case $18.00 $9.00
Using ABC, the Extra Fine salsa is not profitable, but the Family Style is
6. Departmental overhead rates would be a modest improvement over the
plantwide rate because they could show differences across
Problem C-6B (45 minutes)
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
Customer supplies……….…..
$150,000
800 customers
$187.50 per customer
Building cost ……………….…..
$240,000
2,500 sq. ft.
$96 per sq. ft.
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
Customer supplies …….………
600 customers
$187.50 per customer
112,500
Building cost ……………..………
1,000 sq. ft.
$96 per sq. ft.
96,000
Total ……………………………………………………………………………………
$358,500
Average cost per customer …………………………………………………...
$ 597.50
CUSTOM DESIGN LANDSCAPING
Cost
Driver
Cost per
Driver Unit
Allocated
Cost
Professional salaries ….………
7,500 hours
$60 per hr.
$ 450,000
Customer supplies …….………
200 customers
$187.50 per customer
37,500
Building cost ……………..………
1,500 sq. ft.
$96 per sq. ft
144,000
Total ……………………………………………………………………………………
$ 631,500
Average cost per customer ………………………………………………….
$3,157.50
Part 3
If costs were allocated on the number of customers, the average cost of
general landscaping would increase. Since 75% of the customers are general
SERIAL PROBLEM — SP C
1. Direct materials $2,500
Direct labor 3,500
2. Setting up machines $20,000/25 batches $800/batch
Direct materials …………………………………………………. $2,500
Direct labor ……………………………………………………….. 3,500
Overhead
Setting up: 2 batches @$800/batch ………………….. $1,600
3. ABC gives a better representation of the cost of producing Job 6.15
because it reflects the resources consumed in the production