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Exercise 7-5 (15 minutes)
Sales ($1,850 per standard model glider × 20
standard model gliders + $2,400 per custom
designed glider × 3 custom designed gliders) ........
$44,200
Costs:
Direct materials ($564 per standard model glider
× 20 standard model gliders + $634 per custom
designed glider × 3 custom designed gliders) .....
$13,182
Direct labor ($19.50 per direct labor-hour × 26.35
direct labor-hours per standard model glider ×
20 standard model gliders + $19.50 per direct
labor-hour × 28 direct labor-hours per custom
designed glider × 3 custom designed gliders) .....
11,915
Supporting direct labor ($26 per direct labor-hour
× 26.35 direct labor-hours per standard model
glider × 20 standard model gliders + $26 per
direct labor-hour × 28 direct labor-hours per
custom designed glider × 3 custom designed
gliders) .............................................................
15,886
Order processing ($284 per order × 4 orders) .......
1,136
Custom designing ($186 per custom design × 3
custom designs) ................................................
558
Customer service ($379 per customer ×
1 customer) ......................................................
379
43,056
Customer margin ....................................................
$ 1,144
Exercise 7-6 (10 minutes)
Activity
Level
a.
Sales representatives’ periodic visits to
customers to keep them informed about
the services provided by CD Express.
Customer-level
b.
Ordering labels from the printer for a
particular CD*.
Product-level
c.
Setting up the CD duplicating machine to
make copies from a particular master
CD.
Batch-level
d.
Loading the automatic labeling machine
with labels for a particular CD*.
Batch-level
e.
Visually inspecting CDs and placing them
by hand into protective plastic cases
prior to shipping.
Unit-level
f.
Preparation of the shipping documents for
the order.
Product-level
g.
Periodic maintenance of equipment.
Organization-sustaining
h.
Lighting and heating the company’s
production facility.
Organization-sustaining
i.
Preparation of quarterly financial reports.
Organization-sustaining
*The cost of the labels themselves would be part of direct materials.
Exercise 7-8 (20 minutes)
1. Computation of activity rates:
Activity Cost Pools
(a)
Total Cost
(b)
Total Activity
(a) ÷ (b)
Activity Rate
Opening accounts ...............................
$23,250
500
accounts
opened
$46.50
per account
opened
Processing deposits and withdrawals ...
$107,750
100,000
deposits and
withdrawals
$1.08
per deposit or
withdrawal
Processing other customer transactions
$62,500
5,000
other customer
transactions
$12.50
per other customer
transaction
2. The cost of opening an account at the Westfield branch is much higher than at the lowest cost
branch ($46.50 versus $26.75). On the other hand, the cost of processing deposits and withdrawals
is lower than at the lowest cost branch ($1.08 versus $1.24). And the cost of processing other
customer transactions is higher at the Westfield branch ($12.50 versus $11.86). The other branches
Exercise 7-10 (30 minutes)
1. Total revenue received:
University
Memorial
Cost of goods sold to the hospital (a)
$30,000
$30,000
Markup percentage
× 5%
× 5%
Markup in dollars (b)
$1,500
$1,500
Revenue received from hospitals (a) + (b)
$31,500
$31,500
2. Activity Rates:
Activity Cost Pool
(a)
Estimated
Overhead
Cost
(b)
Expected
Activity
(a) ÷ (b)
Activity
rate
Customer deliveries
$500,000
5,000
deliveries
$100.00
per delivery
Manual order processing
$248,000
4,000
orders
$62.00
per manual order
Electronic order processing
$200,000
12,500
orders
$16.00
per electronic order
Line item picking
$450,000
450,000
line items
$1.00
per line item picked
© The McGraw-Hill Companies, Inc., 2015. All rights reserved.
18 Managerial Accounting, 15th Edition
Exercise 7-10 (continued)
4. Customer margins for the two hospitals:
University
Memorial
Sales ....................................................
$31,500
$31,500
Cost of goods sold .................................
30,000
30,000
Gross margin .........................................
1,500
1,500
Customer deliveries ...............................
1,000
2,500
Manual order processing ........................
0
1,860
Electronic order processing ....................
240
0
Line item picking ...................................
120
250
Total activity costs .................................
1,360
4,610
Customer margin ...................................
$ 140
$(3,110)
5. Hospitals that require frequent deliveries, place a high volume of manual
orders, and order many line items are likely to be unprofitable.
Exercise 7-11 (15 minutes)
Customer Margin—ABC Analysis
Sales (1,000 seats × $20 per unit) ....................
$20,000.00
Costs:
Direct materials ($8.50 per unit × 1,000 units) ..
$8,500.00
Direct labor ($6.00 per unit × 1,000 units) ........
6,000.00
Supporting direct labor ($5.55 per DLH × 0.25
DLH per unit × 1,000 units) ...........................
1,387.50
Batch processing ($107 per batch × 2 batches) .
214.00
Order processing ($275 per order × 1 order).....
275.00
Customer service overhead ($2,463 per
customer × 1 customer) ................................
2,463.00
18,839.50
Customer margin ...............................................
$ 1,160.50
Exercise 7-12 (10 minutes)
Activity
Activity
Classification
Examples of Activity
Measures
a.
Direct labor workers
assemble a product.
Unit
Direct labor-hours
b.
Products are designed by
engineers.
Product
Number of new products
designed; hours of design
time
c.
Equipment is set up.
Batch
Number of setups; setup
hours
d.
Machines are used to
shape and cut materials.
Unit
Number of units processed;
machine-hours
e.
Monthly bills are sent out
to regular customers.
Customer
Number of bills sent; time
spent preparing bills
f.
Materials are moved from
the receiving dock to
production lines.
Batch
Number of loads
transferred; time spent
moving materials
g.
All completed units are
inspected for defects.
Unit
Number of units inspected;
Inspection hours
Notes:
1. In all cases except for direct labor in part (a), two activity measures are
listed. The first is a “transaction driver” and the second is a “duration
