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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
2. Overhead rate: €630,000/1,000 set-ups = €630/setup
Wine glasses: €630/setup x 200 setups = €126,000
3. Assigning the setup costs based on the activity that drives these
Exercise 17-17 (10 minutes)
1. F 2. U 3. P 4. F 5. U 6. B 7. B
Exercise 17-18 (10 minutes)
Part (1) Part (2)
Control Activity
Activity Level Driver
Problem 17-1A (45 minutes)
1. Plantwide rate
Engineering support $ 24,500
Electricity 34,000
Setup costs 52,500
Total manufacturing overhead $111,000
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
Setup $52,500/(125 + 225) batches $150/batch
*Product A 10,000 units x 0.1 MH/unit = 1,000 MH
Product B 2,000 units x 1.2 MH/unit = 2,400 MH
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
5. Activity based costing gives better information than the plantwide rate
based on volume-related measures because ABC associates the cost of
object.
Problem 17-2A (25 minutes)
1. When companies experience strong price pressure on their high-
volume, commodity-type products, they should be concerned. Many
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
Problem 17-3A (40 minutes)
1. Grinding ............................................................................... Unit level
Polishing .............................................................................. Unit level
2. Grinding & Polishing ($320,000+$135,000)/13,000 MH $35/MH
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
Providing power
500 DLH x $15 ..........
7,500
4,375 DLH x $15 ...........
65,625
System calibration
30 batches x $1,250 .
37,500
90 batches x $1,250 .....
112,500
Total cost of job
$74,650
$383,425
4. Job 3175 Job 4286
Problem 17-3A (concluded)
5. Plantwide rate:
Grinding ............................................................................... $ 320,000
Polishing .............................................................................. 135,000
Product modification .......................................................... 600,000
*rounded
6. Average overhead cost
Job 3175 Job 4286
3175). ABC more accurately represents the cost of producing a product
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*
Utilities $1,422/(200 + 3,750) machine hrs $0.36/MH
Bottling $77,000/(12,500 + 180,000) bottles $0.40/bottle
Labeling $6,525/217,500 labels** $0.03/label
Problem 17-5A (45 minutes)
1. Plantwide overhead rate:
Total overhead cost = $128,250 + $268,000 + $182,000 = $578,250 .
2.
Extra Fine Family Style
3.
Extra Fine Family Style
Selling price per case $18.00 $ 9.00
