5-32 (50 min.) Plantwide, department, and activity-cost rates.
1. Plant-wide costing rate
Fighters
Cargo
Total
Direct materials
Assembly
$2.50
$3.75
$6.25
Painting
0.50
1.00
1.50
Total
$3.00
$4.75
$7.75
Direct Labor
Assembly
$3.50
$2.00
$5.50
Painting
2.25
1.50
3.75
Total
$5.75
$3.50
$9.25
Fighters
Cargo
Total
Direct materials
($3.00 × 800 units; $4.75 × 740 units)
$2,400
$3,515
$ 5,915
Direct manufacturing labor
($5.75 × 800 units; $3.50 × 740 units)
4,600
2,590
7,190
Total direct costs
$7,000
$6,105
$13,105
Total direct costs
Overhead allocated (0.85311 × $7,000; $6,105)
Total costs
Divided by number of units
740
Total cost per unit
Budgeted
overhead rate
Painting Dept.
Budgeted Painting Department overhead costs
Budgeted Painting Department direct costs
=
$4,150
$2.75 × 800 units + $2.50 740 units
=
$4,150 $4,150 $1.02469 per direct cost dollar
$2,200 $1,850 $4,050
= = =
+
Fighters
Cargo
Total
Direct materials
$ 2,400
$ 3,515
$ 5,915
Direct manufacturing labor
4,600
2,590
7,190
Total direct costs
7,000
6,105
13,105
Allocated overhead:
Assembly Department
(1.64252 $2,800a; $1,480a)
4,599
2,431
7,030
Painting Department
(1.02469 $2,200b; $1,850b)
2,254
1,896
4,150
Total costs
$13,853
$10,432
$24,285
Divided by number of units
800
740
$ 17.32
$ 14.10
aDirect manufacturing labor costs in Assembly Department calculated previously:
3. Activity-based Costing
Assembly Department
Budgeted
materials
handling rate
$1,700 $8.58586 per batch
198 batches
==
Painting Department
$900 $6.81818 per batch
132 batches
==
132 batches
5-34
5-33 (30-40 min.) Department and activity-cost rates service sector.
1. Overhead costs = $19,000 + $260,000 + $267,900 + $121,200 = $668,100
Budgeted overhead rate
=
$668,100 $1.70 per direct labor dollar
$393,000 =
X-rays
Ultrasound
CT scan
MRI
Total
Technician labor
$ 64,000
$104,000
$119,000
$ 106,000
$ 393,000
Depreciation
136,800
231,000
400,200
792,000
1,560,000
Materials
22,400
16,500
23,900
30,800
93,600
Allocated overhead*
108,800
176,800
202,300
180,200
668,100
Total budgeted costs
$332,000
$528,300
$745,400
$1,109,000
$2,714,700
Budgeted number of procedures
÷ 2,555
÷ 4,760
÷ 3,290
÷2,695
Budgeted cost per service
$ 129.94
$ 110.99
$ 226.57
$ 411.50
* Allocated overhead = Budgeted overhead rate × Technician labor costs
= $1.70 × Technician labor costs
2. Budgeted Information
X-rays
Ultrasound
CT scan
MRI
Total
Number of procedures
2,555
4,760
3,290
2,695
13,300
Cleaning minutes per procedure
×10
10
×20
×40
Total cleaning minutes
25,550
47,600
65,800
107,800
246,750
Number of procedures
2,555
4,760
3,290
2,695
13,300
Minutes for each procedure
×5
×20
×15
×40
Total procedure minutes
12,775
95,200
49,350
107,800
265,125
Activity
Budgeted Cost
(1)
Cost Driver
(2)
Units of
Cost Driver
(3)
Activity Rate
(4) = (1) ÷ (3)
Administration
$ 19,000
Total number
of procedures
13,300
$1.42857 per procedure
Maintenance
$260,000
Total dollars
of depreciation
$1,560,000
$0.166667 per dollar of depreciation
Sanitation
$267,900
Total cleaning
minutes
246,750
$1.08571 per cleaning minute
Utilities
$121,200
Total procedure
minutes
265,125
$0.45714 per procedure minute
5-35
X-rays
Ultrasound
CT Scan
MRI
Total
Technician labor
$ 64,000
$104,000
$119,000
$ 106,000
$ 393,000
Depreciation
136,800
231,000
400,200
792,000
1,560,000
Materials
22,400
16,500
23,900
30,800
93,600
Allocated activity costs:
Administration
($1.42857 × 2,555; 4,760; 3,290;
2,695)
3,650
6,800
4,700
3,850
19,000
Maintenance
$0.166667 × $136,800; $231,000;
$400, 200; $792,000)
22,800
38,500
66,700
132,000
260,000
Sanitation
($1.08571 × 25,550; 47,600; 65,800;
107,800)
27,740
51,680
71,440
117,040
267,900
Utilities
($0.45714 × 12,775; 95,200; 49,350;
107,800)
5,840
43,520
22,560
49,280
121,200
Total budgeted cost
$283,230
$492,000
$708,500
$1,230,970
$2,714,700
Budgeted number of procedures
÷ 2,555
÷ 4,760
÷ 3,290
÷ 2,695
Budgeted cost per service
$ 110.85
$ 103.36
$ 215.35
$ 456.76
3. Using the disaggregated activity-based costing data, managers can see that the MRI actually
costs substantially more and x-rays and ultrasounds substantially less than the traditional system
5-36
1. Direct costs = Dance teacher salaries, Child care teacher salaries, Fitness instructor salaries
2.
Indirect Cost
Cost Driver
Budgeted Cost Driver Rate
Supplies
Number of participants
$21,984 ÷ 2,205 = $9.97 per participant
Rent, maintenance, and utilities
Square footage
$97,511÷ 11,650 = $8.37 per square foot
Administration salaries
Number of participants
$50,075 ÷ 2,205 = $22.71 per participant
Marketing expenses
Number of advertisements
$21,000 ÷ 70 = $300 per advertisement
3.
Dance
Childcare
Fitness
Total
Salaries
$ 62,100
$ 24,300
$ 39,060
$ 125,460
Allocated costs:
Supplies
($9.97×1,485; 450; 270)
14,805
4,487
2,692
21,984
Rent, maintenance, and utilities
($8.37×6,000; 3,150; 2,500)
50,220
26,366
20,925
97,511
Administration salaries
($22.71×1,485; 450; 270)
33,724
10,219
6,132
50,075
Marketing expenses
($300×26; 24; 20)
7,800
7,200
6,000
21,000
Budgeted total costs
$ 168,649
$ 72,572
$ 74,809
$ 316,030
÷ Number of participants
÷ 1,485
÷450
÷270
Budgeted cost per participant
$ 113.57
$ 161.27
$ 277.07
4. By dividing the full cost of each service line by the number of participants, Annie can see that
fitness classes should be charged a higher price. Most of the higher unit cost is attributable to the
5-37
1.
General
Supermarket
Chains
Drugstore
Chains
Mom-and-Pop
Single
Stores
Total
Revenues $3,708,000 $3,150,000 $1,980,000 $8,838,000
2. The per-unit cost driver rates are:
2. Line item ordering,
$63,840 ÷ 21,280 (1,960 + 4,320 + 15,000) line items = $ 3 per line item
4. Cartons shipped,
$76,000 ÷ 76,000 (36,000 + 24,000 + 16,000) cartons = $ 1 per carton
3. The activity-based costing of each distribution market for 2011 is:
General
Supermarket
Chains
Drugstore
Chains
Mom-and-
Pop
Single Stores
Total
1. Customer purchase order processing
($40 140; 360; 1,500)
$ 5,600
$14,400
$ 60,000
$ 80,000
2. Line item ordering
($3 1,960; 4,320; 15,000)
5,880
12,960
45,000
63 ,840
3. Store delivery,
($47.973 120; 360; 1,000)
5,757
17,270
47,973
71,000
4. Cartons shipped
($1 36,000; 24,000; 16,000)
36,000
24,000
16,000
76,000
5. Shelf-stocking
($16 360; 180; 100)
5,760
2,880
1,600
10,240
$58,997
$71,510
$170,573
$301,080
5-38
The revised operating income statement is:
General Mom-and-Pop
Supermarket Drugstore Single
4. The ranking of the three markets are:
Using Gross Margin Using Operating Income
2. Drugstore Chains 4.76% 2. General Supermarket Chains 1.32%
3. General Supermarket Chains 2.91% 3. Mom-and-Pop Single Stores 0.48%
The activity-based analysis of costs highlights how the Mom-and-Pop Single Stores use a larger
amount of Pharmacare’s resources per revenue dollar than do the other two markets. The ratio of
5-39
Other issues for Pharmacare to consider include
a. Choosing the appropriate cost drivers for each area. The problem gives a cost driver
for each chosen activity area. However, it is likely that over time further refinements
in cost drivers would be necessary. For example, not all store deliveries are equally
easy to make, depending on parking availability, accessibility of the storage/shelf
5-40
5-36 (30-40 min.) Choosing cost drivers, activity-based costing, activity-based
management.
1.
Direct materials—purses
Output unit-level costs
Direct materials—backpacks
Output unit-level costs
Direct manufacturing labor—purses
Output unit-level costs
Direct manufacturing labor—backpacks
Output unit-level costs
Setup
Batch-level costs
Shipping
Batch-level costs
Design
Product-sustaining costs
Plant utilities and administration
Facility-sustaining costs
2.
Direct materials—purses
Number of purses
Direct materials—backpacks
Number of backpacks
Direct manufacturing labor—purses
Number of purses
Direct manufacturing labor—backpacks
Number of backpacks
Setup
Number of batches
Shipping
Number of batches
Design
Number of designs
Plant utilities and administration
Hours of production
3.
Direct materials—purses
$379,290 ÷ 3,350 purses = $113.22 per purse
Direct materials—backpacks
$412,920 ÷ 6,050 backpacks = $68.25 per backpack
Direct manufacturing labor—purses
$98,000 ÷ 3,350 purses = $29.25 per purse
Direct manufacturing labor—backpacks
$120,000 ÷ 6,050 backpacks = $19.83 per backpack
Setup
$65,930 190 batches = $347 per batch
Shipping
$73,910 190 batches = $389 per batch
Design
$166,000 ÷ 4 designs = $41,500 per design
Plant utilities and administration
$243,000 ÷ 4,050 hours = $60 per hour