5-41
4.
Backpacks
Purses
Total
Direct materials
$412,920
$379,290
$ 792,210
Direct manufacturing labor
120,000
98,000
218,000
Setup
($347 × 130; 60 batches)
45,110
20,820
65,930
Shipping
($389 × 130; 60 batches)
50,570
23,340
73,910
Design
($41,500 × 2; 2 designs)
83,000
83,000
166,000
Plant utilities and administration
($60 × 1,450; 2,600 hours)
87,000
156,000
243,000
Budgeted total costs
$798,600
$760,450
$1,559,050
Divided by number of backpacks/purses
÷ 6,050
÷ 3,350
Budgeted cost per backpack/purse
$ 132.00
$ 227.00
5. Based on this analysis, over 50% of product cost relates to direct material. Managers should
determine whether the material costs can be reduced. Producing in small lots increases the setup
5-37 (40 min.) ABC, health care.
1a. Medical supplies rate =
years–patient ofnumber Total
costs supplies Medical
=
$220,000
110
= $2,000 per patient-year
$440,000
costs maint. clinic andRent
$126,000
food
and laundry
years–patient ofnumber Total
110
= $4,000 per patient-year
Laboratory services rate =
testslaboratory ofnumber Total
costs services Laboratory
=
$84,000
2,100
= $40 per test
5-43
1c. The ABC system more accurately allocates costs because it identifies better cost drivers.
The ABC system chooses cost drivers for overhead costs that have a cause-and-effect
relationship between the cost drivers and the costs. Of course, Clayton should continue to
evaluate if better cost drivers can be found than the ones they have identified so far.
2. The concern with using costs per patient-year as the rule to allocate resources among its
programs is that it emphasizes “input” to the exclusion of “outputs” or effectiveness of the
5-44
1.
Basketballs
Volleyballs
Total
Number of batches
300
400
700
Machine-hours
11,000
12,500
23,500
Setup cost per batch = $143,500 ÷ 700 batches = $205 per batch.
Equipment and maintenance = $109,900 ÷ 23,500 machine–hours = $4.6766 per machine-hour.
Lease rent, insurance, utilities = $216,000 ÷ 12,000 sq. ft. of capacity = $18 per sq. ft.
Capacity used for Capacity used for
2. Unused capacity Total capacity =−
basketball production volleyball production
−
12,000 3,360 5,040 3,600 sq. ft.= − − =
Cost of unused capacity = $18 per sq. ft × 3,600 sq. ft. = $64,800
3.
Basketballs
Volleyballs
Total
Direct materials
$209,750
$358,290
$ 568,040
Direct manufacturing labor
107,333
102,969
210,302
Setup
($205 × 300; 400)
61,500
82,000
143,500
Equipment and maintenance
($4.6766 × 11,000; 12,500)
51,443
58,457
109,900
Lease rent, etc.
($18 × 3,360; 5,040)
60,480
90,720
151,200
Budgeted total costs
$490,506
$692,436
$1,182,942
Divided by number of units
÷ 66,000
÷100,000
Budgeted cost per unit
$ 7.43
$ 6.92
4. Currently, Nivag only utilizes 70% of its available capacity. Managers should consider
whether the excess capacity is sufficient to produce footballs. Other issues to consider include
5-39 (40−50 min.) Activity-based job costing, unit-cost comparisons.
An overview of the product-costing system is:
INDIRECT
COST
POOL
COST
ALLOCATION
BASE
DIRECT
COST
Materials
Handling
Number of
Parts
Direct
Materials
COST OBJECT:
COMPONENTS
Indirect Costs
Direct Costs
Direct
Manufacturing
Labor
Lathe
Work
Number of
Turns
Milling
Number of
Machine-Hours
Grinding
Number of
Parts
Testing
Number of
Units
Tested
1.
Job Order 410
Job Order 411
Direct manufacturing cost
Direct materials
Direct manufacturing labor
$30 25; $30 375
Indirect manufacturing cost
$115 25; $115 375
Total manufacturing cost
Divided by number of units
Manufacturing cost per unit
$9,700
750 $ 10,450
2,875
$ 13,325
÷ 10
$ 1,332.50
$59,900
11,250 $ 71,150
43,125
$114,275
÷ 200
$571.375
2.
Job Order 410
Job Order 411
Direct manufacturing cost
Direct materials
Direct manufacturing labor
$30 25; $30 375
Indirect manufacturing cost
Materials handling
$0.40 500; $0.40 2,000
Lathe work
$0.20 20,000; $0.20 59,250
Milling
$20.00 150; $20.00 1,050
Grinding
$0.80 500; $0.80 2,000
Testing
$15.00 10; $15.00 200
Total manufacturing cost
Divided by number of units
Manufacturing cost per unit
$9,700
750 $10,450
200
4,000
3,000
400
150 7,750
$18,200
÷ 10
$ 1,820
$59,900
11,250 $ 71,150
800
11,850
21,000
1,600
3,000 38,250
$109,400
÷ 200
$ 547
3.
Job Order 410
Job Order 411
Number of units in job 10 200
Costs per unit with prior costing system $1,332.50 $571.375
Costs per unit with activity-based costing 1,820.00 547