Chapter 7 – Activity-Based Costing and Activity-Based Management
7-11
Exercise 7-8
a.
Machine setup
$200,000 ÷ 800 setups = $250/setup
Inspection
$120,000 ÷ 400 tests = $300/test
Materials receiving
$252,000 ÷ 1,800 POs = $140/PO
b.
Machine setups
$ 23,000
($250 × 92 setups)
+
Inspections
120,000
($300 × 400 inspections)
+
Materials receiving
7,000
($140 × 50 POs)
=
Total OH cost
$150,000
÷
Units produced
15,000
=
OH cost/unit
$10.00
+
Direct material
2.50
+
Direct labor
0.54
=
Activity-based cost
$13.04
Exercise 7-9
a.
3F5
T76
1,000 × $21.25
$21,250
10,000 × $21.25
$212,500
b.
3F5
T76
Product assembly
$8.75 × 1,000; 10,000
$ 8,750
$87,500
Machine setup
$140 × 40; 20
5,600
2,800
Product inspection
$80 × 20; 10
1,600
800
Raw materials storage
$0.20 × 10,000; 10,000
2,000
2,000
Total cost
$17,950
$93,100
than these two products.
7-12
Exercise 7-10
a.
3F5
T76
Overhead cost
$21,250
$212,500
÷ number of units
500
5,000
Overhead cost per unit
$ 42.50
$ 42.50
b.
3F5
T76
Overhead cost
$17,950
$93,100
÷ number of units
500
5,000
Overhead cost per unit
$ 35.90
$ 18.62
Chapter 7 – Activity-Based Costing and Activity-Based Management
7-13
Exercise 7-11
a.
$284,015
227,212 tape mounts
= $1.25 per tape mount
Customer
Calculation
Allocated
Storage Cost
Perkins
69,388 mounts × $1.25/mount
$ 86,735
Alderson
142,392 mounts × $1.25/mount
177,990
McEwen
5,072 mounts × $1.25/mount
6,340
Hodges
1,972 mounts × $1.25/mount
2,465
Jenkins
8,388 mounts × $1.25/mount
10,485
Total
$284,015
b.
$284,015
132,100 gigabytes
= $2.15 per gigabyte
Customer
Calculation
Allocated
Storage Cost
Perkins
36,254 gigabytes × $2.15/gigabyte
$ 77,946.10
Alderson
75,236 gigabytes × $2.15/gigabyte
161,757.40
McEwen
830 gigabytes × $2.15/gigabyte
1,784.50
Hodges
18 gigabytes × $2.15/gigabyte
38.70
Jenkins
19,762 gigabytes × $2.15/gigabyte
42,488.30
Total
$284,015.00
she should use that driver as the basis for cost allocation.
d. If the cost of the system is due primarily to the amount of storage
7-14
Exercise 7-12
a.
Standard edition
Deluxe edition
Direct labor hours/unit
500,000 =1 DLH/unit
500,000
DLH/unit 3=
00010
00030
Printing press hours/unit
PPH/unit 16=
000500
00080
PPH/unit 16=
10,000
1,600
.
Sales orders/unit
torders/uni 20=
000500
00010
.
,
,
order/unit 1=
00010
00010
b. The deluxe editions use more direct labor hours per unit and more sales
orders per unit. Both books use the same amount of printing press time.
c. With the current system, a deluxe edition gets three times the overhead
Exercise 7-13
The cost to produce the product didn’t change; the costs have been
7-15
Exercise 7-14
MH) 32,000 + MH (50,000
000$1,599,
Simple
Complex
Machine hours
50,000
32,000
×
Overhead rate
$19.50
$19.50
=
Total overhead to product
$975,000
$624,000
Simple
Complex
Total overhead to product
$975,000
$624,000
÷
Number of units produced
125,000
40,000
=
Overhead per unit
$7.80
$15.60
b. Simple
Assembly
250,000 DLH × $1.25/DLH
$312,500
Fabrication
50,000 MH × $9.75/MH
487,500
Setups
2,500 batches × $18.00/batch
45,000
Bonding
0
Total overhead
$845,000
Complex
Assembly
160,000 DLH × $1.25/DLH
$200,000
Fabrication
32,000 MH × $9.75/MH
312,000
Set ups
4,000 batches × $18.00/batch
72,000
Bonding
170,000
Total overhead
$754,000
Simple
Complex
Total overhead to product
$845,000
$754,000
÷
Number of units produced
125,000
40,000
=
Overhead per unit
$6.76
$18.85
7-16
Exercise 7-14, continued
c. Complex uses twice the direct labor and machine hours per unit as
Simple. Complex also requires more setups than Simple. Activity-
Exercise 7-15
Value-Added
Non-Value-Added
Can be Eliminated
a.
X
b.
X
c.
X
X
d.
X
e.
X
X
f.
X
g.
X
h.
X
i.
X
Exercise 7-16
Value-Added
Non-Value-Added
Can be Eliminated
a.
X
b.
X
c.
X
d.
X
e.
X
f.
X
g.
X
h.
X
i.
X
j.
X
Chapter 7 – Activity-Based Costing and Activity-Based Management
7-17
Exercise 7-17
the total cost will fall.
b. Again, the effect on the cost of a tube of paint depends on whether
c. The effect of the increased batch size on total costs incurred by the
d. Clive needs to consider the effect that the increased batch size will
7-18
Exercise 7-18
the number of drop-offs is not worth the rate savings. Alternatively,
customers may look for other delivery options besides the U.S. Postal
Service.
another vendor.
b. It is unlikely that the U.S. Postal Service would experience immediate
the Postal Service would have to reduce the number of employees.
Alternatively, the U.S. Postal Service could create additional revenue–
generating work for these workers.
7-19
SOLUTIONS TO PROBLEMS
Problem 7-19
15,000 hours
2,000 accounts
15,000 hours
1,000 accounts
6,000 transactions
accounts 1,000
$2,880,000
(15,000 hours + 15,000 hours)
Basic
Total allocated cost
15,000 hours × $96/hour =
$1,440,000
÷ number of accounts
÷ 2,000
Cost per account
$720
Premier
Total allocated cost
15,000 hours × $96/hour =
$1,440,000
÷ number of accounts
÷ 1,000
Cost per account
$1,440
7-20
Problem 7-19, continued
d. ABC Rates
Maintenance:
$576,000
(2,000 + 1,000)
= $192/account
Transaction Processing:
$1,296,000
(6,000 + 14,000)
= $64.80/transaction
Account Analysis:
$1,008,000
(15,000 + 15,000)
= $33.60/hour
Basic
Maintenance
2,000 accounts × $192/account
$384,000
Transaction processing
6,000 transactions × $64.80/transaction
388,800
Account analysis
15,000 hours × $33.60/hour
504,000
Total cost
$1,276,800
÷ # of accounts
÷ 2,000
Cost per account
$638.40
Premier
Maintenance
1,000 accounts × $192/account
$192,000
Transaction processing
14,000 transactions × $64.80/transaction
907,200
Account analysis
15,000 hours × $33.60/hour
504,000
Total cost
$1,603,200
÷ # of accounts
÷ 1,000
Cost per account
$1,603.20