Solutions Manual, Appendix 4A 51
Appendix 4A
Activity-Based Absorption Costing
Exercise 4A-1 (20 minutes)
1. Activity rates are computed as follows:
Activity Cost Pool
(a)
Estimated
Overhead
Cost
(b)
Expected
Activity
(a) ÷ (b)
Activity
Rate
Machine setups ……
$72,000
400
setups
per setup
Special processing ..
$200,000
5,000
MHs
per MH
General factory ……
$816,000
24,000
DLHs
per DLH
52 Managerial Accounting for Managers, 4th Edition
Exercise 4A-1 (continued)
2. Overhead is assigned to the two products as follows:
Hubs:
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Machine setups …………………
$180
per setup
100
setups
$ 18,000
Special processing ……………..
$40
per MH
5,000
MHs
200,000
General factory …………………
$34
per DLH
8,000
DLHs
272,000
Total ……………………………….
$490,000
Sprockets:
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Machine setups …………………
$180
per setup
300
setups
$ 54,000
Special processing ……………..
$40
per MH
0
MHs
0
General factory …………………
$34
per DLH
16,000
DLHs
544,000
Total ……………………………….
$598,000
Solutions Manual, Appendix 4A 53
Exercise 4A-1 (continued)
2. Each product’s unit product cost is computed as follows:
Hubs
Sprockets
Direct materials ……………………………..
$32.00
$18.00
Direct labor:
$15 per DLH × 0.80 DLHs per unit…..
12.00
$15 per DLH × 0.40 DLHs per unit…..
6.00
Overhead:
$490,000 ÷ 10,000 units ……………….
49.00
$598,000 ÷ 40,000 units ……………….
14.95
Unit product cost …………………………...
$93.00
$38.95
This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This
document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
54 Managerial Accounting for Managers, 4th Edition
Exercise 4A-2 (45 minutes)
1. The unit product costs under the company‘s conventional costing system
would be computed as follows:
Rascon
Parcel
Total
Number of units produced (a) …………………
20,000
80,000
Direct labor-hours per unit (b) …………………
0.40
0.20
Total direct labor-hours (a) × (b) …………….
8,000
16,000
24,000
Total manufacturing overhead (a) ……………
$576,000
Total direct labor-hours (b) …………………….
24,000
DLHs
Predetermined overhead rate (a) ÷ (b) ……..
$24.00
per DLH
Rascon
Parcel
Direct materials ……………………………………
$13.00
$22.00
Direct labor …………………………………………
6.00
3.00
Manufacturing overhead applied:
0.40 DLH per unit × $24.00 per DLH ………
9.60
0.20 DLH per unit × $24.00 per DLH ………
4.80
Unit product cost ………………………………….
$28.60
$29.80
This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This
document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Solutions Manual, Appendix 4A 55
Exercise 4A-2 (continued)
2. The unit product costs using activity-based absorption costing can be computed as follows:
Activity Cost Pool
Estimated
Overhead
Cost*
(b)
Expected Activity
(a) ÷ (b)
Activity Rate
Labor related ………..
$288,000
24,000
direct labor-hours
$12.00
per direct labor-hour
Engineering design …
$288,000
6,000
engineering-hours
$48.00
per engineering-hour
$576,000
activity cost pools.
Manufacturing overhead is assigned to the two products as follows:
Rascon:
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Labor related ………
$12
per DLH
8,000
DLHs
$ 96,000
Engineering design .
$48
per engineering-hour
3,000
engineering-hours
144,000
Total ………………….
$240,000
Parcel:
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Labor related ………
$12
per DLH
16,000
DLHs
$192,000
Engineering design .
$48
per engineering-hour
3,000
engineering-hours
144,000
Total ………………….
$336,000
56 Managerial Accounting for Managers, 4th Edition
Exercise 4A-2 (continued)
The unit product costs combine direct materials, direct labor, and
overhead costs:
Rascon
Parcel
Direct materials ………………………………………
$13.00
$22.00
Direct labor ……………………………………………
6.00
3.00
Manufacturing overhead ($240,000 ÷ 20,000
units; $336,000 ÷ 80,000 units) ………………
12.00
4.20
Unit product cost …………………………………….
$31.00
$29.20
product. However, when the overhead is applied on the basis of
engineering-hours, more of the overhead cost is shifted over to the low-
the higher the unit cost.
Solutions Manual, Appendix 4A 57
Exercise 4A-3 (45 minutes)
1. The predetermined overhead rate is computed as follows:
$325,000
Predetermined
= = $6.50 per DLH
overhead rate 50,000 DLHs
are computed as follows:
Deluxe
Standard
Direct materials ………………………………………..
$72.00
$53.00
Direct labor …………………………..…………………
12.00
9.60
Manufacturing overhead (1.0 DLH × $6.50 per
DLH; 0.8 DLH × $6.50 per DLH) ………………..
6.50
5.20
Unit product cost ………………………………………
$90.50
$67.80
This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This
document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
58 Managerial Accounting for Managers, 4th Edition
Exercise 4A-3 (continued)
2. The activity rates are computed as follows:
(a)
Estimated
(b)
Overhead
Total
(a) ÷ (b)
Activity Cost Pool
Cost
Expected Activity
Activity Rate
Supporting direct labor …
$200,000
50,000
DLHs
$4
per DLH
Batch setups ………………
$75,000
300
setups
$250
per setup
Safety testing …………….
$50,000
100
tests
$500
per test
Deluxe Product:
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Supporting direct labor ……….
$4
per DLH
10,000
DLHs
$ 40,000
Batch setups …………………….
$250
per setup
200
setups
50,000
Safety testing ……………………
$500
per test
30
tests
15,000
Total ……………………………….
$105,000
Standard Product:
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Supporting direct labor ……….
$4
per DLH
40,000
DLHs
$160,000
Batch setups …………………….
$250
per setup
100
setups
25,000
Safety testing ……………………
$500
per test
70
tests
35,000
Total ……………………………….
$220,000
Solutions Manual, Appendix 4A 59
Exercise 4A-3 (continued)
Activity-based absorption costing unit product costs are computed as
follows:
Deluxe
Standard
Direct materials …………………………..……………….
$72.00
$53.00
Direct labor …………………………………………………
12.00
9.60
Manufacturing overhead ($105,000 ÷ 10,000
units; $220,000 ÷ 50,000 units) ……………………
10.50
4.40
Unit product cost ………………………………………….
$94.50
$67.00
Problem 4A-4 (60 minutes)
1. a. When direct labor-hours are used to apply overhead cost to products,
the company’s predetermined overhead rate would be:
Manufacturing overhead cost
Predetermined =
overhead rate Direct labor-hours
$1,800,000
= = $50 per DLH
36,000DLHs
b.
Model
X200
X99
Direct materials ……………………………………
$ 72
$ 50
Direct labor:
$10 per hour × 1.8 hours and 0.9 hours ….
18
9
Manufacturing overhead:
$50 per hour × 1.8 hours and 0.9 hours ….
90
45
Total unit product cost …………………………..
$180
$104
2. a. Predetermined overhead rates for the activity cost pools:
Activity Cost Pool
(a)
Estimated
Total Cost
(b)
Estimated
Total Activity
(a) ÷ (b)
Activity Rate
Machine setups ……
$360,000
150
setups
$2,400
per setup
Special processing ..
$180,000
12,000
MHs
$15
per MH
General factory ……
$1,260,000
36,000
DLHs
$35
per DLH