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Exercise 6-5 (15 minutes)
Sales ($1,850 per standard model glider × 20
standard model gliders + $2,400 per custom
designed glider × 3 custom designed gliders) ........
$44,200
Costs:
Direct materials ($564 per standard model glider
× 20 standard model gliders + $634 per custom
designed glider × 3 custom designed gliders) .....
$13,182
Direct labor ($19.50 per direct labor-hour × 26.35
direct labor-hours per standard model glider ×
20 standard model gliders + $19.50 per direct
labor-hour × 28 direct labor-hours per custom
designed glider × 3 custom designed gliders) .....
11,915
Supporting direct labor ($26 per direct labor-hour
× 26.35 direct labor-hours per standard model
glider × 20 standard model gliders + $26 per
direct labor-hour × 28 direct labor-hours per
custom designed glider × 3 custom designed
gliders) .............................................................
15,886
Order processing ($284 per order × 4 orders) .......
1,136
Custom designing ($186 per custom design × 3
custom designs) ................................................
558
Customer service ($379 per customer ×
1 customer) ......................................................
379
43,056
Customer margin ....................................................
$ 1,144
12 Managerial Accounting for Managers, 4th Edition
Exercise 6-6 (10 minutes)
Activity
Level
a.
Sales representatives’ periodic visits to
customers to keep them informed about
the services provided by CD Express.
Customer-level
b.
Ordering labels from the printer for a
particular CD*.
Product-level
c.
Setting up the CD duplicating machine to
make copies from a particular master
CD.
Batch-level
d.
Loading the automatic labeling machine
with labels for a particular CD*.
Batch-level
e.
Visually inspecting CDs and placing them
by hand into protective plastic cases
prior to shipping.
Unit-level
f.
Preparation of the shipping documents for
the order.
Product-level
g.
Periodic maintenance of equipment.
Organization-sustaining
h.
Lighting and heating the company’s
production facility.
Organization-sustaining
i.
Preparation of quarterly financial reports.
Organization-sustaining
Solutions Manual, Chapter 6 13
Exercise 6-7 (10 minutes)
Teller wages ...............................
$160,000
Assistant branch manager salary ..
$75,000
Branch manager salary ................
$80,000
Distribution of Resource Consumption Across Activities
Opening
Accounts
Processing
Deposits and
Withdrawals
Processing
Other
Customer
Transactions
Other
Activities
Totals
Teller wages ...............................
5%
65%
20%
10%
100%
Assistant branch manager salary ..
15%
5%
30%
50%
100%
Branch manager salary ................
5%
0%
10%
85%
100%
Opening
Accounts
Processing
Deposits and
Withdrawals
Processing
Other
Customer
Transactions
Other
Activities
Totals
Teller wages ................................
$ 8,000
$104,000
$32,000
$ 16,000
$160,000
Assistant branch manager salary ...
11,250
3,750
22,500
37,500
75,000
Branch manager salary .................
4,000
0
8,000
68,000
80,000
Total cost ....................................
$23,250
$107,750
$62,500
$121,500
$315,000
Other entries in the table are determined similarly.
14 Managerial Accounting for Managers, 4th Edition
Exercise 6-8 (20 minutes)
1. Computation of activity rates:
Activity Cost Pools
(a)
Total Cost
(b)
Total Activity
(a) ÷ (b)
Activity Rate
Opening accounts ...............................
$23,250
500
accounts
opened
$46.50
per account
opened
Processing deposits and withdrawals ...
$107,750
100,000
deposits and
withdrawals
$1.08
per deposit or
withdrawal
Processing other customer transactions
$62,500
5,000
other customer
transactions
$12.50
per other customer
transaction
2. The cost of opening an account at the Westfield branch is much higher than at the lowest cost
the assistant branch manager in this activity? Perhaps tellers open new accounts at other branches.
The apparent differences in the costs of the activities at the various branches may be due to
inaccuracies in employees’ reports of the amount of time they devote to the activities. The
differences in costs may also reflect different strategies. For example, the Westfield branch may
Solutions Manual, Chapter 6 15
Exercise 6-9 (10 minutes)
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Order size .........
$16.85
per direct labor-hour
200
direct labor-hours
$3,370
Customer orders
$320.00
per customer order
1
customer order
320
Product testing ..
$89.00
per product testing hour
4
product testing hours
356
Selling ...............
$1,090.00
per sales call
2
sales calls
2,180
Total .................
$6,226
16 Managerial Accounting for Managers, 4th Edition
Exercise 6-10 (30 minutes)
1. Total revenue received:
University
Memorial
Cost of goods sold to the hospital (a)
$30,000
$30,000
Markup percentage
× 5%
× 5%
Markup in dollars (b)
$1,500
$1,500
Revenue received from hospitals (a) + (b)
$31,500
$31,500
2. Activity Rates:
Activity Cost Pool
(a)
Estimated
Overhead
Cost
(b)
Expected
Activity
(a) ÷ (b)
Activity
rate
Customer deliveries
$500,000
5,000
deliveries
$100.00
per delivery
Manual order processing
$248,000
4,000
orders
$62.00
per manual order
Electronic order processing
$200,000
12,500
orders
$16.00
per electronic order
Line item picking
$450,000
450,000
line items
$1.00
per line item picked
Solutions Manual, Chapter 6 17
Exercise 6-10 (continued)
3. Activity costs are assigned to the two hospitals as follows:
University:
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Customer deliveries ...............
$100.00
per delivery
10
deliveries
$1,000
Manual order processing ........
$62.00
per order
0
orders
0
Electronic order processing ....
$16.00
per order
15
orders
240
Line item picking ...................
$1.00
per line item
120
line items
120
Total activity costs .................
$1,360
Memorial:
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Customer deliveries ...............
$100.00
per delivery
25
deliveries
$ 2,500
Manual order processing ........
$62.00
per order
30
orders
1,860
Electronic order processing ....
$16.00
per order
0
orders
0
Line item picking ...................
$1.00
per line item
250
line items
250
Total activity costs .................
$4,610
18 Managerial Accounting for Managers, 4th Edition
Exercise 6-10 (continued)
4. Customer margins for the two hospitals:
University
Memorial
Sales ....................................................
$31,500
$31,500
Cost of goods sold .................................
30,000
30,000
Gross margin .........................................
1,500
1,500
Customer deliveries ...............................
1,000
2,500
Manual order processing ........................
0
1,860
Electronic order processing ....................
240
0
Line item picking ...................................
120
250
Total activity costs .................................
1,360
4,610
Customer margin ...................................
$ 140
$(3,110)
5. Hospitals that require frequent deliveries, place a high volume of manual
orders, and order many line items are likely to be unprofitable.
Solutions Manual, Chapter 6 19
Exercise 6-11 (15 minutes)
Customer Margin—ABC Analysis
Sales (1,000 seats × $20 per unit) ....................
$20,000.00
Costs:
Direct materials ($8.50 per unit × 1,000 units) ..
$8,500.00
Direct labor ($6.00 per unit × 1,000 units) ........
6,000.00
Supporting direct labor ($5.55 per DLH × 0.25
DLH per unit × 1,000 units) ...........................
1,387.50
Batch processing ($107 per batch × 2 batches) .
214.00
Order processing ($275 per order × 1 order).....
275.00
Customer service overhead ($2,463 per
customer × 1 customer) ................................
2,463.00
18,839.50
Customer margin ...............................................
$ 1,160.50
20 Managerial Accounting for Managers, 4th Edition
Exercise 6-12 (10 minutes)
Activity
Activity
Classification
Examples of Activity
Measures
a.
Direct labor workers
assemble a product.
Unit
Direct labor-hours
b.
Products are designed by
engineers.
Product
Number of new products
designed; hours of design
time
c.
Equipment is set up.
Batch
Number of setups; setup
hours
d.
Machines are used to
shape and cut materials.
Unit
Number of units processed;
machine-hours
e.
Monthly bills are sent out
to regular customers.
Customer
Number of bills sent; time
spent preparing bills
f.
Materials are moved from
the receiving dock to
production lines.
Batch
Number of loads
transferred; time spent
moving materials
g.
All completed units are
inspected for defects.
Unit
Number of units inspected;
Inspection hours
Notes:
1. In all cases except for direct labor in part (a), two activity measures are
Duration drivers are measures of the amount of time required to
