Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Solutions Manual, Chapter 6 21
Exercise 6-13 (30 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
$180
per setup
Special processing ..
$200,000
5,000
MHs
$40
per MH
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
Total .....................................
$218,000
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
Total .....................................
$54,000
22 Managerial Accounting for Managers, 4th Edition
Exercise 6-13 (continued)
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:
$218,000 ÷ 10,000 units ...................
21.80
$54,000 ÷ 40,000 units ....................
1.35
Unit cost .............................................
$65.80
$25.35
Solutions Manual, Chapter 6 23
Exercise 6-14 (30 minutes)
1. The first step is to determine the activity rates:
Activity Cost Pools
(a)
Total Cost
(b)
Total Activity
(a) ÷ (b)
Activity Rate
Serving parties .......
$33,000
6,000
parties
$5.50
per party
Serving diners ........
$138,000
15,000
diners
$9.20
per diner
Serving drinks ........
$24,000
10,000
drinks
$2.40
per drink
a. Party of 4 persons who order a total of 3 drinks:
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Serving parties .......
$5.50
per party
1
party
$ 5.50
Serving diners ........
$9.20
per diner
4
diners
36.80
Serving drinks ........
$2.40
per drink
3
drinks
7.20
Total .....................
$49.50
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Serving parties .......
$5.50
per party
1
party
$ 5.50
Serving diners ........
$9.20
per diner
2
diners
18.40
Serving drinks ........
$2.40
per drink
0
drinks
0
Total .....................
$23.90
c. Party of 1 person who orders 2 drinks:
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Serving parties .......
$5.50
per party
1
party
$ 5.50
Serving diners ........
$9.20
per diner
1
diner
9.20
Serving drinks ........
$2.40
per drink
2
drinks
4.80
Total .....................
$19.50
24 Managerial Accounting for Managers, 4th Edition
Exercise 6-14 (continued)
2. The average cost per diner for each party can be computed by dividing
the total cost of the party by the number of diners in the party as
follows:
3. The average cost per diner differs from party to party under the activity-
based costing system for two reasons. First, the cost of serving a party
($5.50) does not depend on the number of diners in the party.
Therefore, the average cost per diner of this activity decreases as the
costs of serving drinks are assigned to the party.
The average cost per diner differs from the overall average cost of $16
per diner for several reasons. First, the average cost of $16 per diner
includes organization-sustaining costs that are excluded from the
We should note that the activity-based costing system itself does not
various meals on the menu. It may or may not be worth the effort to
build a more detailed activity-based costing system that would take such
nuances into account.
Solutions Manual, Chapter 6 25
Exercise 6-15 (30 minutes)
1. First-stage allocations of overhead costs to the activity cost pools:
Distribution of Resource Consumption
Across Activity Cost Pools
Supporting
Direct Labor
Order
Processing
Customer
Support
Other
Totals
Wages and salaries ..........
40%
30%
20%
10%
100%
Other overhead costs ......
30%
10%
20%
40%
100%
Direct Labor
Support
Order
Processing
Customer
Support
Other
Totals
Wages and salaries ..........
$120,000
$ 90,000
$ 60,000
$ 30,000
$300,000
Other overhead costs ......
30,000
10,000
20,000
40,000
100,000
Total cost ........................
$150,000
$100,000
$ 80,000
$ 70,000
$400,000
Example: 40% of $300,000 is $120,000.
2. Computation of activity rates:
Activity Cost Pools
(a)
Total Cost
(b)
Total Activity
(a) ÷ (b)
Activity Rate
Supporting direct
labor .....................
$150,000
20,000
DLHs
$7.50
per DLH
Order processing ......
$100,000
400
orders
$250
per order
Customer support .....
$80,000
200
customers
$400
per customer
26 Managerial Accounting for Managers, 4th Edition
Exercise 6-15 (continued)
3. Computation of the overhead costs for the Shenzhen Enterprises order:
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Supporting direct
labor .................
$7.50
per DLH
20
DLHs*
$150
Order processing ..
$250
per order
1
order
250
Customer support
$400
per customer
1
customer
400
Total ....................
$800
*2 DLHs per unit × 10 units = 20 DLHs.
4. The customer margin for Shenzhen Enterprises is computed as follows:
Customer Margin—ABC Analysis
Sales (10 units × $300 per unit) .....................
$3,000
Costs:
Direct materials ($180 per unit × 10 units) ...
$1,800
Direct labor ($50 per unit × 10 units) ...........
500
Support direct labor overhead (see part 3
above) .....................................................
150
Order processing overhead (see part 3
above) .....................................................
250
Customer support overhead (see part 3
above) .....................................................
400
3,100
Customer margin ...........................................
$ (100)
Problem 6-16 (45 minutes)
1. Under the traditional direct labor-dollar based costing system,
manufacturing overhead is applied to products using the predetermined
overhead rate computed as follows:
Estimated total manufacturing overhead cost
Predetermined =
overhead rate Estimated total direct labor dollars
$608,000
= = $2.00 per DL$
$304,000
The product margins using the traditional approach would be computed
as follows:
B300
T500
Total
Sales ...................................
$1,400,000
$700,000
$2,100,000
Direct materials ....................
436,300
251,700
688,000
Direct labor ..........................
200,000
104,000
304,000
Manufacturing overhead
applied @ $2.00 per direct
labor-dollar........................
400,000
208,000
608,000
Total manufacturing cost ......
1,036,300
563,700
1,600,000
Product margin ....................
$ 363,700
$136,300
$ 500,000
28 Managerial Accounting for Managers, 4th Edition
Problem 6-16 (continued)
2. The first step is to determine the activity rates:
Activity Cost Pools
(a)
Total
Cost
(b)
Total Activity
(a) ÷ (b)
Activity Rate
Machining ..............
$213,500
152,500
MHR
$1.40
per MHR
Setups ...................
$157,500
375
setup hrs.
$420
per setup hr.
Product sustaining ..
$120,000
2
products
$60,000
per product
assigned to products.
Under the activity-based costing system, the product margins would be
computed as follows:
B300
T500
Total
Sales ...................................
$1,400,000
$700,000
$2,100,000
Direct materials ....................
436,300
251,700
688,000
Direct labor ..........................
200,000
104,000
304,000
Advertising expense .............
50,000
100,000
150,000
Machining ............................
126,000
87,500
213,500
Setups .................................
31,500
126,000
157,500
Product sustaining ................
60,000
60,000
120,000
Total cost ............................
903,800
729,200
1,633,000
Product margin ....................
$ 496,200
$(29,200)
$ 467,000
Solutions Manual, Chapter 6 29
Problem 6-16 (continued)
3. The quantitative comparison is as follows:
B300
T500
Total
Traditional Cost System
(a)
Amount
(a) ÷ (c)
%
(b)
Amount
(b) ÷ (c)
%
(c)
Amount
Direct materials
$436,300
63.4%
$251,700
36.6%
$ 688,000
Direct labor
200,000
65.8%
104,000
34.2%
304,000
Manufacturing overhead
400,000
65.8%
208,000
34.2%
608,000
Total cost assigned to products
$1,036,300
$563,700
$1,600,000
Selling and administrative
550,000
Total cost
$2,150,000
Activity-Based Costing System
Direct costs:
Direct materials
$436,300
63.4%
$251,700
36.6%
$ 688,000
Direct labor
200,000
65.8%
104,000
34.2%
304,000
Advertising expense
50,000
33.3%
100,000
66.7%
150,000
Indirect costs:
Machining
126,000
59.0%
87,500
41.0%
213,500
Setups
31,500
20.0%
126,000
80.0%
157,500
Product sustaining
60,000
50.0%
60,000
50.0%
120,000
Total cost assigned to products
$903,800
$729,200
1,633,000
Costs not assigned to products:
Selling and administrative
400,000
Other
117,000
Total cost
$2,150,000
30 Managerial Accounting for Managers, 4th Edition
Problem 6-16 (continued)
represent organization-sustaining costs. Second, the traditional system
Machining costs to the B300 product line and 41.0% to the T500
advertising to the T500 product line.
