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Solutions Manual, Chapter 7 11
Chapter 7: Applying Excel (continued)
3. With the change in the selling and administrative percentages, the result
is:
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12 Managerial Accounting, 16th Edition
Chapter 7: Applying Excel (continued)
a. The customer margin under activity-based costing has improved from
$(6,600) to $(3,450) because costs have shifted from the order-
related activity cost pool to the customer-related activity cost pool.
The average number of orders per customer is 2.5 (= 250 orders ÷
100 customers). Since in this part we assume that this customer had
b. Shifting selling and administrative costs from the order-related cost
pool to the customer-related cost pool has no effect on product
margins under traditional costing for two reasons. First, selling and
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Solutions Manual, Chapter 7 13
The Foundational 15
1. The plantwide overhead rate is computed as follows:
T
otal estimated overhead cost (a)………… $684,000
T
2. The overhead cost assignments to Products Y and Z are as follows:
Product Y Product Z
T
otal direct labor hours (a) …………………. 8,000 4,000
3-6.
The activity rates are computed as follows:
Activity Cost Pool
(a)
Estimated
Overhead
Cost
(b)
Expected
Activity
(a) ÷ (b)
Activity
Rate
Machinin
g
………….. $200,000 10,000 MH $20 per MH
7. Machine setups is a batch-level activity. A setup is performed to run a
batch of units. The cost of the setup is determined by the resources
8. The product design activity is a product-level activity. The product
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14 Managerial Accounting, 16th Edition
The Foundational 15 (continued)
9-10. Using the ABC system, the total overhead assigned to Products Y and Z is computed as follows:
Product Y Product Z
Expected
Activity Amount
Expected
Activity Amount
Machinin
g
, at $20.00 per machine-hour …………… 7,000 $140,000 3,000 $ 60,000
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Solutions Manual, Chapter 7 15
The Foundational 15 (continued)
11-15. The percentages of overhead assigned using the plantwide and ABC approaches are computed
as follows:
Product
Y
Product
Z
T
ota
l
Plantwide Approach
(a)
Amount
(a) ÷ (c)
%
(b)
Amount
(b) ÷ (c)
%
(c)
Amount
Manufacturin
g
overhead …….. $456,000 66.7% $228,000 33.3% $684,000
A
ctivit
y
–
Based Costin
g
Syste
m
Machinin
g
……………………….. $140,000 70.0% $ 60,000 30.0% $200,000
The Machining allocation percentages used in the ABC system are similar to the plantwide allocation
percentages because the Machining cost pool uses a unit-level activity measure (machine-hours).
Under the ABC system, 25% and 75% of the Machine Setups cost is allocated to Products Y and Z,
respectively, whereas the plantwide approach allocates 67% and 33% of all overhead costs to the
two products. These allocation percentages are different because Machine Setups is a batch-level
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16 Managerial Accounting, 16th Edition
The Foundational 15 (continued)
Under the ABC system, 50% of the Product Design cost is allocated to each
product, whereas the plantwide approach allocates 67% and 33% of all
overhead costs to Products Y and Z, respectively. These percentages are
different because Product Design is a product-level cost pool. Although
Under the ABC system, the General Factory allocation percentages are the
same as the plantwide allocation percentages because the General Factory
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Solutions Manual, Chapter 7 17
Exercise 7-1 (10 minutes)
a. Receive raw materials from suppliers. Batch-level
b. Mana
g
e parts inventories. Product-level
c. Do rou
g
h millin
g
work on products. Unit-level
d. Interview and process new employees in the
personnel department.
Or
g
anization-
sustaining
e. Desi
g
n new products. Product-level
g
g
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18 Managerial Accounting, 16th Edition
Exercise 7-2 (15 minutes)
Travel
Pickup
and
Delivery
Customer
Service Other Totals
Driver and
g
uard wa
g
es ………………….. $360,000 $252,000 $ 72,000 $ 36,000 $ 720,000
Vehicle operatin
g
expense ……………….. 196,000 14,000 0 70,000 280,000
Vehicle depreciation ……………………….. 72,000 18,000 0 30,000 120,000
Customer representative salaries and
Each entry in the table is derived by multiplying the total cost for the cost category by the percentage
taken from the table below that shows the distribution of resource consumption:
Travel
Pickup
and
Delivery
Customer
Service Other Totals
Driver and
g
uard wa
g
es ………………….. 50% 35% 10% 5% 100%
Vehicle operatin
g
expense ……………….. 70% 5% 0% 25% 100%
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Solutions Manual, Chapter 7 19
Exercise 7-3 (10 minutes)
Activity Cost Pool
Estimated
Overhead
Cost Expected Activity Activity Rate
Carin
g
for lawn …………….…. $72,000 150,000 square ft. of lawn $0.48 per square ft. of lawn
Carin
g
for
g
arden beds
–
low maintenance ……………
$26,400 20,000 square ft. of low
maintenance beds
$1.32 per square ft. of low
maintenance beds
T
g
g
–
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20 Managerial Accounting, 16th Edition
Exercise 7-4 (10 minutes)
K42
5
A
ctivity Cost Poo
l
A
ctivity Rat
e
A
ctivit
y
A
BC Cos
t
Supportin
g
direct labor ……… $6 per direct labor-hour 80 direct labor-hours $ 480
Machine processin
g
…….……. $4 per machine-hour 100 machine-hours 400
Machine setups ……………….. $50 per setup 1 setups 50
M6
7
A
ctivity Cost Poo
l
A
ctivity Rat
e
A
ctivit
y
A
BC Cos
t
Supportin
g
direct labor ……… $6 per direct labor-hour 500 direct labor-hours $ 3,000
Machine processin
g
…….……. $4 per machine-hour 1,500 machine-hours 6,000
Machine setups ……………….. $50 per setup 4 setups 200