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Solutions Manual, Chapter 7 21
Exercise 7-5 (15 minutes)
Sales ($1,850 per standard model glider × 20
standard model gliders + $2,400 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-
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22 Managerial Accounting, 16th Edition
Exercise 7-6 (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. Orderin
g
labels from the printer for a
particular CD*. Product-level
c. Settin
g
up the CD duplicatin
g
machine to
make copies from a particular master
CD.
Batch-level
d. Loadin
g
the automatic labelin
g
machine
with labels for a particular CD*. Batch-level
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Solutions Manual, Chapter 7 23
Exercise 7-7 (10 minutes)
T
eller wa
g
es …………………………. $160,000
A
Distribution of Resource Consumption Across Activities
Opening
Accounts
Processing
Deposits and
Withdrawals
Processing
Other
Customer
Transactions
Other
Activities Totals
T
eller wa
g
es …………………………. 5% 65% 20% 10% 100%
A
Opening
Accounts
Processing
Deposits and
Withdrawals
Processing
Other
Customer
Transactions
Other
Activities Totals
T
eller wa
g
es …………………………. $ 8,000 $104,000 $32,000 $ 16,000 $160,000
A
T
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24 Managerial Accounting, 16th Edition
Exercise 7-8 (20 minutes)
1. Computation of activity rates:
Activity Cost Pools
(a)
Total Cost
(b)
Total Activity
(a) ÷ (b)
Activity Rate
Openin
g
accounts ………………………… $23,250 500 accounts
opened
$46.50 per account
opened
2. The cost of opening an account at the Westfield branch is much higher than at the lowest cost
branch ($46.50 versus $26.75). On the other hand, the cost of processing deposits and withdrawals
is lower than at the lowest cost branch ($1.08 versus $1.24). And the cost of processing other
customer transactions is higher at the Westfield branch ($12.50 versus $11.86). The 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
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Solutions Manual, Chapter 7 25
Exercise 7-9 (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
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26 Managerial Accounting, 16th Edition
Exercise 7-10 (30 minutes)
1. Total revenue received:
University Memorial
Cost of
g
oods sold to the hospital (a) ………….. $30,000 $30,000
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
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Solutions Manual, Chapter 7 27
Exercise 7-10 (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
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 processin
g
…. $62.00 per order 30 orders 1,860
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28 Managerial Accounting, 16th Edition
Exercise 7-10 (continued)
4. Customer margins for the two hospitals:
Universit
y
Memoria
l
Sales ……………………………………………. $31,500 $31,500
Cost of
g
oods sold ………………………….. 30,000 30,000
Gross mar
g
in …………………………………. 1,500 1,500
Customer deliveries …………………………. 1,000 2,500
5. Hospitals that require frequent deliveries, place a high volume of manual
orders, and order many line items are likely to be unprofitable.
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Solutions Manual, Chapter 7 29
Exercise 7-11 (15 minutes)
Customer Mar
g
i
n
—
A
BC Analysi
s
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
Supportin
g
direct labor ($5.55 per DLH × 0.25
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30 Managerial Accounting, 16th Edition
Exercise 7-12 (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
e. Monthly bills are sent out
Notes:
In all cases except for direct labor in part (a), two activity measures are
listed. The first is a “transaction driver” and the second is a “duration
driver.” Transaction drivers are simple counts of the number of times an
activity occurs such as the number of times materials are moved.