Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Appendix C
C-1
Appendix C
Activity-Based Costing
QUESTIONS
1. Manufacturing overhead costs cannot be directly traced to units of product like
2. In the first stage, service department costs are assigned to operating departments.
3. Operating departments are directly involved in manufacturing or selling the products
4. Activity-based costing (ABC) is a method for allocating shared costs among
departments or products. It is especially common for overhead allocation. The goal
5. Anything to which costs would be assigned is considered a “cost object.” Common
6. An activity cost driver is the measure of the activity that causes costs to be incurred.
7. Activity-based costing is typically used when a company produces many different
8. Typical activity cost pools include: purchasing, order processing, accounting,
engineering, factory maintenance, and legal services (other answers are possible).
10. While ABC may provide more accurate cost assignments, the additional cost to
implement activity-based costing may not be justified. That is, the value of the
11. Activity-based costing may be used in any type of organization. The premise of ABC
is that activities cause costs. Since all organizations engage in activities, these
QUICK STUDIES
Quick Study C-1 (10 minutes)
Quick Study C-2 (10 minutes)
2. Assign overhead costs to Fast and Standard models
Fast
C-3
Quick Study C-3 (15 minutes)
Expected Activity Activity
Activity Cost Driver Rate
Quick Study C-4 (10 minutes)
2. Assign technical support costs to each model
C-4
Quick Study C-5 (15 minutes)
1.
Expected Activity Activity
2.
Standard Deluxe
Activity 1
3,000 x $15 $ 45,000
Quick Study C-6 (15 minutes)
Overhead cost allocation of indirect labor and supplies to Department 1:
Rate: ($5,400 + $2,600) / $32,000 = $0.25 / $ of labor cost
Quick Study C-7 (5 minutes)
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Appendix C
EXERCISES
Exercise C-1 (25 minutes)
1. $1,004,000 + $465,300 + $232,000 = $283.55 per machine hour
6,000 machine hours
2. Model 145
Materials and labor $250.00
3. Model 145 Model 212
Price per unit $800.00 $470.00
Exercise C-2 (35 minutes)
1.
Components
Changeover $500,000 / 800 batches $625/batch
Model 145 Model 212
Changeover
400 batches x $625/batch $ 250,000 $ 250,000
Machining
C-8
Exercise C-2 (concluded)
2. Model 145 Model 212
3. Model 145 Model 212
Price per unit $800.00 $470.00
Exercise C-3 (35 minutes)
1. Total direct labor hours:
Product A: 10,000 units x 0.20 DLH/unit = 2,000 DLH
Exercise C-3 (continued)
Product A Product B
Direct materials
A: 10,000 units x $2/unit $ 20,000
2. Product A Product B
Price per unit $20.00 $60.00
Exercise C-3 (concluded)
3. Overhead rates
Machine setup $121,000/(10 + 12) setups $5,500/setup
4. Product A Product B
Price per unit $20.00 $ 60.00
Exercise C-4 (20 minutes)
1.
Client consultation $270,000/1,500 contact hours $180/con.hr.
2.
Client consultation 450 contact hours x $180/con. hr. $ 81,000
Exercise C-5 (25 minutes)
Part 1
Part 2
Determination of cost per driver unit
Cost Center
Cost
Cost per Driver
C-12
Exercise C-5 (continued)
Part 3
Allocation of costs to the general surgery department using ABC
GENERAL SURGERY
Cost
Driver
Cost per
Driver Unit
Allocated
Cost
Exercise C-6 (30 minutes)
Calculation of predetermined overhead rates to apply ABC
Overhead Cost
Category (Activity
Cost Pool)
Total
Cost
Total Amount
of Cost Driver
Predetermined Overhead Rate
Supervision …………………………
$36,000
of direct labor cost
Depreciation ………………………..
per machine hour
Line preparation ………………….
per setup
1. Assignment of overhead costs to the two products using ABC
Rounded edge
Cost
Driver
Cost per
Driver Unit
Assigned Cost
Supervision ……………………….
Machinery depreciation ……..
$ 28.30
$184.00
Total overhead assigned ……
Driver Unit
Assigned Cost
Supervision ……………………….
Machinery depreciation ……..
$ 28.30
$184.00
Total overhead assigned ……
2. Average cost per foot of the two products
Rounded edge
Squared edge
Direct materials ………………………
$19,000
$ 43,200
Overhead (using ABC) ……………
Total cost ……………………………….
$54,540
$151,660
Average cost per foot (ABC)* …..
3. Using ABC, the average cost of rounded edge shelves declines and the
average cost of squared edge shelves increases. Under the current
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Appendix C
C-14
PROBLEM SET A
Problem C-1A (40 minutes)
1. Grinding & Polishing ($320,000+$135,000)/13,000 MH $35/MH
2.
Job 3175
Job 4286
3. Job 3175 Job 4286
4. Plantwide rate
Grinding ……………………………………………………………………. $ 320,000
Problem C-1A (concluded)
Job 3175 Job 4286
5. Average overhead cost
Job 3175 Job 4286
Problem C-2A (50 minutes)
1. Total overhead = $215,630 + $399,480 + $515,600
Total direct labor hours 2,600 DLH + 1,600 DLH
2. Total manufacturing cost per unit:
C-16
Problem C-2A (continued)
3. Gross profit per unit
4. Pattern alignment $64,400/560 batches $115/batch
Pup Tent
Pop-Up Tent
Pattern alignment
140 batches x $115…
$ 16,100
420 batches x $115
$ 48,300
Cutting
7,000 MH x $4.10
28,700
5,300 MH x $4.10
21,730
Moving product
800 moves x $42
1,600 moves x $42
Sewing
2,600 DLH x $78
1,600 DLH x $78
124,800
Inspecting
240 insp. x $40
360 insp. x $40
Folding
15,200 units x $2.10
7,600 units x $2.10
Providing space
4,300 sq. ft. x $6
4,300 sq. ft. x $6
Material handling
Total overhead
$508,520
÷ units
C-17
5.
Pup Tent Pop-Up Tent
Selling price $65.00 $200.00
6. Departmental overhead rates based on direct labor hours and machine
hours are still volume-based measures and would not improve the