Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 17
1033
PROBLEM SET A
Problem 17-1A (45 minutes)
1. Plantwide rate
Product A Product B
Direct materials per unit $15.00 $24.00
Product A
Product B
Selling price per unit……………
$30.00
$120.00
Manufacturing cost per unit…..
26.37
84.64
Gross profit per unit………….
$ 3.63
$ 35.36
2. Product A Product B
Gross profit per unit $ 3.63 $35.36
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Problem 17-1A (continued)
For the instructor: The gross margin per customer from Product A ($72.60) does not
4. Compute overhead allocation rates for each activity
Assign overhead costs to products
Product A Product B
Engineering support
A: 12 modifications @ $350 $ 4,200
B: 58 modifications @ $350 $20,300
Electricity
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Problem 17-1A (concluded)
5. Product A Product B
Gross profit per unit (from above) $5.70 $24.97
x units per customer (part 2) x 20 units x 5 units
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 17
Problem 17-2A (25 minutes)
1. When companies experience strong price pressure on their high–
volume, commodity-type products, they should be concerned. Many
2. The company may be charging less for its low-volume, custom-order
products than the competitors because the company is using a volume–
3. While prices are really set in the marketplace based on customer
demand and supply of the product, companies still look at costs to
4. Custom-order furniture requires handling special fabrics, buying in
smaller quantities (which may be more expensive than buying “in bulk”),
5. In addition to obtaining a more accurate picture of the costs of making
various products, activity based costing also gives information about
the cost of the activities that are performed. Managers may be surprised
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 17
Problem 17-3A (40 minutes)
1. Grinding ……………………………………………………………………. Unit level
Polishing …………………………………………………………………… Unit level
2. Compute overhead allocation rates for each activity
Grinding & Polishing ($320,000+$135,000)/13,000 MH $35/MH
3. Assign overhead costs to jobs
Job 3175
Grinding & polishing
550 MH x $35
$19,250
5,500 MH x $35
$192,500
Product modification
26 Eng.hrs. x $400
Providing power
4,375 DLH x $15
Total cost of job
$383,425
4. Job 3175 Job 4286
Total overhead cost of job $74,650 $383,425
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 17
1038
Problem 17-3A (concluded)
5. Plantwide rate:
Grinding ……………………………………………………………………. $ 320,000
Polishing …………………………………………………………………… 135,000
Job 3175 Job 4286
Overhead
6. Average overhead cost
Job 3175 Job 4286
Using ABC $ 373.25 $ 153.37
Using plantwide rate $ 266.18 $ 186.32
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 17
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Problem 17-4A (25 minutes)
1. Compute overhead allocation rates for each activity
Assign costs to products
Hi-Voltage
EasySlim
Liquid material
1,400 gal x $0.06
$ 84
37,000 gal x $0.06
$ 2,220
Dry material
12,000 pounds x $0.55
Utilities
200 MH x $0.36
3,750 MH x $0.36
Bottling
180,000 btls x $0.40
37,500 labels x $0.03
180,000 labels x $0.03
Machine setup
300 setups x $25
2. Hi-Voltage EasySlim
Total cost of line $19,122 $95,070
3. Price for Hi-Voltage $3.75
4. The price of EasySlim must cover the costs associated with the product,
so the minimum price for this product is $0.53/bottle.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 17
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Problem 17-5A (45 minutes)
1. Plantwide overhead rate:
2.
Extra Fine Family Style
3.
Extra Fine Family Style
Selling price per case $18.00 $ 9.00
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 17
Problem 17-5A (concluded)
4. Compute overhead allocation rates for each activity
Mixing & Cooking ($4,500 + $11,250)/1,500 MH $10.50/MH
Product testing $112,500/600 batches $187.50/batch
Assign costs to products
Extra Fine
Family Style
Mixing & cooking
Product testing
500 MH x $10.50
200 batch. x $187.50
$ 5,250
37,500
1,000 MH x $10.50
400 batch. x $187.50
$ 10,500
75,000
5. Extra Fine Family Style
Selling price per case $18.00 $9.00
Manufacturing cost per case 20.02 7.98
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 17
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PROBLEM SET B
Problem 17-1B (45 minutes)
1. Plantwide overhead rate:
Engineering support $ 56,250
Electricity 112,500
Setup costs 41,250
Standard Deluxe
Direct materials cost per unit $ 4.00 $ 8.00
Direct labor cost per unit
Standard: 4 DLH x $20/DLH 80.00
2. Profit per customer Standard Deluxe
Gross profit per unit $3.80 $ 12.80
x units per customer
Standard (40,000 units/1,000 cust.) x 40 units/cust.
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Problem 17-1B (concluded)
3. Compute overhead allocation rates for each activity
Assign overhead costs to products
Standard
Deluxe
Engineering
50 mods. x $750
$37,500
25 mods. x $750
$ 18,750
Electricity
120,000 MH x $0.75
90,000
30,000 MH x $0.75
22,500
Setups
Total overhead
÷ units
Overhead/unit
Direct material
Direct labor
Mfg. cost/unit
Selling price
Mfg. cost/unit
Gross profit/unit
4. Standard Deluxe
Gross profit per unit $ 4.09 $ 11.64
x units per customer* x 40 units x 10 units
Gross profit per customer $ 163.60 $ 116.40
5. ABC gives more appropriate information to managers because it identifies the
resources consumed by each product line, and assigns the costs of these
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 17
Problem 17-2B (25 minutes)
1. The major costs of making the boxes are designing the boxes, setting
up machines to make the right cuts, cutting the cardboard, printing
2. Midwest has taken on more custom–made boxes for smaller-volume
customers.
3. Yes. Midwest’s old customers bought the same type of boxes over
and over, so the design costs were spread over many units. The new
4. Possibly. If ABC had been used rather than a volume-based system,
Midwest would have realized that small customers who want custom–
5. ABC gives managers information about the activities and the costs of
these activities that will help them make strategic decisions and
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Problem 17-3B (45 minutes)
1. Classify each activity
Wrapping…………………………………… Unit level
2. Compute overhead allocation rates for each activity
Wrapping $500,000/100,000 units $5/unit
3. Assign overhead costs to products
Holiday Basket
Executive Basket
Wrapping
8,000 units x $5
$ 40,000
1,000 units x $5
$ 5,000
Assembly & QI
2,000 DLH x $25
Product design
40 design hrs x $60
40 design hrs x $60
Cooking
80 batches x $270
200 batches x $270
Total ovhd. cost