Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
5-41
PROBLEM 5-54 (50 MINUTES)
1.
Activity Cost Pool
Type of Activity
I:
Machine-related costs
Unit-level
2.
Calculation of pool rates:
I:
Machine-related costs:
II.
Setup and inspection:
III.
Engineering:
IV.
Plant-related costs:
5-42
PROBLEM 5-54 (CONTINUED)
3.
Unit costs for odds and ends:
I:
Machine-related costs:
II:
Setup and inspection:
III:
Engineering:
Odds:
units 1,000
75% orders change 200 order change per $1,800
IV.
Plant-related costs:
Odds:
units 1,000
80% ft. sq. 3,840 ft. sq. per $100
Chapter 05 - Activity-Based Costing and Management
5-43
PROBLEM 5-54 (CONTINUED)
4.
New product cost per unit using the ABC system:
Odds
Ends
Direct material ................................................................
$ 160.00
$240.00
Manufacturing overhead:
5.
New target prices:
Odds
Ends
6.
Full assignment of overhead costs:
Odds
Ends
Manufacturing overhead costs:
Machine-related .............................................................
$ 800.00
$ 200.00
Chapter 05 - Activity-Based Costing and Management
5-44
PROBLEM 5-54 (CONTINUED)
7.
Cost distortion:
Odds
Ends
Traditional volume-based costing system:
reported product cost ...................................................
$ 664.00
$996.00
Activity-based costing system:
Traditional
system
Traditional
system
Production volume ...............................................................
1,000
5,000
Chapter 05 - Activity-Based Costing and Management
5-45
PROBLEM 5-55 (45 MINUTES)
1.
a.
GSCC's predetermined overhead rate, using direct-labor cost as the single cost
driver, is $10 per direct labor dollar, calculated as follows:
Overhead rate
=
cost labor-direct budgeted
cost overhead-ingmanufactur total
b.
The full product costs and selling prices of one pound of Jamaican and one
pound of Colombian coffee are calculated as follows:
Jamaican
Colombian
Direct material ........................................
$2.90
$ 3.90
Direct labor .............................................
.40
.40
2.
The new product cost, under an activity-based costing approach, is $11.06 per pound
of Jamaican and $4.62 per pound of Columbian coffee, calculated as follows:
Activity
Cost Driver
Budgeted
Activity
Budgeted
Cost
Unit Cost
Purchasing
Purchase orders
2,316
$2,316,000
$1,000
Material handling
Setups
3,600
2,880,000
800
Chapter 05 - Activity-Based Costing and Management
5-46
PROBLEM 5-55 (CONTINUED)
Jamaican Coffee
Standard cost per pound:
Direct material .......................................................................................
$2.90
Direct labor ............................................................................................
.40
Colombian Coffee
Standard cost per pound:
Direct material .......................................................................................
$3.90
Direct labor ............................................................................................
.40
Chapter 05 - Activity-Based Costing and Management
5-47
PROBLEM 5-55 (CONTINUED)
3.
a.
The ABC analysis indicates that several activities other than direct labor drive
b.
The implication of the ABC analysis is that the low-volume products are using
Chapter 05 - Activity-Based Costing and Management
5-48
PROBLEM 5-56 (60 MINUTES)
1.
Kara Lindley's predecessor at Pensacola Air Industries (PAI) would have used a 10
percent material-handling rate, calculated as follows:
Payroll ...................................................................................
$270,000
Employee benefits................................................................
54,000
2.
a.
The revised material-handling costs to be allocated on a per-purchase-order
basis is $1.00, calculated as follows:
b.
Purchase orders might be a more reliable cost driver than is the dollar amount of
Chapter 05 - Activity-Based Costing and Management
5-49
PROBLEM 5-56 (CONTINUED)
3.
There is a $111,900 reduction in material-handling costs allocated to government
contracts by PAI as a result of the new allocation method, calculated as follows:
Previous method:
Government material ...........................................................
$ 3,009,000
Chapter 05 - Activity-Based Costing and Management
5-50
PROBLEM 5-56 (CONTINUED)
4.
A forecast of the cumulative dollar impact over a three-year period from 20x4 through
20x6 of Kara Lindley's recommended change for allocating Material-Handling
Department costs to the Government Contracts Unit is $351,519, calculated as
follows:
20x5
20x6
Calculation of forecasted variable material-handling costs:
Calculation of forecasted purchase orders:
Calculation of material-handling costs allocated to government contracts:
Chapter 05 - Activity-Based Costing and Management
5-51
PROBLEM 5-56 (CONTINUED)
Calculation of cumulative dollar impact:
Government material at 70% ...............................................
$ 3,099,600b
$ 3,177,090 c
b70% $4,428,000 = $3,099,600
In summary, the cumulative dollar impact of the recommended change in allocating
Material-Handling Department costs is $351,519, calculated as follows:
5.
a.
Referring to the standards of ethical conduct for management accountants, Kara
Lindley faces the following ethical issues:
Competence:
5-52
PROBLEM 5-56 (CONTINUED)
• Communicate unfavorable as well as favorable information and professional
judgments and opinions.
Credibility:
b.
The steps Kara Lindley could take to resolve this ethical conflict are as follows:
• Lindley should first follow the established policies at PAI.
• If this approach does not resolve the conflict or if such policies do not exist,
she should discuss the problem with her immediate superior, except when it
Chapter 05 - Activity-Based Costing and Management
5-53
PROBLEM 5-57 (45 MINUTES)
1.
An activity-based costing system is a two-stage process of assigning costs to
products. In stage one, activity-cost pools are established. In stage two a cost driver is
2.
Queensland Electronics should not continue with its plans to emphasize the Zodiac
model and phase out the Novelle model. As shown in the following activity-based
costing analysis, the Zodiac model has a gross margin of less than 1 percent, while
the Novelle model generates a gross margin of nearly 42 percent.
Cost per event for each cost driver:
Soldering ....................
$ 880,000
1,600,000
=
$ .55 per solder joint
Shipments ..................
836,000
19,000
=
44.00 per shipment
Costs per model:
Zodiac
Novelle
Direct costs:
Materiala .........................................................................
$2,316,000
$ 4,642,000
Direct laborb ................................................................
196,000
462,000
Chapter 05 - Activity-Based Costing and Management
PROBLEM 5-57 (CONTINUED)
Calculations:
Zodiac
Novelle
aMaterial .........................................
4,000 $579
22,000 $211
bDirect labor ...................................
4,000 $49
22,000 $21
Profitability analysis:
Zodiac
Novelle
Total
Sales ..............................................................
$4,640,000
$20,020,000
$24,660,000
5-55
PROBLEM 5-58 (60 MINUTES)
1.
General advantages associated with activity-based costing include the following:
• Provides management with a more thorough understanding of complex product
costs and product profitability for improved resource management and pricing
5-56
PROBLEM 5-58 (CONTINUED)
2.
Using Ultratech’s unit cost data, the total contribution margin expected from the PC
board is $4,720,000, calculated as follows:
Per Unit
Total for
40,000
Units
Revenue ................................................................................
$600
$24,000,000
Direct material ......................................................................
$280
$11,200,000
The total contribution margin expected from the TV board is $3,900,000, calculated as
follows:
Per Unit
Total for
65,000
Units
Revenue ................................................................................
$300
$19,500,000
Direct material ......................................................................
$160
$10,400,000
5-57
PROBLEM 5-58 (CONTINUED)
3.
The pool rates, which apply to both the PC board and the TV board, are calculated as
follows:
Procurement ............................
$800,000/4,000,000
=
$.20 per part
Production scheduling ...........
$440,000/110,000
=
$4.00 per board
Using activity-based costing, the total contribution margin expected from the PC
board is $3,464,000, calculated as follows:
Per Unit
Total for
40,000
Units
Revenue .................................................................................
$600.00
$24,000,000
Direct material .......................................................................
$280.00
$11,200,000
5-58
PROBLEM 5-58 (CONTINUED)
Using activity-based costing, the total contribution margin expected from the TV board
is $5,045,300, calculated as follows:
Per Unit
Total for
65,000
Units
Revenue ................................................................................
$ 300.00
$19,500,000
Direct material ......................................................................
$ 160.00
$10,400,000
Procurement ($.20 per part 26 parts) ..............................
5.20
338,000
4.
The analysis using the previously reported costs indicates that the unit contribution of
the PC board is almost double that of the TV board. On this basis, management is
likely to accept the suggestion of the production manager and concentrate
Chapter 05 - Activity-Based Costing and Management
5-59
PROBLEM 5-59 (50 MINUTES)
1.
a.
The calculation of total budgeted costs for the Manufacturing Department at
Scott Manufacturing is as follows:
Direct material:
Tuff Stuff ($15.00 per unit 20,000 units) ............
$300,000
b.
The unit costs of Tuff Stuff and Ruff Stuff, with overhead assigned on the basis
of direct-labor hours, are calculated as follows:
Tuff Stuff:
Direct material ........................................................
$15.00
Chapter 05 - Activity-Based Costing and Management
5-60
PROBLEM 5-59 (CONTINUED)
Ruff Stuff:
Direct material ........................................................
$ 9.00
2.
The total budgeted cost of the Fabricating and Assembly Departments, after
separation of costs into the activity cost pools, is calculated as follows:
Total
Fabricating
Assembly
Percent
Dollars
Percent
Dollars
Direct material ..........
$ 480,000
100%
$ 480,000
