Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
5-61
PROBLEM 5-59 (CONTINUED)
3.
The unit costs of the products using activity-based costing are calculated as follows:
Fabricating:
Total cost ................................................................................................
$2,951,820
Less: Direct material ................................................................
480,000
Assembly:
Total cost ................................................................................................
$978,180
Less: Direct labor ................................................................................................
624,000
Tuff Stuff unit cost:
Direct material ................................................................................................
$15.00
5-62
PROBLEM 5-59 (CONTINUED)
Ruff Stuff unit cost:
Direct material ................................................................................................
$ 9.00
4.
Ruff Stuff unit costs:
Cost with overhead assigned on direct-labor hours ................................
$112.50
Chapter 05 - Activity-Based Costing and Management
5-63
PROBLEM 5-60 (60 MINUTES)
1.
Based on the cost data from Gigabyte's traditional, volume-based product-costing
system, product G is the firm's least profitable product. Its reported actual gross
2.
Again, based on the product costs reported by the firm's traditional, volume-based
product-costing system, product W appears to be very profitable. As in requirement
3.
Gigabyte's competitors have moved aggressively into the market for gismos (product
G), but they have abandoned the whatchamacallit (product W) market to Gigabyte.
These competing firms apparently believe they can sell gismos at a much
lower price than Gigabyte's management feels is feasible. This evidence suggests that
4.
Percentages for raw-material costs:
Percentage
Annual
of Total
Raw-Material
Annual
Raw-Material
Raw-Material
Product
Cost per Unit
Volume
Cost
Cost*
G
$105.00
8,000
$ 840,000
25%
Chapter 05 - Activity-Based Costing and Management
5-64
PROBLEM 5-60 (CONTINUED)
5.
Product costs based on an activity-based costing system:
Product
G
Product
T
Product
W
Direct material................................................
$105.00
$157.50
$ 52.50
Direct labor ....................................................
48.00
36.00
24.00
aMachinery:
Product G:
($3,675,000 24%)
8,000 units
=
$110.25
bMachine setup:
Product G:
($15,750 22%)
8,000 units
=
$ .43
dMaterial handling:
Product G:
($2,625,000 25%)
8,000 units
=
$ 82.03
Product T:
($2,625,000 69%)
15,000 units
=
$120.75
Product W:
($2,625,000 6%)
4,000 units
=
$ 39.38
Chapter 05 - Activity-Based Costing and Management
PROBLEM 5-60 (CONTINUED)
6.
Comparison of reported product costs, new target prices, and actual selling prices:
Product
G
Product
T
Product
W
Reported product costs:
Traditional, volume-based costing system
$573.00
$508.50
$286.50
5-66
PROBLEM 5-61 (20 MINUTES)
MEMORANDUM
Date:
Today
To:
President, Gigabyte, Inc.
From:
I.M. Student
Subject:
Gigabyte's competitive position
Gigabyte's product-costing system has been providing misleading product cost
information. Our traditional, volume-based costing system overcosted gismos and
I recommend the following courses of action:
Chapter 05 - Activity-Based Costing and Management
5-67
PROBLEM 5-62 (20 MINUTES)
Product
G
Product
T
Product
W
Traditional, volume-based costing system:
Traditional
Traditonal
Traditional
system
system
system
overcosts
overcosts
undercosts
PROBLEM 5-63 (25 MINUTES)
1.
Process time: steps 3, 5, 6, 7, 8, 10, 11
Chapter 05 - Activity-Based Costing and Management
5-68
EXERCISE 5-63 (CONTINUED)
2.
Candidates for non-value-added activities
follow. (Note that elimination of some of
these activities would require reconfiguring
the production process.)
(a)
Step 1:
Storing ingredients (Could move toward JIT system.)
(f)
Step 6:
Carrying uncooked bagels to adjoining room.
(g)
Step 7:
Carrying bagels to oven room.
Chapter 05 - Activity-Based Costing and Management
5-69
PROBLEM 5-64 (40 MINUTES)
(1)
Redesigned bagel production process:
(a)
Ingredients, such as flour and raisins, are received and inspected in the morning
(b)
Dough is mixed in 40-pound batches in four heavy-duty mixers. The dough is
(e)
Bagels are removed from the vats with a long-handled strainer and placed on a
Chapter 05 - Activity-Based Costing and Management
5-70
PROBLEM 5-64 (CONTINUED)
(i)
After the bagels are cool, the wire baskets are placed on the conveyor and
(2 )
New equipment:
Bodacious Bagels, Inc. would need to purchase a new conveyor system that would
5-71
PROBLEM 5-65 (45 MINUTES)
1.
Two dimensional ABC:
Cost Assignment View
RESOURCE COSTS
Assignment of resource costs
to activity cost pools
associated with
significant activities
Process View
Activity analysis
5-72
PROBLEM 5-65 (CONTINUED)
2.
Triggers for selected activities:
Activity
Number
Trigger
(2)
Realization by purchasing personnel that they do not fully understand the
3.
Possible root causes:
Activity
Number
Possible Root Causes*
(2)
Unclear specifications
(9)
Vendor delay
(12)
Misspecification of parts
(13)
Misspecification of parts
5-73
PROBLEM 5-65 (CONTINUED)
4.
Suggested performance measures:
Activity
Number
Performance
Measures
(5)
Average price paid
PROBLEM 5-66 (40 MINUTES)
1. Customer-profitability analysis:
Caltex
Computer
Trace
Telecom
Sales revenue ......................................................................
$380,000
$247,600
