I Problem 5-65Customer-Profitability Analy-sis, Activity-Based Costing(LO 5-9)Fresno Fiber Optics, Inc. manufactures fiber optic cables for the computer and telecommunicationsindustries. At the request of the company vice president of marketing, the cost management staff hasrecently completed a customer-profitability study. The following activity-based costing information wasthe basis for the analysis.1. Operating income, TraceTelecom: $7,000Chapter 5 ActivtyBased Costing and Management225Customer-Related ActivitiesCost Driver BaseCost Driver RateSales activitySales visits$1,000Order takingPurchese orders200Units handied.Special handing -Special shipping50Shipments500Cost-driver data for two of Fresno's customers for the most recent year areCustomer-Related ActivitiesTrace TelecomCaltex Computer8 visits6 vistsSales activity.Order taking15 orders20 ordersSpecial handing.800 units handled.600 unts handledSpecial shipping18 shipments20 shipmentsThe following additional information has been compiled for Fresno Fiber Optics for two of its cus-tomers, Trace Telecom and Caltex Computer, for the most recent year:Trace TelecomCaltex ComputerSales revenue.$190,000.$123,800Cost of goods soid.General seling costs80,000.62.00024,000.18,000General administrative costs19,000.16,000Required:1. Prepare a customer profitability analysis for Trace Telecom and Caltex Computer. (Hint: Refer toExhibit 5-13 for guidance.)2. Build a spreadsheet: Construct an Excel spreadsheet to solve requirement (1) above. Show howthe solution will change if the following information changes: Trace Telecom's sales revenue wasS185,000 and Caltex Computer's cost of goods sold was S59,000. Problem 5-63Better Bagels, Inc. manufactures a variety of bagels, which are frozen and sold in grocery stores. The Basic Elements of a Produc-production process consists of the following steps.tion Process; Non-Value-1. Ingredients, such as flour and raisins, are received and inspected. Then they are stored until needed. Added Costs(LO 5-7, 5-8, 5-10)2. Ingredients are carried on hand carts to the mixing room.3. Dough is mixed in 40-pound batches in four heavy-duty mixers.4. Dough is stored on large boards in the mixing room until a bagel machine is free.5. A board of dough is carried into the bagel room. The board is tipped, and the dough slides intothe hopper of a bagel machine. This machine pulls off a small piece of dough, rolls it into a cylin-drical shape, and then squeezes it into a doughnut shape. The bagel machines can be adjustedin a setup procedure to accommodate different sizes and styles of bagels. Workers remove theuncooked bagels and place them on a tray, where they are kept until a boiling vat is free.6. Next the trays of uncooked bagels are carried into an adjoining room, which houses three50-gallon vats of boiling water. The bagels are boiled for approximately one minute.7. Bagels are removed from the vats with a long-handled strainer and placed on a wooden board.The boards full of bagels are carried to the oven room, where they are kept until an oven rack isfree. The two ovens contain eight racks which rotate but remain upright, much like the seats on aFerris wheel. A rack full of bagels is finished baking after one complete revolution in the oven.When a rack full of bagels is removed from the oven, a fresh rack replaces it. The oven door isopened and closed as each rack completes a revolution in the oven.8. After the bagels are removed from the oven, they are placed in baskets for cooling.9. While the bagels are cooling, they are inspected. Misshapen bagels are removed and set aside.(Most are eaten by the staff.)10. After the bagels are cool, the wire baskets are carried to the packaging department. Here thebagels are dumped into the hopper on a bagging machine. This machine packages a half-dozenbagels in each bag and seals the bag with a twist tie.11. Then the packaged bagels are placed in cardboard boxes, each holding 24 bags. The boxes are placedon a forklift and are driven to the freezer, where the bagels are frozen and stored for shipment.Required:1. Identify the steps in the bagel-production process that fall into each of the following categories:process time, inspection time, move time, waiting time, storage time.2. List the steps in the production process that could be candidates for non-value-added activities.

Customer profitability analysis: It is the process to identify the cost incurred and benefits…

1. Prepare a customer profitability analysis for Trace Telecom and Caltex Computer. (Hint: Refer to Exhibit 5-13 for guidance.) 2. Build a spreadsheet: Construct an Excel spreadsheet to solve requirement (1) above. Show how the solution will change if the following information changes: Trace Telecom's sales revenue was S185,000 and Caltex Computer's cost of goods sold was $59,000.

1. Prepare a customer profitability analysis for Trace Telecom and Caltex Computer. (Hint: Refer to Exhibit 5-13 for guidance.) 2. Build a spreadsheet: Construct an Excel spreadsheet to solve requirement (1) above. Show how the solution will change if the following information changes: Trace Telecom's sales revenue was S185,000 and Caltex Computer's cost of goods sold was $59,000.

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter10: Accounting Systems For Manufacturing Operations

Section: Chapter Questions

Problem 10.25E: Activity-based costing in an insurance company Umbrella Insurance Company carries three major lines...

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Communication The controller of New Wave Sounds Inc. prepared the following product profitability report for management, using activity-based costing methods for allocating both the factory overhead and the marketing expenses. As such, the controller has confidence in the accuracy of this report. Home Theater Speakers Wireless Speakers Wireless Headphones Total Sales 1,500,000 1,200,000 900,000 3,600,000 Cost of goods sold 1,050,000 720,000 810,000 2,580,000 Gross profit 450,000 480,000 90,000 1,020,000 Marketing expenses 600,000 120,000 72,000 792,000 Income from operations (150,000) 360,000 18,000 228,000 In addition, the controller interviewed the vice president of marketing, who provided the following insight into the company's three products: The home theater speakers are an older product that is highly recognized in the marketplace. The wireless speakers are a new product that was just recently bunched. The wireless headphones are a new technology that has no competition in the marketplace, and it is hoped that they will become an important future addition to the companys product portfolio. Initial indications are that the product is well received by customers. The controller believes that the manufacturing costs for all three products are in line with expectations. Based on the information provided: 1. Calculate the ratio of gross profit to sales and the ratio of income from operations to sales for each product. 2. Write a brief (one page) memo using the product profitability report and the calculations in (1) to make recommendations to management with respect to strategies for the three products.
Activity-based costing in an insurance company Umbrella Insurance Company carries three major lines of insurance: auto, workers' compensation, and homeowners. The company has prepared the following report for 20Y2: Management is concerned that the administrative expenses may make some of the insurance lines unprofitable. However, the administrative expenses have not been allocated to the insurance lines. The controller has suggested that the administrative expenses could be assigned to the insurance lines using activity-based costing. The administrative expenses are comprised of five activities. The activities and their rates are as follows: Activity-base usage data for each line of insurance were retrieved from the corporate records and are shown below. a.Complete the product profitability report through the administrative activities. b.Determine the underwriting income as a percent of premium revenue. C.Determine the Operating income as a percent of premium revenue, rounded to one decimal place. d.Interpret the report.
Production run size and activity improvement Littlejohn, Inc. manufactures machined parts for the automotive industry. The activity cost associated with Part XX-10 is as follows: Activity Activity-Base Usage Activity Rate = Activity Cost Fabrication 250 dlh 80per dlh 20,000 Setup 10 setups 80 per setup 800 Production control 10 prod, runs 30 per prod, run 300 Moving 10 moves 25 per move 250 Total activity cost per unit 21,350 Estimated units of production 500 Activity cost per unit 42.70 Each unit requires 30 minutes of fabrication direct labor. Moreover, part XX-10 is manufactured in production run sizes of 50 units. Each production run is set up, scheduled (production control), and moved as a batch of 50 units. Management is considering improvements in the setup, production control, and moving activities in order to cut the production run sizes by half. As a result, the number of setups, production runs, and mows will double from 10 to 20. Such improvements are expected to speed the companys ability to respond to customer orders. Setup is reengineered so that it takes 60% of the original cost per setup. Production control software will allow production control effort and cost per production run to decline by 60%. Moving distance was reduced by 40%, thus reducing the cost per mow by the same amount. A. Determine the revised activity cost per unit under the proposed changes. B. Did these improvements reduce the activity cost per unit? C. What cost per unit for setup would be required for the solution in (A) to equal the base solution?
(Appendix 3A) Separating Fixed and Variable Costs, Service Setting Louise McDermott, controller for the Galvin plant of Veromar Inc., wanted to determine the cost behavior of moving materials throughout the plant. She accumulated the following data on the number of moves (from 100 to 800 in increments of 100) and the total cost of moving materials at those levels of moves: Required: 1. Prepare a scattergraph based on these data. Use cost for the vertical axis and number of moves for the horizontal axis. Based on an examination of the scattergraph, does there appear to be a linear relationship between the total cost of moving materials and the number of moves? 2. Compute the cost formula for moving materials by using the high-low method. Calculate the predicted cost for a month with 550 moves by using the high-low formula. (Note: Round the answer for the variable rate to three decimal places and the answer for total fixed cost and total cost to the nearest dollar.) 3. CONCEPTUAL CONNECTION Compute the cost formula for moving materials using the method of least squares. (Note: For the method of least squares, round the variable rate to two decimal places and total fixed cost and total cost to the nearest dollar.) Using the regression cost formula, what is the predicted cost for a month with 550 moves? What does the coefficient of determination tell you about the cost formula computed by regression? 4. CONCEPTUAL CONNECTION Evaluate the cost formula using the least squares coefficients. Could it be improved? Try dropping the third data point (300, 3,400), and rerun the regression.
5-26 Activity-based costing, manufacturing. Decorative Doors, Inc., produces two types of doors, interior and exterior. The company’s simple costing system has two direct-cost categories (materials and labor)and one indirect-cost pool. The simple costing system allocates indirect costs on the basis of machinehours. Recently, the owners of Decorative Doors have been concerned about a decline in the market sharefor their interior doors, usually their biggest seller. Information related to Decorative Doors production forthe most recent year follows:Interior ExteriorUnits sold 3,200 1,800Selling price $ 125 $ 200Direct material cost per unit $ 30 $ 45Direct manufacturing labor cost per hour $ 16 $ 16Direct manufacturing labor-hours per unit 1.50 2.25Production runs 40 85Material moves 72 168Machine setups 45 155Machine-hours 5,500 4,500Number of inspections 250 150The owners have heard of other companies in the industry that are now using an activity-based costingsystem and are curious how…
7-8 Calculating product costs using activity-based costing (CIMA adapted) (LO 2) Wieters Industries manufactures several products including a basic case for a popular smartphone. The company is considering adopting an activity-based costing approach for setting its budget. The company's production activities, budgeted activity costs, and cost drivers for the coming year are as follows. Activity Activity Overhead $ Cost Driver Cost DriverQuantity Machine setup $ 200,000 # of setups 800 Inspection 120,000 # of quality tests 400 Materials receiving 252,000 # of purchase orders 1,800 The budgeted data for smartphone case production are as follows. Direct materials $2.50 per unit Direct labor $0.54 per unit Number of setups 92 Number of quality tests 400 Number of purchase orders 50 Production 15,000 units Required a.Calculate the activity rate for each cost pool. b.Calculate the activity-based unit cost of the smartphone case.
Comprehensive Activity-Based Costing Exercise [LO7–2, LO7–3, LO7–4, LO7–5] A dvanced Products Corporation has supplied the following data from its activity-based costing system: Overhead Costs Wages and salaries . . . . . . . . . . . . . $300,000 Other overhead costs . . . . . . . . . . . 100,000 Total overhead costs . . . . . . . . . . . . $400,000 Activity Cost Pool Activity Measure Total Activity for the Year Supporting direct labor . . . . . . . . . . . . . Number of direct labor-hours 20,000 DLHs Order processing . . . . . . . . . . . . . . . . . . Number of customer orders 400 orders Customer support . . . . . . . . . . . . . . . . . Number of customers 200 customers Other . . . . . . . . . . . . . . . . . . . . . . . . . . . This is an organization sustaining activity Not applicable Distribution of Resource Consumption Across Activities Supporting Direct Labor Order Processing Customer Support Other Total Wages and salaries . . . . . 40% 30% 20% 10% 100% Other overhead costs . .…
Problem 5-54 Plantwide versus Departmental Rates, Product-Costing Accuracy: Activity-Based Costing Ramsey Company produces speakers (Model A and Model B). Both products pass through two producing departments. Model A’s production is much more labor-intensive than that of Model B. Model B is also the more popular of the two speakers. The following data have been gathered for the two products: Product Data Model A Model B Units produced per year 10,000 100,000 Prime costs $150,000.00 $1,500,000.00 Direct labor hours' 140,000 300,000 Machine hours 20,000 200,000 Production runs 40 60 Inspection hours 800 1,200 Maintenance hours 10,000 90,000 Overhead costs: Setup costs $270,000.00 Inspection costs 210,000 Machining 240,000 Maintenance 270,000 Total $990,000.00 Required: Compute the overhead cost per unit for each product by using a…
13-30 Cost-plus, time and materials, ethics. C & S Mechanical sells and services plumbing, heating, and air-conditioning systems. C & S’s cost accounting system tracks two cost categories: direct labor and direct materials. C & S uses a time-and-materials pricing system, with direct labor marked up 90% and direct materials marked up 40% to recover indirect costs of support staff, support materials, and shared equipment and tools and to earn a profit. During a hot summer day, the central air-conditioning in Brooke Lee’s home stops working. C & S technician John Anderson arrives at Lee’s home and inspects the air conditioner. He considers two options: replace the compressor or repair it. The cost information available to Anderson follows: 1. If Anderson presents Lee with the replace or repair options, what price would he quote for each? 2. If the two options were equally effective for the 3 years that Lee intends to live in the home, which option would she choose? 3. If…
Exercise 9-47 (Static) Activity-Based versus Traditional Costing-Ethical Issues (LO 9-3, 4, 5) Wendy Chen established Windy City Coaching (WCC) to provide teen counseling and executive coaching services to its clients. WCC charges a $300 fee per hour for each service. The revenues and costs for the year are shown in the following income statement. WINDY CITY COACHING Income Statement TeenCounseling ExecutiveCoaching Total Revenue $ 66,000 $ 135,000 $ 201,000 Expenses: Administrative support 40,000 Transportation, etc 36,000 Equipment 20,000 Profit $ 105,000 WCC has kept good records of the following data for cost allocation purposes. Activity Level Activity Cost Driver TeenCounseling ExecutiveCoaching Providing administrative support Number of clients 6 4 Traveling Number of visits 100 150 Using equipment Computer hours 900 700 Required: a.…
Last question 4) The company uses normal costing with two direct-cost categories: Direct materials Direct manufacturing labor Furthermore, the company uses two manufacturing overhead cost pools: Machining department with machine- hours as the allocation base Assembly department with direct manufacturing labor costs as the allocation base. The budget for the plant in 2020 is as follows: Production plant Machine department Assembly department Manufacturing overhead costs 13 597 500 12 271 500 Direct manufacturing labor costs 1 455 000 6 075 000 Direct manufacturing labor-hours 54 000 22 500 Machine-hours 277 500 55 500 What is the budgeted manufacturing overhead rate in the machining and the assembly department? Overhead is the direct cost involved in the production process of the business of the company Calculation of budgeted manufacturing overhead rate in machine department: Budgeted manufacturing…
Question 6.4 Krum Lawn Equipment has five departments, of which Casting and Finishing are producing departments. Maintenance, Product Movement, and Inspection are service departments. The distribution of the service departments is as follows: Service Costs Services provided to: Maint. Prod. Move. Insp. Cast. Finish. Maintenance $84,000 5% 25% 50% 20% Product movement 160,000 10% 5 45 40 Inspection 38,000 15 5 20 60 Required Use the direct method to allocate the service departments' costs. Prepare a schedule showing the total costs allocated to each…