Activity-Based CostingPure Cane Sugar Company manufactures three products (white sugar, brown sugar, and powdered sugar) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows:ActivityActivity CostsProduction$247,500Setup48,000Inspection12,500Shipping69,30027,600Customer service$404,900TotalThe activity bases identified for each activity are as follows:ActivityActivity BaseProductionMachine hoursSetupNumber of setupsInspectionNumber of inspectionsShippingNumber of customer ordersCustomerNumber of customer serviceservicerequestsThe activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows:Number ofNumber ofCustomerCustomerServiceMachineNumber ofNumber ofOrdersRequestsUnitsHoursSetupsInspections410258,000White sugar2,000501001,1002005,000Brown sugar1,250701608001205,000Powdered sugar1,250802402,31034518,0004,500200500TotalEach product requires 0.25 machine hour per unit.Required:1. Determine the activity rate for each activity.Activity RateProduction/mhSetup%24/setupInspectionfinsp.Shipping/cust. ord.Customer Service/req.2. Determine the total and per-unit activity costs for all three products. Round "Activity cost per unit" answers to two decimal places.White SugarBrown SugarPowdered SugarTotal activity cost%24Activity cost per unit3. Why aren't the activity unit costs equal across all three products since they require the same machine time per unit?

Answered: Activity Bese Number of customer…

Activity Bese Number of customer service Machine Number of Number ofr Customer Hours Setups Inspectione Orders res 0.25 machine hour per 非! il川 i

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter4: Activity-based Costing

Section: Chapter Questions

Problem 4PB: Activity-based product costing Sweet Sugar Company manufactures three products (white sugar, brown...

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Activity-based product costing Mello Manufacturing Company is a diversified manufacturer that manufactures three products (Alpha, Beta, and Omega) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows: The activity bases identified for each activity are as follows: The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows: Each product requires 40 minutes per unit of machine time. Instructions Determine the activity rate for each activity. Determine the total and per-unit activity cost for all three products. Round to nearest cent. Why arent the activity unit costs equal across all three products since they require the same machine time per unit?
Use the following information for Brief Exercises 4-34 and 4-35: Sanjay Company manufactures a product in a factory that has two producing departments, Assembly and Painting, and two support departments, S1 and S2. The activity driver for S1 is square footage, and the activity driver for S2 is number of machine hours. The following data pertain to Sanjay: Brief Exercises 4-34 (Appendix 4B) Assigning Support Department Costs by Using the Direct Method Refer to the information for Sanjay Company above. Required: 1. Calculate the cost assignment ratios to be used under the direct method for Departments S1 and S2. (Note: Each support department will have two ratiosone for Assembly and the other for Painting.) 2. Allocate the support department costs to the producing departments by using the direct method.
Use the following information for Brief Exercises 4-27 and 4-28: Quillen Company manufactures a product in a factory that has two producing departments, Cutting and Sewing, and two support departments, S1 and S2. The activity driver for S1 is number of employees, and the activity driver for S2 is number of maintenance hours. The following data pertain to Quillen: Brief Exercises 4-27 (Appendix 4B) Assigning Support Department Costs by Using the Direct Method Refer to the information for Quillen Company above. Required: 1. Calculate the cost assignment ratios to be used under the direct method for Departments S1 and S2. (Note: Each support department will have two ratiosone for Cutting and the other for Sewing.) 2. Allocate the support department costs to the producing departments by using the direct method.
The management of Gwinnett County Chrome Company, described in Problem 1A, now plans to use the multiple production department factory overhead rate method. The total factory overhead associated with each department is as follows: Instructions 1. Determine the multiple production department factory overhead rates, using direct labor hours for the Stamping Department and machine hours for the Plating Department. 2. Determine the product factory overhead costs, using the multiple production department rates in (1).
Activity-based department rate product costing and product cost distortions Big Sound Inc. manufactures two products: receivers and loudspeakers. The factory overhead incurred is as follows: The activity base associated with the two production departments is direct labor hours. The indirect labor can be assigned to two different activities as follows: The activity-base usage quantities and units produced for the two products follow: Instructions Determine the factory overhead rates under the multiple production department rate method. Assume that indirect labor is associated with the production departments, so that the total factory overhead is 420,000 and 294,000 for the Subassembly and Final Assembly departments, respectively. Determine the total and per-unit factory overhead costs allocated to each product, using the multiple production department overhead rates in (1). Determine the activity rates, assuming that the indirect labor is associated with activities rather than with the production departments. Determine the total and per-unit cost assigned to each product under activity-based costing. Explain the difference in the per-unit overhead allocated to each product under the multiple production department factory overhead rate and activity-based costing methods. production department factory overhead rate and activity-based costing methods.
Kenkel, Ltd. uses backflush costing to account for its manufacturing costs. The trigger points are the purchase of materials, the completion of goods, and the sale of goods. Prepare journal entries to account for the following: a. Purchased raw materials, on account, 80,000. b. Requisitioned raw materials to production, 80,000. c. Distributed direct labor costs, 10,000. d. Factory overhead costs incurred, 60,000. (Use Various Credits for the account in the credit part of the entry.) e. Completed all of the production started. f. Sold the completed production for 225,000, on account.
Roberts Company produces two weed eaters: basic and advanced. The company has four activities: machining, engineering, receiving, and inspection. Information on these activities and their drivers is given below. Overhead costs: Required: 1. Calculate the four activity rates. 2. Calculate the unit costs using activity rates. Also, calculate the overhead cost per unit. 3. What if consumption ratios instead of activity rates were used to assign costs instead of activity rates? Show the cost assignment for the inspection activity.
Becker Tabletops has two support departments (Janitorial and Cafeteria) and two production departments (Cutting and Assembly). Relevant details for these departments are as follows: Allocate the support department costs to the production departments using the direct method.
Evans, Inc., has a unit-based costing system. Evanss Miami plant produces 10 different electronic products. The demand for each product is about the same. Although they differ in complexity, each product uses about the same labor time and materials. The plant has used direct labor hours for years to assign overhead to products. To help design engineers understand the assumed cost relationships, the Cost Accounting Department developed the following cost equation. (The equation describes the relationship between total manufacturing costs and direct labor hours; the equation is supported by a coefficient of determination of 60 percent.) Y=5,000,000+30X,whereX=directlaborhours The variable rate of 30 is broken down as follows: Because of competitive pressures, product engineering was given the charge to redesign products to reduce the total cost of manufacturing. Using the above cost relationships, product engineering adopted the strategy of redesigning to reduce direct labor content. As each design was completed, an engineering change order was cut, triggering a series of events such as design approval, vendor selection, bill of materials update, redrawing of schematic, test runs, changes in setup procedures, development of new inspection procedures, and so on. After one year of design changes, the normal volume of direct labor was reduced from 250,000 hours to 200,000 hours, with the same number of products being produced. Although each product differs in its labor content, the redesign efforts reduced the labor content for all products. On average, the labor content per unit of product dropped from 1.25 hours per unit to one hour per unit. Fixed overhead, however, increased from 5,000,000 to 6,600,000 per year. Suppose that a consultant was hired to explain the increase in fixed overhead costs. The consultants study revealed that the 30 per hour rate captured the unit-level variable costs; however, the cost behavior of other activities was quite different. For example, setting up equipment is a step-fixed cost, where each step is 2,000 setup hours, costing 90,000. The study also revealed that the cost of receiving goods is a function of the number of different components. This activity has a variable cost of 2,000 per component type and a fixed cost that follows a step-cost pattern. The step is defined by 20 components with a cost of 50,000 per step. Assume also that the consultant indicated that the design adopted by the engineers increased the demand for setups from 20,000 setup hours to 40,000 setup hours and the number of different components from 100 to 250. The demand for other non-unit-level activities remained unchanged. The consultant also recommended that management take a look at a rejected design for its products. This rejected design increased direct labor content from 250,000 hours to 260,000 hours, decreased the demand for setups from 20,000 hours to 10,000 hours, and decreased the demand for purchasing from 100 component types to 75 component types, while the demand for all other activities remained unchanged. Required: 1. Using normal volume, compute the manufacturing cost per labor hour before the year of design changes. What is the cost per unit of an average product? 2. Using normal volume after the one year of design changes, compute the manufacturing cost per hour. What is the cost per unit of an average product? 3. Before considering the consultants study, what do you think is the most likely explanation for the failure of the design changes to reduce manufacturing costs? Now use the information from the consultants study to explain the increase in the average cost per unit of product. What changes would you suggest to improve Evanss efforts to reduce costs? 4. Explain why the consultant recommended a second look at a rejected design. Provide computational support. What does this tell you about the strategic importance of cost management?
A manufacturing company has two service and two production departments. Human Resources and Machine Repair are the service departments. The production departments are Grinding and Polishing. The following data have been estimated for next years operations: The direct charges identified with each of the departments are as follows: The human resources department services all departments of the company, and its costs are allocated using the numbers of employees within each department, while machine repair costs are allocable to Grinding and Polishing on the basis of machine hours. 1. Distribute the service department costs, using the direct method. 2. Distribute the service department costs, using the sequential distribution method, with the department servicing the greatest number of other departments distributed first.
Activity cost pools, activity rates, and product costs using activity-based costing Caldwell Home Appliances Inc. is estimating the activity cost associated with producing ovens and refrigerators. The indirect labor can be traced into four separate activity pools, based on time records provided by the employees. The budgeted activity cost and activity-base information are provided as follows: The estimated activity-base usage and unit information for two product lines was determined as follows: A. Determine the activity rate for each activity cost pool. B. Determine the activity-based cost per unit of each product.