Bevard Nuptial Bakery makes very elaborate wedding cakes to order. The company hasan activity-based costing system with three activity cost pools. The activity rate for theSize-Related activity cost pool is $0.76 per guest. (The greater the number of guests, thelarger the cake.) The activity rate for the Complexity-Related cost pool is $28.31 per tier.(Cakes with more tiers are more complex.) Finally, the activity rate for the Order-Relatedactivity cost pool is $78.98 per order. (Each wedding involves one order for a cake.) Theactivity rates include the costs of raw ingredients such as flour, sugar, eggs, andshortening. The activity rates do not include the costs of purchased decorations such asminiature statues and wedding bells, which are accounted for separately.Data concerning two recent orders appear below:EuertzWedding72SparacioWedding220Number of reception guestsNumber of tiers on the cakeCost of purchased decorationsfor cake11$16.35$81.35Assuming that all of the costs listed above are avoidable costs in the event that an orderis turned down, what amount would the company have to charge for the Euertz weddingcake to just break even?Multiple Choice$399.81$16.35$348.22$78.98

Breakeven is when the cost is equal to the sales revenue. There is no profit or loss in case on…

st pool is $0.76 per guest. (The greater the numb tivity rate for the Complexity-Related cost pool is are more complex.) Finally, the activity rate for th 98 per order. (Each wedding involves one order the costs of raw ingredients such as flour, su rates do not include the costs of purchased dec vedding bells, which are accounted for separatel. cent orders appear below: Euertz Sparacio

st pool is $0.76 per guest. (The greater the numb tivity rate for the Complexity-Related cost pool is are more complex.) Finally, the activity rate for th 98 per order. (Each wedding involves one order the costs of raw ingredients such as flour, su rates do not include the costs of purchased dec vedding bells, which are accounted for separatel. cent orders appear below: Euertz Sparacio

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter4: Activity-based Costing

Section: Chapter Questions

Problem 22E: Silven Company has identified the following overhead activities, costs, and activity drivers for the...

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Meade Nuptial Bakery makes very elaborate wedding cakes to order. The company has an activity-based costing system with three activity cost pools. The activity rate for the Size-Related activity cost pool is $1.14 per guest. (The greater the number of guests, the larger the cake.) The activity rate for the Complexity-Related cost pool is $29.87 per tier. (Cakes with more tiers are more complex.) Finally, the activity rate for the Order-Related activity cost pool is $81.56 per order. (Each wedding involves one order for a cake.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for separately. Data concerning two recent orders appear below: Ericson Wedding Haupt Wedding Number of reception guests 71 189 Number of tiers on the cake 4 6 Cost of purchased decorations for cake $ 23.45 $ 75.32…
Nissley Wedding Fantasy Corporation makes very elaborate wedding cakes to order. The owner of the company has provided the following data concerning the activity rates in its activity-based costing system: Activity Cost Pool Activity Rate Size-related................... $1.13 per guest Complexity-related......... $28.22 per tier Order-related................. $74.72 per order The measure of activity for the size-related activity cost pool is the number of planned guests at the wedding reception. The greater the number of guests, the larger the cake. The measure of complexity is the number of tiers in the cake. The activity measure for the order-related cost pool is the number of orders. (Each wedding involves one order.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells,…
Mariah Enterprises makes a variety of consumer electronic products. Its camera manufacturing plant is considering choosing between two different processes, named Alpha and Beta, which can be used to make two component parts A and B. To make the correct decision, the managers would like to compare the labor and multifactor productivity of process Alpha with that of process Beta. The value of process output for component A and B are $175 and $140 per unit, respectively. The corresponding overhead costs are $6,000 and $5,000, respectively. Process Alpha Process Beta Product A B C D Output (units) 50 60 30 80 Labor ($) $1,200 $1,400 $1,000 $2,000 Material ($) $2,500 $3,000 $1,400 $3,500 a. Which process, Alpha or Beta, is more productive? b. What conclusions can you draw from your analysis?
Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management has designed an activity-based costing system with the following activity cost pools and activity rates: Activity Cost Pool Activity Rate Supporting direct labor $ 20 per direct labor-hour Order processing $ 200 per order Custom design processing $ 258 per custom design Customer service $ 424 per customer Management would like an analysis of the profitability of a particular customer, Big Sky Outfitters, which has ordered the following products over the last 12 months: StandardModel CustomDesign Number of gliders 15 3 Number of orders 2 3 Number of custom designs 0 3 Direct labor-hours per glider 29.50 31.00 Selling price per glider $ 1,700 $ 2,370 Direct materials cost per glider $ 444 $ 576 The company’s direct labor rate is $18 per…
Mary Jones and Jack Smart have joined forces to start M&J Food Products, a processor of packaged shredded lettuce for institutional use. Jack has years of food processing experience, and Mary has extensive commercial food preparation experience. The process will consist of opening crates of lettuce and then sorting, washing, slicing, preserving, and finally packaging the prepared lettuce. Together, with help from vendors, they think they can adequately estimate demand, fixed costs, revenues, and variable cost per 5-pound bag of lettuce. They think a largely manual process will have monthly fixed cost of $50,000 and a variable cost of $2.50 per bag. They expect to sell 75,000 bags of lettuce per month. They expect to sell the shredded lettuce for $3.25 per 5-pound bag. Jack and Mary has been contacted by a vendor to consider a more mechanized process. This new process will have monthly fixed cost of $125,000 per month with a variable cost of $1.75 per bag. Based on the above…
Mary Jones and Jack Smart have joined forces to start M&J Food Products, a processor of packaged shredded lettuce for institutional use. Jack has years of food processing experience, and Mary has extensive commercial food preparation experience. The process will consist of opening crates of lettuce and then sorting, washing, slicing, preserving, and finally packaging the prepared lettuce. Together, with help from vendors, they think they can adequately estimate demand, fixed costs, revenues, and variable cost per 5-pound bag of lettuce. They think a largely manual process will have monthly fixed cost of $50,000 and a variable cost of $2.50 per bag. They expect to sell 75,000 bags of lettuce per month. They expect to sell the shredded lettuce for $3.25 per 5-pound bag. Jack and Mary has been contacted by a vendor to consider a more mechanized process. This new process will have monthly fixed cost of $125,000 per month with a variable cost of $1.75 per bag. Based on the above…
hermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management has designed an activity-based costing system with the following activity cost pools and activity rates: Activity Cost Pool Activity Rate Supporting direct labor $22 per direct labor-hour Order processing $182 per order Custom design processing $254 per custom design Customer service $428 per customer Management would like an analysis of the profitability of a particular customer, Big Sky Outfitters, which has ordered the following products over the last 12 months: StandardModel CustomDesign Number of gliders 10 3 Number of orders 1 3 Number of custom designs 0 3 Direct labor-hours per glider 27.50 34.00 Selling price per glider $1,650 $2,310 Direct materials cost per glider $ 458 The company’s direct labor rate is $18 per hour. Required:…
Thermal Rising, Incorporated, makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management has designed an activity-based costing system with the following activity cost pools and activity rates: Activity Cost Pool Activity Rate Supporting direct labor $ 16 per direct labor-hour Order processing $ 190 per order Custom design processing $ 253 per custom design Customer service $ 430 per customer Management would like an analysis of the profitability of a particular customer, Big Sky Outfitters, which has ordered the following products over the last 12 months: Standard Model Custom Design Number of gliders 11 3 Number of orders 2 3 Number of custom designs 0 3 Direct labor-hours per glider 28.50 31.00 Selling price per glider $ 1,800 $ 2,420 Direct materials cost per glider $ 480 $ 568 The company’s direct labor rate is $22 per hour.…
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?
Moisha is developing material standards for her company. The operations manager wants grade A widgets because they are the easiest to work with and are the quality the customers want. Grade B will not work because customers do not want the lower grade, and it takes more time to assemble the product than with grade A materials. Moisha calls several suppliers to get prices for the widget. All are within $0.05 of each other. Since they will use millions of widgets, she decides that the $0.05 difference is important. The supplier who has the lowest price is known for delivering late and low-quality materials. Moisha decides to use the supplier who is $0.02 more but delivers on time and at the right quality. This supplier charges $0.48 per widget. Each unit of product requires four widgets. What is the standard cost per unit for widgets?
Kelson Sporting Equipment, Inc., makes two types of baseball gloves: a regular model and a catchers model. The firm has 900 hours of production time available in its cutting and sewing department, 300 hours available in its finishing department, and 100 hours available in its packaging and shipping department. The production time requirements and the profit contribution per glove are given in the following table: Assuming that the company is interested in maximizing the total profit contribution, answer the following: a. What is the linear programming model for this problem? b. Develop a spreadsheet model and find the optimal solution using Excel Solver. How many of each model should Kelson manufacture? c. What is the total profit contribution Kelson can earn with the optimal production quantities? d. How many hours of production time will be scheduled in each department? e. What is the slack time in each department?