The owner of Nia Systems suspects her allocation of indirect costs could be giving misleading results, so she decides to develop an ABC system. She identifies three activities: documentation preparation, information technology support, and training. She figures that documentation costs are driven by the number of pages, information technology support costs are driven by the number of software applications used, and training costs are driven by the number of direct labor hours worked. Estimates of the costs and quantities of the allocation bases follow: Activity Estimated Costs Allocation Base Estimated Quantity of Allocation Base Documentation preparation $47,400 Pages 1,530 pages Information technology support $120,600 Applications 700 applications Training $354,800 Direct labor hours 3,240 hours Total Indirect costs $522,800 1. Compute the predetermined overhead allocation rate for each activity. Round to the nearest dollar. Activity Total estimated overhead cost / Total estimated quantity of the overhead allocation base = Predetermined Overhead Allocation Rate Document Preparation / = Information Tech Support / = Training / = Suppose Nia Systems direct labor rate was $340 per hour. One of Nia Systems' clients is Sanchez, Inc. The Sanchez, Inc. project used the following resources last month: Allocation Base Sanchez, Inc. Direct labor hours 200 Pages 300 Applications used 83 2. Compute the costs assigned to the Sanchez, Inc. project using the ABC system. Activity Predetermined Overhead Allocation Rate X Actual Quantity of the Allocation Base Used = Actual Manufacturing Overhead Cost Document Preparation X = Information Tech Support X = Training X = Total overhead cost Direct Labor Rate per DLHr X Number of DLHr Worked = Total Direct Labor Cost X = 3. Compute the total cost assigned to the Sanchez, Inc. project using the ABC system. Description Amount Subcategory, Total direct labor cost Total overhead cost Single line Total cost Single lineDouble line

The owner of Nia Systems suspects her allocation of indirect costs could be giving misleading results, so she decides to develop an ABC system. She identifies three activities: documentation preparation, information technology support, and training. She figures that documentation costs are driven by the number of pages, information technology support costs are driven by the number of software applications used, and training costs are driven by the number of direct labor hours worked. Estimates of the costs and quantities of the allocation bases follow: Activity Estimated Costs Allocation Base Estimated Quantity of Allocation Base Documentation preparation $47,400 Pages 1,530 pages Information technology support $120,600 Applications 700 applications Training $354,800 Direct labor hours 3,240 hours Total Indirect costs $522,800 1. Compute the predetermined overhead allocation rate for each activity. Round to the nearest dollar. Activity Total estimated overhead cost / Total estimated quantity of the overhead allocation base = Predetermined Overhead Allocation Rate Document Preparation / = Information Tech Support / = Training / = Suppose Nia Systems direct labor rate was $340 per hour. One of Nia Systems' clients is Sanchez, Inc. The Sanchez, Inc. project used the following resources last month: Allocation Base Sanchez, Inc. Direct labor hours 200 Pages 300 Applications used 83 2. Compute the costs assigned to the Sanchez, Inc. project using the ABC system. Activity Predetermined Overhead Allocation Rate X Actual Quantity of the Allocation Base Used = Actual Manufacturing Overhead Cost Document Preparation X = Information Tech Support X = Training X = Total overhead cost Direct Labor Rate per DLHr X Number of DLHr Worked = Total Direct Labor Cost X = 3. Compute the total cost assigned to the Sanchez, Inc. project using the ABC system. Description Amount Subcategory, Total direct labor cost Total overhead cost Single line Total cost Single lineDouble line

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter11: Strategic Cost Management

Section: Chapter Questions

Problem 8E: Classify the following cost drivers as structural, executional, or operational. a. Number of plants...

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Activity	Estimated Costs	Allocation Base	Estimated Quantity of Allocation Base
Documentation preparation	$47,400	Pages	1,530 pages
Information technology support	$120,600	Applications	700 applications
Training	$354,800	Direct labor hours	3,240 hours
Total Indirect costs	$522,800

Activity	X	=
Document Preparation	X	=
Information Tech Support	X	=
Training	X	=
		Total overhead cost

Description	Amount
Subcategory,
Total direct labor cost
Total overhead cost	Single line
Total cost	Single lineDouble line