HORNGREN'S COST ACCT >IA<
16th Edition
ISBN: 9780136675464
Author: Datar
Publisher: PEARSON
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Chapter 13, Problem 13.32P
Cost-plus and market-based pricing. (CMA, adapted) Precision Laboratories evaluates the reaction of materials to extreme increases in temperature. Much of the company’s early growth was attributable to government contracts, but recent growth has come from expansion into commercial markets. Two types of testing at Precision are Heat Testing (HTT) and Arctic-Condition Testing (ACT). Currently, all of the budgeted operating costs are collected in a single overhead pool. All of the estimated testing-hours are also collected in a single pool. One rate per test-hour is used for both types of testing. This hourly rate is marked up by 40% to recover administrative costs and taxes and to earn a profit.
Jeff Boone, Precision’s controller, believes that there is enough variation in the test procedures and cost structure to establish separate costing rates and billing rates at a 40% markup. He also believes that the inflexible rate structure the company is currently using is inadequate in today’s competitive environment. After analyzing the company data, he has divided operating costs into the following three cost pools:
| Labor and supervision | $ 500,000 |
| Setup and facility costs | 300,000 |
| Utilities | 360,000 |
| Total budgeted costs for the period | $1,160,000 |
Jeff Boone budgets 100,000 total test-hours for the coming period. Test-hours is also the cost driver for labor and supervision. The budgeted quantity of cost driver for setup and facility costs is 600 setup hours. The budgeted quantity of cost driver for utilities is 9,000 machine-hours.
Jeff has estimated that HTT uses 60% of the test-hours, 20% of the setup-hours, and half the machine-hours.
- 1. Find the single rate for operating costs based on test-hours, and the hourly billing rate for HTT and ACT. Required
- 2. Find the three activity-based rates for operating costs.
- 3. What will the billing rate for HTT and ACT be based on the activity-based costing structure? State the rates in terms of test-hours. Referring to both requirements 1 and 2, which rates make more sense for Precision?
- 4. If Precision’s competition all charge $19.50 per hour for arctic testing, what can Precision do to stay competitive?
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Cost-plus and market-based pricing. (CMA, adapted) Precision Laboratories evaluates the reaction of materials to extreme increases in temperature. Much of the company’s early growth was attributable to government contracts, but recent growth has come from expansion into commercial markets. Two types of testing at Precision are Heat Testing (HTT) and Arctic-Condition Testing (ACT). Currently, all of the budgeted operating costs are collected in a single overhead pool. All of the estimated testing-hours are also collected in a single pool. One rate per test-hour is used for both types of testing. This hourly rate is marked up by 40% to recover administrative costs and taxes and to earn a profit.
Jeff Boone, Precision’s controller, believes that there is enough variation in the test procedures and cost structure to establish separate costing rates and billing rates at a 40% markup. He also believes that the inflexible rate structure the company is currently using is inadequate in today’s…
Techno Laboratories evaluates the reaction of materials to extreme increases in temperature. Much of the company's early growth was attributable to government contracts, but recent growth has come from expansion into commercial markets.
After analyzing the company data, he has divided operating costs into the following three cost pools:
Read the requirements5.
Requirement 1. Find the single rate for operating costs based on test-hours and the hourly billing rate for HTT and ACT. (Round your answers to the nearest cent.)
The single rate for operating costs based on test-hours is
per testing hour.
The hourly billing rate for HTT and ACT is
.
Requirement 2. Find the three activity-based rates for operating costs. (Round rates to the nearest cent.)
First select the formula, then compute the rate for each of the three activities.
(1)
÷
(2)
=
Rate
Labor and supervision
÷…
Zarson’s Netballs is a manufacturer of high-quality basketballs and volleyballs. Setup costs are driven by the number of setups. Equipment and maintenance costs increase with the number of machine-hours, and lease rent is paid per square foot. Capacity of the facility is 14,000 square feet, and Zarson is using only 80% of this capacity. Required. Zarson records the cost of unused capacity as a separate line item and not as a product cost. The following is the budgeted information for Zarson:(RESOURCE IN PICTURE ATTATCHED)
Q.What is the budgeted cost of unused capacity?
Chapter 13 Solutions
HORNGREN'S COST ACCT >IA<
Ch. 13 - What are the three major influences on pricing...Ch. 13 - Relevant costs for pricing decisions are full...Ch. 13 - Describe four purposes of cost allocation.Ch. 13 - How is activity-based costing useful for pricing...Ch. 13 - Describe two alternative approaches to long-run...Ch. 13 - What is a target cost per unit?Ch. 13 - Describe value engineering and its role in target...Ch. 13 - Give two examples of a value-added cost and two...Ch. 13 - It is not important for a company to distinguish...Ch. 13 - Prob. 13.10Q
Ch. 13 - Describe three alternative cost-plus pricing...Ch. 13 - Give two examples in which the difference in the...Ch. 13 - What is life-cycle budgeting?Ch. 13 - What are three benefits of using a product...Ch. 13 - Prob. 13.15QCh. 13 - Which of the following statements regarding price...Ch. 13 - Value-added, non-value-added costs. The Magill...Ch. 13 - Target operating income, value-added costs,...Ch. 13 - Target prices, target costs, activity-based...Ch. 13 - Target costs, effect of product-design changes on...Ch. 13 - Target costs, effect of process-design changes on...Ch. 13 - Cost-plus target return on investment pricing....Ch. 13 - Cost-plus, target pricing, working backward....Ch. 13 - Life-cycle budgeting and costing. Arnold...Ch. 13 - Considerations other than cost in pricing...Ch. 13 - Cost-plus, target pricing, working backward. The...Ch. 13 - Value engineering, target pricing, and target...Ch. 13 - Target service costs, value engineering,...Ch. 13 - Cost-plus, target return on investment pricing....Ch. 13 - Cost-plus, time and materials, ethics. C S...Ch. 13 - Cost-plus and market-based pricing. Georgia Temps,...Ch. 13 - Cost-plus and market-based pricing. (CMA, adapted)...Ch. 13 - Life-cycle costing. Maximum Metal Recycling and...Ch. 13 - Airline pricing, considerations other than cost in...Ch. 13 - Prob. 13.35PCh. 13 - Ethics and pricing. Instyle Interior Designs has...Ch. 13 - Value engineering, target pricing, and locked-in...
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