Managerial Accounting
16th Edition
ISBN: 9781259995484
Author: Ray Garrison
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 2.A, Problem 3E
EXERCISE 2A-3 Activity-Based Absorption Costing as an Alternative to Traditional Product Costing LO2-S
Stillicum Corporation makes ultralightweight backpacking tents. Data concerning the company’s two product lines appear below:
The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below:
Required:
- Determine the unit product costs of the Deluxe and Standard products under the company’s traditional costing system.
- The company is considering replacing its traditional costing system with an activity-based absorption costing system that would have the following three activity cost pools:
| Expected Activity | ||||
| Activity Cost Pools (and Activity Measures) | Estimated Overhead Cost | Deluxe | Standard | Total |
| Supporting direct labor (direct labor-hours).... | $200,000 | 10,000 | 40,000 | 50,000 |
| Batch setups (setups) ………………………. | 75,000 | 200 | 100 | 300 |
| Safety testing (tests) ………………………… | 50,000 | 30 | 70 | 100 |
| Total |
$325,000 | |||
Determine the unit product costs of the Deluxe and Standard products under the activity-based absorption costing system.
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Question No.2
Having the attention in ICMA course on activity based costing (ABC) you decide to experiment by applying the principle of ABC to the four products currently made and sold by your company. Details of the four products and relevant information are given below for one period;
Product
A
B
C
D
Output in units
Cost per unit:
120
Rs.
100
Rs.
80
Rs.
120
Rs.
Direct material
Direct labor
Machine hour per unit
40
28
4
50
21
3
30
14
2
60
21
3
The four products are similar and are usually produced in production runs of 20 units and sold in batches of 10 units.
The production overheads are currently absorbed by using a machine hour rate the total of production overheads for the period are analyzed as follows:
Machine department costs
(rent, business rates, depreciation, and supervision)
Setup costs
Stores receiving
Inspection / Quality control
Material handling and dispatch
Rs.
10,430
5,250
3,600
2,100
4,620
You have ascertained…
Problem 1 (adapted)Kai Corp. manufactures two models of beds, the standard and the deluxe model.
The following activity and cost information has been compiled:Standard Deluxe OH CostsNo. of setups 9 21 P 90,000No. of components 90 150 210,000No. of DLH 650 150Required:Compute the total amount of overhead costs assigned to each model using:
1. Traditional costing system2. Activity-based costing system3. Discuss the effects of the difference in the computed amounts of overheadcosts.
(Appendix 4B) Assigning Support Department Costs by Using the Direct Method
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:
Support Departments
Producing Departments
S1
S2
Assembly
Painting
Direct costs
$200,000
$140,000
$115,000
$96,000
Normal activity:
Square footage
—
500
1,875
625
Machine hours
337
—
3,200
12,800
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 ratios—one for Assembly and the other for Painting.) Round your answers to two decimal places.
Assembly
Painting
S1
fill in the blank 1
fill in the blank 2
S2
fill in the blank 3
fill in the blank 4
2. Allocate the support department…
Chapter 2 Solutions
Managerial Accounting
Ch. 2.A - EXERCISE 2A-1 Activity-Based Absorption Costing...Ch. 2.A - EXERCISE 2A-2 Activity-Based Absorption Costing as...Ch. 2.A - EXERCISE 2A-3 Activity-Based Absorption Costing as...Ch. 2.A - PROBLEM 2A-4 Activity-Based Absorption Costing as...Ch. 2.A - Prob. 5PCh. 2.A -
CASE 2A-6 Activity-Based Absorption Costing and...Ch. 2.B - EXERCISE 2B-1 Overhead Rate Based on Capacity...Ch. 2.B - EXERCISE 2B-2 Overhead Rates and Capacity Issues...Ch. 2.B - Prob. 3PCh. 2.B - Prob. 4C
Ch. 2 - Prob. 1QCh. 2 - What is absorption costing?Ch. 2 - What is normal costing?Ch. 2 - How is the unit product cost of a job calculated?
Ch. 2 - Explain the four-step process used to compute a...Ch. 2 - What is the purpose of the job cost sheet in a...Ch. 2 - Explain why some production costs must be assigned...Ch. 2 - Why do companies use predetermined overhead rates...Ch. 2 - What factors should be considered in selecting an...Ch. 2 - If a company fully allocates all of its overhead...Ch. 2 - Would you expect the amount of applied overhead...Ch. 2 - Prob. 12QCh. 2 - What is a plantwide overhead rate? Whyare multiple...Ch. 2 - This Excel worksheet relates to the Dickson...Ch. 2 - This Excel worksheet relates to the Dickson...Ch. 2 - Prob. 3AECh. 2 - This Excel worksheet relates to the Dickson...Ch. 2 - Prob. 1F15Ch. 2 - Prob. 2F15Ch. 2 - Prob. 3F15Ch. 2 - Prob. 4F15Ch. 2 - Prob. 5F15Ch. 2 - Prob. 6F15Ch. 2 - Prob. 7F15Ch. 2 - Prob. 8F15Ch. 2 - Prob. 9F15Ch. 2 - Prob. 10F15Ch. 2 - Prob. 11F15Ch. 2 - Sweeten Company had no jobs in progress at the...Ch. 2 - Prob. 13F15Ch. 2 - Prob. 14F15Ch. 2 - Prob. 15F15Ch. 2 - EXERCISE 2-1 Compute a Predetermined Overhead Rate...Ch. 2 - Prob. 2ECh. 2 - EXERCISE 2–3 Computing Total Job Costs and Unit...Ch. 2 - EXERCISE 24 Computing Total Job Costs and Unit...Ch. 2 - EXERCISE 2-5 Computing Total Job Costs and Unit...Ch. 2 - Prob. 6ECh. 2 - EXERCISE 2-7 Job-Order Costing; Working Backwards...Ch. 2 - EXERCISE 2-8 Applying Overhead Cost; Computing...Ch. 2 - EXERCISE 2–9 Job-Order Costing and Decision Making...Ch. 2 - Prob. 10ECh. 2 - Prob. 11ECh. 2 - Prob. 12ECh. 2 - EXERCISE 2—13 Departmental Predetermined Overhead...Ch. 2 - EXERCISE 214 Job-Orders Costing for a Service...Ch. 2 - Prob. 15ECh. 2 - PROBLEM 2—16 Plantwide Predetermined Overhead...Ch. 2 - PROBLEM 217 Plantwide and Departmental...Ch. 2 - Prob. 18PCh. 2 - Prob. 19PCh. 2 - Prob. 20PCh. 2 - PROBLEM 2-21 Plant wide Versus Multiple...Ch. 2 - CASE 2-22 Plantwide versus Departmental Overhead...
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