MANAGERIAL ACCOUNTING
16th Edition
ISBN: 9781260936322
Author: Garrison
Publisher: MCG
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Chapter 2.A, Problem 4P
PROBLEM 2A-4 Activity-Based Absorption Costing as an Alternative to Traditional Product Costing LO2-5
Ellix Company manufactures two models of ultra-high fidelity speakers-the X200 model and the X99 model. Data regarding the two products follow:
Additional information about the company follows:
- Model X200 requires $72 in direct materials per unit, and model X99 requires S50.
- The direct labor workers are paid S20 per hour.
- The company has always used direct labor-hours as the base for applying
manufacturing overhead cost to products. - Model X200 is more complex to manufacture than model X99 and requires the use of special equipment.
- Because of the special work required in (d) above, the company is considering the use of activity-based absorption costing to apply manufacturing overhead cost to products. Three activity cost pools have been identified as follows:
Estimated Total Activity
| Activity Cost Pool | Activity Measure | Estimate Total Cost | X200 | X99 | Total |
| Machine setups | Number of setups | $ 360,000 | 50 | 100 | 150 |
| Special processing…. | Machine-hours | 180,000 | 12,000 | 0 | 12,000 |
| General factory | Direct labor-hours | 1,260,000 | 9,000 | 27,000 | 36,000 |
$1,800,000
Required:
- Assume that the company continues to use direct labor-hours as the base for applying overhead cost to products.
- Compute the plantwide predetermined overhead rate.
- Compute the unit product cost of each model.
- Assume that the company decides to use activity-based absorption costing to apply' overhead cost to products.
- Compute the activity rate for each activity cost pool and determine the amount of overhead cost that would be applied to each model using the activity- based approach.
- Compute the unit product cost of each model.
- Explain why overhead cost shifted from the high-volume model to the low-volume model under the activity-based approach.
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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…
Question No. 4: Production under Constrained Resources Glover Company makes three products in a single facility. These products have the following unit product costs:ProductABCDirect materials$35.10$51.60$58.00Direct labor22.5025.1015.90Variable manufacturing overhead2.301.701.60Fixed manufacturing overhead12.207.808.40Unit product cost$72.10$86.20$83.90Additional data concerning these products are listed below.ProductABCMixing minutes per unit1.300.800.20Selling price per unit$81.00$103.40$96.90Variable selling cost per unit$2.90$3.40$3.20Monthly demand in units310044002400The mixing machines are potentially the constraint in the production facility. A total of 7930 minutes are available per month on these machines. Direct labor is a variable cost in this company.Required : a. How many minutes of mixing machine time be required to satisfy demand for all three products?b. How much of each product should be produced to maximize net operating income?ABCOptimal productionc. Up to how much…
QUESTION 4 (TOPIC 8)
Nuraz Sdn Bhd (NSB) manufactures modern vase in northern areas and the price per unit is RM50. Currently, company uses absorption costing and the owner is considering to change the reporting method to variable costing. Thus, he asked the accountant to show the difference in income using both methods. To do so, the accountant rely on the information below:
Production
70,000 units
Beginning finished goods inventory
17,500 units
Sales
RM3,125,000
Direct materials
RM840,000
Direct labor
RM630,000
Variable manufacturing overhead
RM280,000
Variable selling and administrative expenses
RM700,000
Fixed manufacturing overhead
RM350,000
Fixed selling and administrative
RM700,000
REQUIRED:
1. Calculate ending finished goods inventory (in RM) using:
Absorption costing.
Variable costing.
2. Without preparing income statement, calculate the different in income reported under absorption costing and variable…
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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