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Bob Randall, cost accounting manager for Hemple Products, was asked to determine the costs of the activities performed within the company’s Manufacturing Engineering Department. The department has the following activities: creating bills of materials (BOMs), studying manufacturing capabilities, improving manufacturing processes, training employees, and designing tools. The general ledger accounts reveal the following expenditures for Manufacturing Engineering: The equipment is used for two activities: improving processes and designing tools. The equipment’s time is divided by two activities: 40 percent for improving processes and 60 percent for designing tools. The salaries are for nine engineers, one who earns $100,000 and eight who earn $50,000 each. The $100,000 engineer spends 40 percent of her time training employees in new processes and 60 percent of her time on improving processes. One engineer spends 100 percent of her time on designing tools, and another engineer spends 100 percent of his time on improving processes. The remaining six engineers spend equal time on all activities. Supplies are consumed in the following proportions: After determining the costs of the engineering activities, Bob was then asked to describe how these costs would be assigned to jobs produced within the factory. (The company manufactures machine parts on a job-order basis.) Bob responded by indicating that creating BOMs and designing tools were the only primary activities. The remaining were secondary activities. After some analysis, Bob concluded that studying manufacturing capabilities was an activity that enabled the other four activities to be realized. He also noted that all of the employees being trained are manufacturing workers—employees who work directly on the products. The major manufacturing activities are cutting, drilling, lathing, welding, and assembly. The costs of these activities are assigned to the various products using hours of usage (grinding hours, drilling hours, etc.). Furthermore, tools were designed to enable the production of specific jobs. Finally, the process improvement activity focused only on the five major manufacturing activities. Required: 1. What is meant by unbundling general ledger costs? Why is it necessary? 2. What is the difference between a general ledger database system and an activity-based database system? 3. Using the resource drivers and direct tracing, calculate the costs of each manufacturing engineering activity. What are the resource drivers? 4. Describe in detail how the costs of the engineering activities would be assigned to jobs using activity-based costing. Include a description of the activity drivers that might be used. Where appropriate, identify both a possible transaction driver and a possible duration driver.

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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Section
BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 4, Problem 19E
Textbook Problem
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Bob Randall, cost accounting manager for Hemple Products, was asked to determine the costs of the activities performed within the company’s Manufacturing Engineering Department. The department has the following activities: creating bills of materials (BOMs), studying manufacturing capabilities, improving manufacturing processes, training employees, and designing tools. The general ledger accounts reveal the following expenditures for Manufacturing Engineering:

Chapter 4, Problem 19E, Bob Randall, cost accounting manager for Hemple Products, was asked to determine the costs of the , example  1

The equipment is used for two activities: improving processes and designing tools. The equipment’s time is divided by two activities: 40 percent for improving processes and 60 percent for designing tools. The salaries are for nine engineers, one who earns $100,000 and eight who earn $50,000 each. The $100,000 engineer spends 40 percent of her time training employees in new processes and 60 percent of her time on improving processes. One engineer spends 100 percent of her time on designing tools, and another engineer spends 100 percent of his time on improving processes. The remaining six engineers spend equal time on all activities. Supplies are consumed in the following proportions:

Chapter 4, Problem 19E, Bob Randall, cost accounting manager for Hemple Products, was asked to determine the costs of the , example  2

After determining the costs of the engineering activities, Bob was then asked to describe how these costs would be assigned to jobs produced within the factory. (The company manufactures machine parts on a job-order basis.) Bob responded by indicating that creating BOMs and designing tools were the only primary activities. The remaining were secondary activities. After some analysis, Bob concluded that studying manufacturing capabilities was an activity that enabled the other four activities to be realized. He also noted that all of the employees being trained are manufacturing workers—employees who work directly on the products. The major manufacturing activities are cutting, drilling, lathing, welding, and assembly. The costs of these activities are assigned to the various products using hours of usage (grinding hours, drilling hours, etc.). Furthermore, tools were designed to enable the production of specific jobs. Finally, the process improvement activity focused only on the five major manufacturing activities.

Required:

  1. 1. What is meant by unbundling general ledger costs? Why is it necessary?
  2. 2. What is the difference between a general ledger database system and an activity-based database system?
  3. 3. Using the resource drivers and direct tracing, calculate the costs of each manufacturing engineering activity. What are the resource drivers?
  4. 4. Describe in detail how the costs of the engineering activities would be assigned to jobs using activity-based costing. Include a description of the activity drivers that might be used. Where appropriate, identify both a possible transaction driver and a possible duration driver.

1.

To determine

Describe the term unbundling of general ledger costs and explain its importance.

Explanation of Solution

The assignment of general ledger costs to respective activities represents unbundling. The identification of the cost of activities is the initial step in assigning costs to products or other cost objects...

2.

To determine

Identify the difference between a general ledger database system and an activity-based data-base system.

3.

To determine

Compute the costs of each manufacturing engineering activity and identify the resource drivers.

4.

To determine

Explain how the costs of the engineering activities would be assigned to jobs using activity-based costing and explain both a possible transaction driver and a possible duration driver.

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Chapter 4 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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Ch. 4 - Identify and define two types of activity drivers.Ch. 4 - What are unit-level activities? Batch-level...Ch. 4 - How does TDABC simplify ABC?Ch. 4 - Explain why it is easy to update a TDABC model.Ch. 4 - Describe two ways to reduce a complex ABC system....Ch. 4 - Seco, Inc., produces two types of clothes dryers:...Ch. 4 - Warner Company has the following data for the past...Ch. 4 - Lansing. Inc., provided the following data for its...Ch. 4 - Larsen, Inc., produces two types of electronic...Ch. 4 - Roberts Company produces two weed eaters: basic...Ch. 4 - Golding Bank provided the following data about its...Ch. 4 - Golding Bank provided the following data about its...Ch. 4 - Electan Company produces two types of printers....Ch. 4 - Patterson Company produces wafers for integrated...Ch. 4 - Selected activities and other information are...Ch. 4 - Ripley, Inc., costs products using a normal...Ch. 4 - Predetermined Overhead Rate, Application of...Ch. 4 - Craig Company uses a predetermined overhead rate...Ch. 4 - Departmental Overhead Rates Mariposa, Inc.,...Ch. 4 - McCourt Company produces two types of leather...Ch. 4 - Deoro Company has identified the following...Ch. 4 - Golding Bank is in the process of implementing an...Ch. 4 - Secondary Activities Refer to the interview in...Ch. 4 - Bob Randall, cost accounting manager for Hemple...Ch. 4 - Calzado Company produces leather shoes in batches....Ch. 4 - Bob Randall, cost accounting manager for Hemple...Ch. 4 - Silven Company has identified the following...Ch. 4 - Silven Company has identified the following...Ch. 4 - Gee Manufacturing produces two models of camshafts...Ch. 4 - Cushing, Inc., costs products using a normal...Ch. 4 - Nonunit-level drivers are prominent in...Ch. 4 - Plata Company has identified the following...Ch. 4 - Assume that the inspection activity has an...Ch. 4 - Consider the information given on two products and...Ch. 4 - Primera Company produces two products and uses a...Ch. 4 - Fisico Company produces exercise bikes. One of its...Ch. 4 - Glencoe Medical Clinic operates a cardiology care...Ch. 4 - Glencoe First National Bank operated for years...Ch. 4 - Autotech Manufacturing is engaged in the...Ch. 4 - The Bienestar Cardiology Clinic has two major...Ch. 4 - Reducir, Inc., produces two different types of...Ch. 4 - Refer to the data given in Problem 4.36 and...Ch. 4 - Escuha Company produces two type of calculators:...

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