Concept explainers
a)
Activity Based Costing: Activity Based Costing refers to the allocation of the factory
Activity cost pool: Activity cost pool refers to the overhead cost related to an activity. This is often calculated to get an accurate estimate of the production cost.
To Identify: The possible activity cost pool in the operation of Company EVH.
b)
Activity Based Costing: Activity Based Costing refers to the allocation of the factory overheads when there are numerous products and processes. Activity based costing aims at assigning the costs among the products in a proportionate way.
Cost Driver: The cost driver refers to the all the activities on which the money is spent to produce the product or the service. It has a cause-effect relationship with the resources utilized in production. The cost drivers are used to form the activity cost pools.
To Identify: The possible activity cost driver in the operation of Company EVH.
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Managerial Accounting: Tools for Business Decision Making
- At Shadyside Insurance Company, three types of clerks work in the claims processing department: supervisors, senior clerks, andjunior clerks. The supervisors are paid $42,000 per year, the senior clerks are paid $37,000 peryear, and the junior clerks are paid $32,000 per year. For every 150,000 claims processed peryear, Shadyside plans to use one supervisor, six junior clerks, and two senior clerks.Last year, the company processed 2 million medical claims and employed 14 supervisors, 30senior clerks, and 83 junior clerks.a. Compute the excess costs or cost savings relating to the claims processing staff.b. How would you interpret these results? What additional information would you askfor if you were making a determination of the clerical group’s processingefficiencies?arrow_forwardLocal Hospital (LH) has decided that it would like to send nurses to a local supermarket to provide a free health screening for interested supermarket customers. The screening will consist of measuring the individual’s blood pressure and taking a drop of blood, which will be immediately tested for several critical indicators. The director of public relations at the hospital believes that 100 people will take advantage of the screening each day. The plan is to provide the screening every day for one week; thus, a total of 700 screenings are expected. LH expects the supermarket to provide a $1,000 grant to help defray the costs of the program (since it will likely draw more customers to the store). LH anticipates the following expenses: Test Equipment Rental $500 For 1 week Nurses $50/hr Total of 10 hrs/day for 7 days Blood tests $1 Per individual tested Determine the special purpose budget for the program. Show revenues and expenses by line item, and show the expected profit or loss. If…arrow_forwardYellville Regional Hospital is a small hospital with two service departments and three revenue areas: Service Department Direct Costs  Square  Feet  Laundry Pounds  Housekeeping (HK) $ 80,000  -  16,000  Laundry $ 132,000  500  -  Revenue Areas:        Surgery $ 400,000  1,500  48,000  Semiprivate rooms $ 200,000  2,000  24,000  Maternity $ 150,000  1,000  12,000   The hospital wants to allocate the service department costs to the revenue areas. Housekeeping is allocated based on square footage; Laundry is allocated based on pounds of laundry. The normal capacity for Surgery is 200 hours per month; normal capacity for semiprivate rooms is 600 patient days; and normal capacity for maternity is 200 patient days.Required:Determine the overhead rate for the three revenue areas. Allocate the service department costs to the revenue…arrow_forward
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