Managerial Accounting: Tools for Business Decision Making
7th Edition
ISBN: 9781118334331
Author: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
Publisher: WILEY
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Textbook Question
Chapter 4, Problem 4.3AP
Shaker Stairs Co. designs and builds factory-made premium wooden stairways for homes. The manufactured stairway components (spindles, risers, hangers, hand rails) permit installation of stairways of varying lengths and widths. All are of white oak wood. Budgeted manufacturing
| Overhead Cost Pools | Amount |
| Purchasing | $ 75,000 |
| Handling materials | 82,000 |
| Production (cutting, milling, finishing) | 210,000 |
| Setting up machines | 105,000 |
| Inspecting | 90,000 |
| Inventory control (raw materials and finished goods) | 126,000 |
| Utilities | 180,000 |
| Total budgeted overhead costs | $868,000 |
For the last 4 years, Shaker Stairs Co. has been charging overhead to products on the basis of machine hours. For the year 2017, 100,000 machine hours are budgeted.
Jeremy Nolan, owner-manager of Shaker Stairs Co., recently directed his accountant. Bill Seagren. to implement the activity-based costing system that he has repeatedly proposed. At Jeremy Nolan's request, Bill and the production foreman identify the following cost drivers and their usage for the previously budgeted overhead cost pools.
| Activity Cost Pools | Cost Drivers | Expected Use of Cost Drivers |
| Purchasing | Number of orders | 600 |
| Handling materials | Number of moves | 8,000 |
| Production (cutting, milling, finishing) | Direct labor hours | 100,000 |
| Setting up machines | Number of setups | 1,250 |
| Inspecting | Number of inspections | 6,000 |
| Inventory control (raw materials and finished goods) | Number of components | 168,000 |
| Utilities | Square feet occupied | 90,000 |
Steve Hannon, sales manager, has received an order for 250 stairways from Community Builders. Inc., a large housing development contractor. At Steve's request, Bill prepares cost estimates for producing components for 250 stairways so Steve can submit a contract price per stairway to Community Builders. He accumulates the following data for the production of 250 stairways.
| Direct materials | $103,600 |
| Direct labor | $112,000 |
| Machine hours | 14,500 |
| Direct labor hours | 5,000 |
| Number of purchase orders | 60 |
| Number of material moves | 800 |
| Number of machine setups | 100 |
| Number of inspections | 450 |
| Number of components | 16,000 |
| Number of square feet occupied | 8,000 |
Instructions
(a) Compute the predetermined overhead rate using traditional costing with machine hours as the basis.
(b) What is the
(c) What is the manufacturing cost per stairway under the proposed activity-based costing? (Round to the nearest cent. Prepare all of the necessary schedules.)
(d) - Which of the two costing systems is preferable in pricing decisions and why?
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Chapter 4 Solutions
Managerial Accounting: Tools for Business Decision Making
Ch. 4 - Under what conditions is direct labor a valid...Ch. 4 - What has happened in recent industrial history to...Ch. 4 - In an automated manufacturing environment, what...Ch. 4 - What is generally true about overhead allocation...Ch. 4 - What are the principal differences between...Ch. 4 - What is the formula for computing activity-based...Ch. 4 - What steps are involved in developing an activity-...Ch. 4 - Prob. 8QCh. 4 - What is an activity cost pool?Ch. 4 - Prob. 10Q
Ch. 4 - Prob. 11QCh. 4 - What is the formula for assigning activity cost...Ch. 4 - What are the benefits of activity-based costing?Ch. 4 - What are the limitations of activity-based...Ch. 4 - Under what conditions is ABC generally the...Ch. 4 - Prob. 16QCh. 4 - Prob. 17QCh. 4 - Prob. 18QCh. 4 - Prob. 19QCh. 4 - Prob. 20QCh. 4 - Prob. 4.1BECh. 4 - Finney Inc. has conducted an analysis of overhead...Ch. 4 - Splash Co. identifies the following activities...Ch. 4 - Mason Company manufactures four products in a...Ch. 4 - Morgana Company identifies three activities in its...Ch. 4 - Weisman, Inc. uses activity-based costing as the...Ch. 4 - Spud, Inc. a manufacturer of gourmet potato chips,...Ch. 4 - Prob. 4.8BECh. 4 - Pine and Danner is an architectural firm that is...Ch. 4 - Prob. 4.10BECh. 4 - Fixlt, Inc. operates 20 injection molding machines...Ch. 4 - Prob. 4.12BECh. 4 - Indicate whether the following statements are true...Ch. 4 - Compute activity-based overhead rates and assign...Ch. 4 - Adamson Company manufactures four lines of garden...Ch. 4 - Ready Ride is a trucking company. It provides...Ch. 4 - Saddle Inc. has two types of handbags: standard...Ch. 4 - Ayala Inc. has conducted the following analysis...Ch. 4 - EcoFabrics has budgeted overhead costs of 945,000....Ch. 4 - Altex Inc. manufactures two products: car wheels...Ch. 4 - Perdon Corporation manufactures safeslarge mobile...Ch. 4 - Santana Corporation manufactures snowmobiles in...Ch. 4 - Rojas Vineyards in Oakville, California, produces...Ch. 4 - Wilmington, Inc. manufactures five models of...Ch. 4 - Air United, Inc. manufactures two products:...Ch. 4 - Kragan Clothing Company manufactures its own...Ch. 4 - Health 'R Us, Inc., uses a traditional product...Ch. 4 - Santana Corporation manufactures snowmobiles in...Ch. 4 - William Mendel Sons, Inc. is a small...Ch. 4 - Venus Creations sells window treatments (shades,...Ch. 4 - Snap Prints Company is a small printing and...Ch. 4 - Lasso and Markowitz is a law firm that is...Ch. 4 - Manzeck Company operates a snow-removal service....Ch. 4 - Combat Fire, Inc. manufactures steel cylinders and...Ch. 4 - Prob. 4.2APCh. 4 - Shaker Stairs Co. designs and builds factory-made...Ch. 4 - Prob. 4.4APCh. 4 - Lewis and Stark is a public accounting firm that...Ch. 4 - CURRENT DESIGNS As you teamed in the previous...Ch. 4 - Prob. 4.1BYPCh. 4 - Prob. 4.2BYPCh. 4 - Curtis Rich, the cost accountant for Hi-Power...Ch. 4 - As discussed in the chapter, the principles...
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