Managerial Accounting
Managerial Accounting
7th Edition
ISBN: 9781260247886
Author: Wild
Publisher: MCG
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Chapter 4, Problem 4PSA

1.

To determine

To compute:Cost of each product line.

1.

Expert Solution
Check Mark

Explanation of Solution

Given below is the table for the calculation of cost of each product line using ABC:

Total cost of each product line
Particulars
Hi-Voltage
Easy slim
Activities consumed ( A ) Activity rate ($) ( B ) Activity cost allocated ($) ( A )×( B ) Activities consumed ( C ) Activity rate ($) ( D ) Activity cost allocated ($) ( C )×( D )
Liquid materials 1,400 gallons 0.06 84 37,000 gallons 0.06 2,220
Dry materials 620 pounds 0.55 341 12,000 pounds 0.55 6,600
Utilities 200 MH 0.36 72 3,750 MH 0.36 1,350
Bottles 12,500 bottles 0.40 5,000 180,000 bottles 0.40 72,000
Labeling 37,500 labels 0.03 1,125 180,000 labels 0.03 5,400
Machine setup 500 setups 25 12,500 300 setups 25 7,500
Total cost 19,122 95,070
Table(1)

Working note:

Calculation of activity rate,

Activity rate
Activity cost pools Activity measure Overhead cost assigned to pool ($) ( A ) Number of activities ( B ) Activity rate ($) ( A ) ( B )
Liquid materials Gallons 2,304 38,400 gallons 0.06 per gallon
Dry materials Pounds 6,941 12,620 pounds 0.55 per pound
Utilities Machine hours 1,422 3,950 MH 0.36 per MH
Bottles Units 77,000 192,500 bottles 0.40 per bottle
Labeling Labels per bottle 6,525 217,500 labels 0.03 per label
Machine setup Setups 20,000 800 setups 25 per setup
Table(2)

Calculation of number of activities,

Number of activities
Activity measure Hi-Voltage activities ( A ) Easy slim activities ( B ) Number of activities ( A )+( B )
Gallons 1,400 37,000 38,400 gallons
Pounds 620 12,000 12,620 pounds
Machine hours 200 3,750 3,950 MH
Units 12,500 180,000 192,500 bottles
Labels 37,500 180,000 217,500 labels
Hi-Voltage ( 12,500 bottles×3 labels )
Easy slim ( 180,000 bottles×1 label )
Setups 500 300 800 setups
Table(3)

Hence, the total cost of hi-voltage product is $19,122 and easy slim product is $95,070.

2.

To determine

To compute: Cost per bottle for each product.

2.

Expert Solution
Check Mark

Explanation of Solution

Calculate cost per bottle for Hi-Voltage.

Given,
Total cost of Hi-Voltage is $19,122.
Number of bottles of Hi-Voltage is 12,500 bottles.

Formula for computation of cost per bottle,

   Cost per bottle= Total cost of Hi-Voltage Number of bottles of Hi-Voltage

Substitute $19,122 for the value of total cost of Hi-Voltage and 12,500 for the value of number of bottles of Hi-Voltage.

   Cost per bottle= $19,122 12,500 =$1.53

Calculate cost per bottle for easy slim.

Given,
Total cost of Easy slim is $95,070.
Number of bottles of Easy slim is 180,000 bottles.

Formula for computation of cost per bottle,

   Cost per bottle= Total cost of easyslim Number of bottles of easyslim

Substitute $95,070 for the value of total cost of easy slim and 180,000 for the value of number of bottles of easy slim.

   Cost per bottle= $95,070 180,000 =$0.53

Hence, cost per bottle of Hi-Voltage is $1.53 and Easy slim is $0.53.

3.

To determine

To compute: Profit per bottle of Hi-Voltage.

3.

Expert Solution
Check Mark

Explanation of Solution

Calculateprofit per bottle of High-Voltage.

Given,
Selling price per bottle is $3.75.
Cost per bottle is $1.53.

Formula for computation profit per bottle of Hi-Voltage:

   Profit per bottle=Selling price per bottleCost per bottle

Substitute $3.75 for the value of selling price per bottle and $1.53 for the value of cost per bottle.

   Profit per bottle=$3.75$1.53 =$2.22 per bottle

Hence,profit per bottle of hi-voltage is $2.22.

4.

To determine

To compute: Minimum price per bottle of easy slim.

4.

Expert Solution
Check Mark

Explanation of Solution

  • The cost per bottle of easy slim is $0.53, so the Company should set a price which covers the cost of bottle and also earns a minimum rate of return over and above the cost per bottle.
  • B Company should set a minimum selling price of $0.54 which is higher than $0.53 and will get the company minimum rate of return.

Hence, B Company should set a minimum selling price of $0.54.

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Chapter 4 Solutions

Managerial Accounting

Ch. 4 - What is a cost object?Ch. 4 - Explain why a single plantwide overhead rate can...Ch. 4 - Why are multiple departmental overhead rates more...Ch. 4 - Prob. 9DQCh. 4 - Prob. 10DQCh. 4 - Prob. 11DQCh. 4 - Prob. 12DQCh. 4 - Prob. 13DQCh. 4 - Prob. 14DQCh. 4 - 15. What are the four activity levels associated...Ch. 4 - Prob. 16DQCh. 4 - Prob. 17DQCh. 4 - Prob. 18DQCh. 4 - Prob. 1QSCh. 4 - Prob. 2QSCh. 4 - Prob. 3QSCh. 4 - Prob. 4QSCh. 4 - Prob. 5QSCh. 4 - Prob. 6QSCh. 4 - Prob. 7QSCh. 4 - Prob. 8QSCh. 4 - Plant wide rate method P1 A manufacturer uses...Ch. 4 - Prob. 10QSCh. 4 - Prob. 11QSCh. 4 - Prob. 12QSCh. 4 - Prob. 13QSCh. 4 - Prob. 14QSCh. 4 - Prob. 15QSCh. 4 - Prob. 16QSCh. 4 - Exercise 17-17 Identifying activity levels C3...Ch. 4 - Prob. 2ECh. 4 - Exercise 17-1 Computing Plantwide overhead rates...Ch. 4 - Prob. 4ECh. 4 - Prob. 5ECh. 4 - Prob. 6ECh. 4 - Exercise 17-5 Departmental overhead rates P2 Refer...Ch. 4 - Prob. 8ECh. 4 - Prob. 9ECh. 4 - Prob. 10ECh. 4 - Prob. 11ECh. 4 - Prob. 12ECh. 4 - Prob. 13ECh. 4 - Prob. 14ECh. 4 - Prob. 15ECh. 4 - Prob. 16ECh. 4 - Exerciser 17-14 Activity-based costing P3 A2...Ch. 4 - Prob. 18ECh. 4 - Problem 17-1A Comparing costs using ABC with the...Ch. 4 - Prob. 2PSACh. 4 - Prob. 3PSACh. 4 - Prob. 4PSACh. 4 - Prob. 5PSACh. 4 - Prob. 1PSBCh. 4 - Prob. 2PSBCh. 4 - Prob. 3PSBCh. 4 - Prob. 4PSBCh. 4 - Prob. 5PSBCh. 4 - Prob. 4SPCh. 4 - Prob. 1AACh. 4 - Prob. 2AACh. 4 - Prob. 3AACh. 4 - Prob. 1BTNCh. 4 - Prob. 2BTNCh. 4 - Accounting professionals who for private companies...Ch. 4 - Prob. 4BTNCh. 4 - Prob. 5BTNCh. 4 - Visit and observe the processes of three different...
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