Fundamental Managerial Accounting Concepts
Fundamental Managerial Accounting Concepts
8th Edition
ISBN: 9781259569197
Author: Thomas P Edmonds, Christopher Edmonds, Bor-Yi Tsay, Philip R Olds
Publisher: McGraw-Hill Education
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Chapter 5, Problem 5ESB

a

To determine

Allocate the quality-control cost among the products by assuming it is driven by the unit-level activities.

a

Expert Solution
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Explanation of Solution

Unit level cost:

The performance is based on the every single unit of product or service. Examples are indirect labor, production supplies, and inspection cost.

The calculation of allocation rate is as follows:

Allocation rate=Cost to be allocated (Quality control cost)Cost driver (Direct labor hours) =$270,00050,000 hours=$5.40 per direct labor hour

Hence, the allocation rate per direct labor hour is $5.40.

The calculation of total cost allocated for handy is as follows:

Allocated cost (handy)=Labor hours×Per direct labor hour=26,000 hours×$5.40=$140,000

Hence, the allocated cost for handy is $140,000.

The calculation of total cost allocated for action is as follows:

Allocated cost (action)=Labor hours×Per direct labor hour=24,000 hours×$5.40=$129,000

Hence, the allocated cost for action is $129,000.

b

To determine

Allocate the quality-control cost of the products by assuming it is driven by the batch-level activities.

b

Expert Solution
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Explanation of Solution

Batch level cost:

Batch level is performed based on each group or batch. Examples are setup cost, quality control cost, and material handling cost.

The calculation of allocation rate is as follows:

Allocation rate=Cost to be allocated (Quality control cost)Cost driver (Number of batches) =$270,00060 batches=$4,500 per batch

Hence, the allocation rate per batch is $4,500.

The calculation of total cost allocated for handy is as follows:

Allocated cost (handy)=Number of batches×Per batch=38 batches×$4,500=$171,000

Hence, the allocated cost for handy is $171,000.

The calculation of total cost allocated for action is as follows:

Allocated cost (action)=Number of batches×Per batch=22 batches×$4,500=$99,000

Hence, the allocated cost for action is $99,000.

c

To determine

Allocate the quality-control cost among the products by assuming it is driven by the product-level activities.

c

Expert Solution
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Explanation of Solution

Product level cost:

Product level supports the products of particular services or products. Examples are specific to product advertising cost and engineering, and design cost.

The calculation of allocation rate is as follows:

Allocation rate=Cost to be allocated (Quality control cost)Cost driver (Number of engineers) =$270,00015 engineers=$18,000 per engineer

Hence, the allocation rate per engineer is $18,000.

The calculation of total cost allocated for handy is as follows:

Allocated cost (handy)=Number of engineers×Per engineer cost=10 engineers×$18,000=$180,000

Hence, the allocated cost for handy is $180,000.

The calculation of total cost allocated for action is as follows:

Allocated cost (action)=Number of engineers×Per engineer cost=5 engineers×$18,000=$90,000

Hence, the allocated cost for action is $90,000.

d

To determine

Allocate the quality-control cost among the products by assuming it is driven by the facility-level activities.

d

Expert Solution
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Explanation of Solution

Facility level cost:

Facility level supports all the operations that are carried in the company. Examples are landscaping cost, and depreciation on manufacturing facility.

The calculation of allocation rate is as follows:

Allocation rate=Cost to be allocated (Quality control cost)Cost driver (Number of square feet) =$270,0001265,000 square feet=$2.16 per square feet

Hence, the allocation rate per square feet is $2.16.

The calculation of total cost allocated for handy is as follows:

Allocated cost (handy)=Number of square feets×Per square feet=40,000 square feet×$2.16=$86,400

Hence, the allocated cost for handy is $86,400.

The calculation of total cost allocated for action is as follows:

Allocated cost (action)=Number of square feets×Per square feet=85,000 square feet×$2.16=$183,600

Hence, the allocated cost for action is $378,000.

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Chapter 5 Solutions

Fundamental Managerial Accounting Concepts

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