MANAGERIAL ACCOUNTING F/MGRS.
5th Edition
ISBN: 9781259969485
Author: Noreen
Publisher: RENT MCG
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Chapter 5A, Problem 5A.1E
Time-Driven Activity-Based Costing LO5—6
Saratoga Company manufactures jobs to customer specifications. The company is conducting a time-driven activity-based costing study in its Purchasing Department to better understand how Purchasing Department labor costs are consumed by individual jobs. To aid the study, the company provided the following data regarding its Purchasing Department and three of its many jobs:
Required:
Calculate the cost per minute of the resource supplied in the Purchasing Department.
1.
Expert Solution
To determine
Concept introduction:
Activity-based costing (ABC):
Activity-based costing refers to the method of costing where the overhead cost is assigned to various products. This costing method identifies the relationship between the manufacturing overhead costs and the activities. After establishing the relationship, the indirect cost is allocated to the products.
The cost per minute of the resource supplied.
Answer to Problem 5A.1E
The cost per minute of the resource supplied is 0.40.
Explanation of Solution
Determine the cost per minute of the resource supplied:
Thus, the cost per minute of the resource supplied is 0.40.
Working note 1:
Calculate the total cost of resources supplied:
Working note 2:
Calculate the capacity per employee:
Working note 3:
Calculate the practical capacity of resources supplied:
2.
Expert Solution
To determine
Concept introduction:
Activity-based costing (ABC):
Activity-based costing refers to the method of costing where the overhead cost is assigned to various products. This costing method identifies the relationship between the manufacturing overhead costs and the activities. After establishing the relationship, the indirect cost is allocated to the products.
To Calculate: The time-driven activity rate for the given activities.
Answer to Problem 5A.1E
The time-driven activity rate is $6, $18 and $12 for requisition processing,bid evaluation, and inspection.
Explanation of Solution
Calculate the time-driven activity rate for the given activities:
| Particulars | Requisition Processing | Bid Evaluation | Inspection |
| Minutes per unit of the activity (a) | 15 | 45 | 30 |
| Cost per minute of the resource supplied (b) | $0.40 | $0.40 | $0.40 |
| Time-driven activity rate (a × b) | $6.00 | $18.00 | $12.00 |
Table: (1)
Thus, the time-driven activity rate is $6, $18, and $12 for requisition processing,bid evaluation, and inspection.
3.
Expert Solution
To determine
Concept introduction:
Cost allocation:
Costallocation refers to the process where the common cost of the production and service rendered to the various departments of the business are distributed. It is used to calculate the actual cost attributed to a specific department.
The purchasing labor cost for Job X, Job Y, and Job Z.
Answer to Problem 5A.1E
The total cost of Job X, Job Y, and Job Z is $102, $162 and $168 respectively.
Explanation of Solution
Determine the purchasing labor cost for Job X, Job Y, and Job Z:
| Particulars | Job X | Job Y | Job Z |
| Requisition processing costs | $48 | $30 | $24 |
| Bid evaluation costs | $54 | $36 | $72 |
| Inspection costs | $72 | $24 | $72 |
| Total costs | $174 | $90 | $168 |
Table: (2)
Thus, the total cost of Job X, Job Y, and Job Z is $102, $162 and $168 respectively.
Working note 1:
Calculate the requisition processing costs:
| Particulars | Time-driven activity rate(a) | Number of requisitions processed(b) | Requisition processing costs(c = a × b) |
| Job X | $6.00 | 8 | $48.00 |
| Job Y | $6.00 | 5 | $30.00 |
| Job Z | $6.00 | 4 | $24.00 |
Table: (3)
Calculate the bid evaluation costs:
| Particulars | Time-driven activity rate(a) | Number of bid evaluations(b) | Bid evaluation costs(c = a × b) |
| Job X | $18.00 | 3 | $54.00 |
| Job Y | $18.00 | 2 | $36.00 |
| Job Z | $18.00 | 4 | $72.00 |
Table: (4)
Calculate the bid inspection costs:
| Particulars | Time-driven activity rate(a) | Number of inspections(b) | Inspection costs(c = a × b) |
| Job X | $12.00 | 6 | $72.00 |
| Job Y | $12.00 | 2 | $24.00 |
| Job Z | $12.00 | 6 | $72.00 |
Table: (5)
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Last question 4)
The company uses normal costing with two direct-cost categories:
Direct materials
Direct manufacturing labor
Furthermore, the company uses two manufacturing overhead cost pools:
Machining department with machine- hours as the allocation base
Assembly department with direct manufacturing labor costs as the allocation base.
The budget for the plant in 2020 is as follows:
Production plant
Machine department
Assembly department
Manufacturing overhead costs
13 597 500
12 271 500
Direct manufacturing labor costs
1 455 000
6 075 000
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54 000
22 500
Machine-hours
277 500
55 500
What is the budgeted manufacturing overhead rate in the machining and the assembly department?
Overhead is the direct cost involved in the production process of the business of the company
Calculation of budgeted manufacturing overhead rate in machine department:
Budgeted manufacturing…
PROBLEM 1
FIGHTING Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor hours (DLHs). The company has two products, H16Z and P25P, about which it has provided the following data:
H16Z
P25P
Direct materials per unit
P10.20
P50.50
Direct labor per unit
P8.40
P25.20
Direct labor-hours per unit
0.40
1.20
Annual production
30,000
10,000
The company’s estimated total manufacturing overhead for the year is P1,464,480 and the company’s estimated total direct labor-hours for the year is 24,000.
The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:
Activities and Activity Measures
Estimated Overhead Cost
Supporting direct labor (DLHs)
P 552,000
Setting…
C15Q5
Need help
Using the step-down method, allocate support-department costs. Develop overhead rates per direct manufacturing labor-hour for machining and assembly. Allocate the costs of the support departments in the order given in this problem. Use the allocation base for each support department you think is most appropriate.
2.
Using the direct method, rework requirement 1.
3.
Based on the following information about two jobs, determine the total overhead costs for each job by using rates developed in (a) requirement 1 and (b) requirement 2.
Direct Manufacturing Labor–Hours
Machining
Assembly
Job 88
23
2
Job 89
5
22
4.
The company evaluates the performance of the operating department managers on the basis of how well they managed their total costs, including allocated costs. As the manager of the Machining Department, which allocation method would you prefer from the results obtained in requirements…
Chapter 5A Solutions
MANAGERIAL ACCOUNTING F/MGRS.
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