Managerial Accounting
15th Edition
ISBN: 9780078025631
Author: Ray H Garrison, Eric Noreen, Peter C. Brewer Professor
Publisher: McGraw-Hill Education
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Chapter 7.A, Problem 1E
EXERCISE 7A-1 Preparing an Action Analysis Report [L07-6]
Fairway Golf Corporation produces private label golf clubs for pro shops throughout North America. The company uses activity-based ousting to evaluate the profitability of serving its customers. This analysis is based on categorizing the company’s costs as follows, using the ease of adjustment color coding scheme described in Appendix 7A:
| Ease of Adjustment Code | |
| Direct materials | Green |
| Direct labor | Yellow |
| Indirect labor | Yellow |
| Factory equipment |
Red |
| Factory administration | Red |
| Selling and administrative wages and salaries | Red |
| Selling and administrative depreciation | Red |
| Marketing expenses | Yellow |
Management would like to evaluate the profitability of a particular customer—Shaker Run Golf Club of Lebanon, Ohio. Over the last twelve months this customer submitted one order for 100 golf clubs that had to be produced in four batches due to differences in product labeling requested by the customer. Summary data concerning the order appear below:
| Number of clubs | 100 |
| Number of orders | 1 |
| Number of batches | 4 |
| Direct labor-hours per club | 0.3 |
| Selling price per club | $50.00 |
| Direct materials cost per club | $29.50 |
| Direct labor rate per hour | $20.50 |
A cost analyst working in the controller’s office at the company has already produced the action analysis cost matrix for the Shaker Run Golf Club that appears below:
| Action Analysis Cost Matrix for Shaker Run Golf Club | Activity Cost Pools | ||||
| Supporting Direct labor | Batch Processing | Order Processing | Customer Service | Total | |
| Activity | 30 direct labor-hours | 4 batches | 1 order | 1 customer | |
| Manufacturing overhead: | |||||
| Indirect labor | $ 35.40 | $ 53.70 | $ 6.80 | $ 0.00 | $ 95.90 |
| Factory equipment depreciation | 102.80 | 0.90 | 0.00 | 0.00 | 103.70 |
| Factory administration | 18.50 | 0.50 | 12.00 | 228.00 | 259.00 |
| Selling and administrative overhead: | |||||
| Wages and salaries | 11.00 | 0.00 | 36.00 | 382.00 | 429.00 |
| Depreciation | 0.00 | 0.00 | 6.00 | 24.00 | 30.00 |
| Marketing expenses | 117.70 | 0.00 | 54.00 | 369.00 | 540.70 |
| Total | $285.40 | $55.10 | $114.80 | $1,003.00 | $1,458.30 |
Required:
Prepare an action analysis report showing the profitability of the Shaker Run Golf Club. Include direct materials and direct labor costs in the report. Use Exhibit 7A-5 as a guide for organizing the report.
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Exercise 6-3 Compute Activity Rates [LO6-3]
Green Thumb Gardening is a small gardening service that uses activity-based costing to estimate costs for pricing and other purposes. The proprietor of the company believes that costs are driven primarily by the size of customer lawns, the size of customer garden beds, the distance to travel to customers, and the number of customers. In addition, the costs of maintaining garden beds depends on whether the beds are low maintenance beds (mainly ordinary trees and shrubs) or high maintenance beds (mainly flowers and exotic plants). Accordingly, the company uses the five activity cost pools listed below:
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Your Question:
Question 1 – Case Study
Alpha Homes is a private limited company involved in specialist home improvements, with two (2) main products. These are: Garage Conversions (GC) and Extension to Properties (EX). Alpha Homes currently implements the full-costing absorption method in providing price quotes to customers. The company seeks to remain competitive and has an existing policy to price all jobs at budgeted total costs plus 50%.
You are the new management accountant, and currently reviewing the cost records, for materials, labour and overheads.
Table 1 indicates the expected costs of jobs in both product areas:
Cost subheads
Garage Conversion (GC)
Extension to property (EX)
Prices quotes (£)
Units
10,000
25,000
Construction Materials (£)
3,500
8,000
Labour
5,500
6,500
Fixed overheads (£)
1,000
2,000
Variable overheads (£)
1,000
4,000
Table 2 below indicates the expected annual overhead cost for the overall business.
overhead category (cost Pools)…
Chapter 7 Solutions
Managerial Accounting
Ch. 7.A - EXERCISE 7A-1 Preparing an Action Analysis Report...Ch. 7.A - Prob. 2ECh. 7.A - Prob. 3ECh. 7.A - Prob. 4ECh. 7.A - Prob. 5ECh. 7 - Prob. 1QCh. 7 - Prob. 2QCh. 7 - Prob. 3QCh. 7 - What are unit-level, batch-level, product-level,...Ch. 7 - What types of costs should not be assigned to...
Ch. 7 - What are the two stages off allocation in...Ch. 7 - Why is the first stage of the allocation process...Ch. 7 - When activity-based costing is used, why do...Ch. 7 - Prob. 9QCh. 7 - Why is the form of activity-based costing...Ch. 7 - The Excel worksheet form that appears below is to...Ch. 7 - Prob. 2AECh. 7 - The Excel worksheet form that appears below is to...Ch. 7 - Prob. 1F15Ch. 7 - Prob. 2F15Ch. 7 - Prob. 3F15Ch. 7 - Prob. 4F15Ch. 7 - Prob. 5F15Ch. 7 - Prob. 6F15Ch. 7 - Prob. 7F15Ch. 7 - Prob. 8F15Ch. 7 - Prob. 9F15Ch. 7 - Prob. 10F15Ch. 7 - Prob. 11F15Ch. 7 - Prob. 12F15Ch. 7 - Prob. 13F15Ch. 7 - Prob. 14F15Ch. 7 - Prob. 15F15Ch. 7 - Prob. 1ECh. 7 - Prob. 2ECh. 7 - Prob. 3ECh. 7 - Prob. 4ECh. 7 - Prob. 5ECh. 7 - Prob. 6ECh. 7 - EXERCISE 7-7 First-Stage Allocations LO7-2
The...Ch. 7 - Prob. 8ECh. 7 - Prob. 9ECh. 7 - Prob. 10ECh. 7 - Prob. 11ECh. 7 - Prob. 12ECh. 7 - EXERCISE 7-13 Computing ABC Product Costs LO7-3,...Ch. 7 - Prob. 14ECh. 7 - Prob. 15ECh. 7 - Prob. 16PCh. 7 - Prob. 17PCh. 7 - Prob. 18PCh. 7 - Prob. 19PCh. 7 -
PROBLEM 7-20 Evaluating the Profitability of...
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