Fundamentals Of Cost Accounting (6th Edition)
Fundamentals Of Cost Accounting (6th Edition)
6th Edition
ISBN: 9781259969478
Author: WILLIAM LANEN, Shannon Anderson, Michael Maher
Publisher: McGraw Hill Education
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Question
Chapter 9, Problem 65P

a.

To determine

Ascertain the unit cost for each of the three jobs started and completed using the current costing system.

a.

Expert Solution
Check Mark

Explanation of Solution

Activity-based costing:

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. This relationship is then used to allocate indirect costs to the products.

Ascertain the unit cost for each of the three jobs started and completed using the current costing system:

Using the machine-hours, the predetermined rate using the traditional system is calculated. $80 per machine hour ($16,000,000$200,000) is the predetermined overhead rate.

Using the traditional system, the cost of each of the jobs are:

ParticularsJob 0404Job 0407Job 0411
Direct materials$30,000$56,000$100,000
Overhead (@$80%)128,000160,000320,000
Total cost$158,000$216,000$420,000
Number of units1,0001,2002,000
Unit cost$158$180$210

Table: (1)

Working Note (1):

Calculate the overhead for Job 0404.

Overhead for Job 0404 = $80 per machine hour×1,600 machine-hours=$128,000

Hence, the unit cost for each of the three jobs started and completed are $158, $180, and $210, respectively.

b.

To determine

Ascertain the unit cost for each of the three jobs started and completed using the ABC system.

b.

Expert Solution
Check Mark

Explanation of Solution

Compute the unit product cost:

ParticularsJob 0404Job 0407Job 0411
Direct materials$30,000$56,000$100,000
Overhead:   
  Material handling     15,000(2)28,00050,000
  Machining48,000(3)60,000120,000
  Finishing16,000(4)19,20032,000
  Shipping15,000(5)30,00015,000
  Setups20,000(6)60,00020,000
Total costs$144,000$253,200$337,000
Number of units1,0001,2002,000
Unit cost$144.00$211.00$168.50

Table: (2)

Working Note (2):

Calculate the material handling overhead.

Material handling = 50% direct material cost(7)×$30,000=$15,000

Working Note (3):

Calculate the machining overhead.

Machining = Cost per machine-hour(8)×Total machine-hours=$30×1,600=$48,000

Working Note (4):

Calculate the Finishing overhead.

Finishing = $16 per unit(9)×1,000units=$16,000

Working Note (5):

Calculate the Shipping overhead.

Shipping = $15,000 per order(10)×1 order=$15,000

Working Note (6):

Calculate the Setups overhead.

Setups = $20,000 per production run(11)×1production run=$20,000

Working Note (7):

Calculate the proportion of direct material cost.

Material handling = $3,000,000$6,000,000direct materials=50%direct material cost

Working Note (8):

Calculate the cost per machine-hour.

Machining = $6,000,000200,000machine-hours=$30per machine-hour

Working Note (9):

Calculate the cost per unit.

Finishing = $2,000,000125,000units=$16per unit

Working Note (10):

Calculate the cost per order.

Shipping = $1,500,000100orders=$15,000per order

Working Note (11):

Calculate the cost per run.

Setups = $3,500,000175runs=$20,000per run

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Chapter 9 Solutions

Fundamentals Of Cost Accounting (6th Edition)

Ch. 9 - How does complexity lead to higher costs? Why is...Ch. 9 - Prob. 12RQCh. 9 - Prob. 13RQCh. 9 - Why are cost drivers based on direct labor widely...Ch. 9 - Prob. 15CADQCh. 9 - Activity-based costing could not be applied in a...Ch. 9 - Activity-based costing is the same as department...Ch. 9 - Prob. 18CADQCh. 9 - It is clear after reading this chapter that...Ch. 9 - Prob. 20CADQCh. 9 - Prob. 21CADQCh. 9 - Prob. 22CADQCh. 9 - Prob. 23CADQCh. 9 - Activity-based costing is just another inventory...Ch. 9 - Prob. 25CADQCh. 9 - Prob. 26CADQCh. 9 - Prob. 27CADQCh. 9 - One of the issues we identified with traditional...Ch. 9 - The cost accounting manager at your business says...Ch. 9 - Prob. 30CADQCh. 9 - Prob. 31ECh. 9 - Reported Costs and Decisions Kima Company...Ch. 9 - Plantwide versus Department Allocation Munoz...Ch. 9 - Plantwide versus Department Allocation Main Street...Ch. 9 - Unitwide versus Department...Ch. 9 - Prob. 36ECh. 9 - Prob. 37ECh. 9 - Upriver currently applies overhead on the basis of...Ch. 9 - Compute the unit costs for the two products, V-1...Ch. 9 - Prob. 40ECh. 9 - Prob. 41ECh. 9 - Activity-Based Costing in a Nonmanufacturing...Ch. 9 - Activity-Based versus Traditional Costing Maglie...Ch. 9 - Activity-Based Costing versus Traditional Costing...Ch. 9 - Activity-Based Costing in a Service Environment...Ch. 9 - Activity-Based versus Traditional Costing Isadores...Ch. 9 - Prob. 47ECh. 9 - Activity-Based Costing: Cost Flows through...Ch. 9 - Prob. 49ECh. 9 - Activity-Based Costing for an Administrative...Ch. 9 - Prob. 51ECh. 9 - Time-Driven Activity-Based Costing Kim...Ch. 9 - Time-Driven ABC for an Administrative Service The...Ch. 9 - Comparative Income Statements and Management...Ch. 9 - Comparative Income Statements and Management...Ch. 9 - Prob. 56PCh. 9 - Activity-Based Costing and Predetermined Overhead...Ch. 9 - Activity-Based Costing and Predetermined Overhead...Ch. 9 - Choosing an Activity-Based Costing System Pickle...Ch. 9 - Churchill Products is considering updating its...Ch. 9 - Utica Manufacturing (UM) was recently acquired by...Ch. 9 - Cain Components manufactures and distributes...Ch. 9 - Prob. 63PCh. 9 - Prob. 64PCh. 9 - Prob. 65PCh. 9 - Cawker Products has two manufacturing...Ch. 9 - MTI makes three types of lawn tractors: M3100,...Ch. 9 - Prob. 68PCh. 9 - Prob. 69PCh. 9 - Prob. 72IC
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