20840 2 example problems ch. 7 8

Question 1: Score 2.5/5

Your response Correct response

Exercise 7-1 Variable and Absorption Costing Unit Product Costs [LO1]

Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The sounding bars are cast from brass and hand-filed to attain just the right sound. The bars are then mounted on an intricately hand-carved wooden base. The gamelans are sold for 850 (thousand) rupiahs. (The currency in Indonesia is the rupiah, which is denoted by Rp.) Selected data for the company's operations last year follow (all currency values are in thousands of rupiahs):

Units in beginning inventoryUnits produced 340Units sold 295Units in ending inventory 45Variable costs per unit:

Direct materials Rp 260Direct labor Rp 370Variable manufacturing overhead Rp 62Variable selling and administrative Rp 24

Fixed costs:Fixed manufacturing overhead Rp 52,000Fixed selling and administrative Rp 39,000

Requirement 1: Assume that the company uses absorption costing. Compute the unit product cost for one gamelan. (Omit the "Rp" sign in your response. Round your answer to the nearest whole number.)

Unit product cost

Rp 1105 (0%)

Exercise 7-1 Variable and Absorption Costing Unit Product Costs [LO1]

Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The sounding bars are cast from brass and hand-filed to attain just the right sound. The bars are then mounted on an intricately hand-carved wooden base. The gamelans are sold for 850 (thousand) rupiahs. (The currency in Indonesia is the rupiah, which is denoted by Rp.) Selected data for the company's operations last year follow (all currency values are in thousands of rupiahs):

Units in beginning inventoryUnits produced 340Units sold 295Units in ending inventory 45Variable costs per unit:


Fixed costs:Fixed manufacturing overhead Rp 52,000Fixed selling and administrative Rp 39,000

Requirement 1: Assume that the company uses absorption costing. Compute the unit product cost for one gamelan. (Omit the "Rp" sign in your response. Round your answer to the nearest whole number.)

Unit product costRp845

Total grade: 0.0×1/1 = 0%Feedback:

Under absorption costing, all manufacturing costs (variable and fixed) are included in product costs. (All currency values are in thousands of rupiah, denoted by Rp.)

Direct materials Rp 260Direct labor 370Variable manufacturing overhead 62Fixed manufacturing overhead

(Rp52,000 ÷ 340 units) 153Absorption costing unit product cost Rp 845


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Requirement 2: Assume that the company uses variable costing. Compute the unit product cost for one gamelan. (Omit the "Rp" sign in your response.)

Unit product costRp692 (100%)

Requirement 2: Assume that the company uses variable costing. Compute the unit product cost for one gamelan. (Omit the "Rp" sign in your response.)

Unit product costRp692

Feedback:Under variable costing, only the variable manufacturing costs are included in product costs. (All currency values are in thousands of rupiah, denoted by Rp.)

Direct materials Rp 260Direct labor 370Variable manufacturing overhead 62Variable costing unit product cost Rp 692

Note that selling and administrative expenses are not treated as product costs under either absorption or variable costing. These expenses are always treated as period costs and are charged against the current period's revenue.



Exercise 7-2 Variable Costing Income Statement; Explanation of Difference in Net Operating Income [LO2]Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The sounding bars are cast from brass and hand-filed to attain just the right sound. The bars are then mounted on an intricately hand-carved wooden base. The gamelans are sold for 850 (thousand) rupiahs. (The currency in Indonesia is the rupiah, which is denoted by Rp.) Selected data for the company's operations last year follow (all currency values are in thousands of rupiahs):

Units in beginning inventory Units produced 250Units sold 225Units in ending inventory 25Variable costs per unit:


Fixed costs: Fixed manufacturing overhead Rp 60,000Fixed selling and administrative Rp 20,000

The absorption costing income statement prepared by the company's accountant for last year

Exercise 7-2 Variable Costing Income Statement; Explanation of Difference in Net Operating Income [LO2]Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The sounding bars are cast from brass and hand-filed to attain just the right sound. The bars are then mounted on an intricately hand-carved wooden base. The gamelans are sold for 850 (thousand) rupiahs. (The currency in Indonesia is the rupiah, which is denoted by Rp.) Selected data for the company's operations last year follow (all currency values are in thousands of rupiahs):

Units in beginning inventory Units produced 250Units sold 225Units in ending inventory 25Variable costs per unit:


Fixed costs: Fixed manufacturing overhead Rp 60,000Fixed selling and administrative Rp 20,000

The absorption costing income statement prepared by the company's accountant for last year

appears below (all currency values are in thousands of rupiahs):

Sales Rp 191,250Cost of goods sold 157,500Gross margin Selling and administrative expenses Net operating income Rp

Requirement 1:Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period. (Omit the "R

Fixed manufacturing overhead

Rp 60000 (0%)

appears below (all currency values are in thousands of rupiahs):

Sales Rp 191,250Cost of goods sold 157,500Gross margin Selling and administrative expenses Net operating income Rp

Requirement 1:Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period. (Omit the "R

Fixed manufacturing overheadRp 6,000


25 units in ending inventory × Rp 240 per unit fixed manufacturing overhead per unit = Rp 6,000


Requirement 2:Prepare an income statement for the year using the variable costing method. positive values. Omit the "Rp" sign in your response.)

Sales (7%)Variable expenses:Variable cost of goods sold (7%)Variable selling and administrative expenses (7%)

Contribution marginFixed expenses:

Fixed manufacturing overhead (7%)Fixed selling and administrative expenses (7%)

Net operating income (7%)

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E7_2_id7

E7_2_id11

E7_2_id13

Requirement 2:Prepare an income statement for the year using the variable costing method. positive values. Omit the "Rp" sign in your response.)

SalesVariable expenses:Variable selling and administrative expensesVariable cost of goods sold


Fixed manufacturing overheadFixed selling and administrative expenses

Net operating income

E7_2_id5

E7_2_id7

E7_2_id11

E7_2_id13

Total grade: 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 0.0×1/15 + 1.0×1/15 + 1.0×1/15 + 0.0×1/15 + 0.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 0.0×1/15 = 7% + 7% + 7% + 0% + 7% + 7% + 0% + 0% + 7% + 7% + 7% + 7% + 7% +

7% + 0%Feedback:

Variable cost of goods sold (225 units sold × Rp460 per unit) Rp 103,500Variable selling and administrative expenses (225 units × Rp20 per unit)

Rp 4,500



Exercise 7-3 Reconciliation of Absorption and Variable Costing Net Operating Incomes [LO3]Jorgansen Lighting, Inc., manufactures heavy-duty street lighting systems for municipalities. The company uses variable costing for internal management reports and absorption costing for external reports to shareholders, creditors, and the government. The company has provided the following data:

Year 1

Inventories: Beginning (units) 200Ending (units) 170

Variable costing net operating income

$1,080,40

The company's fixed manufacturing overhead per unit was constant at $560 for all three years.

Requirement 1:Determine each year's absorption costing net operating income. response.)

Year 1

Absorption costing net operating income

$ 16800 (0%)

Exercise 7-3 Reconciliation of Absorption and Variable Costing Net Operating Incomes [LO3]Jorgansen Lighting, Inc., manufactures heavy-duty street lighting systems for municipalities. The company uses variable costing for internal management reports and absorption costing for external reports to shareholders, creditors, and the government. The company has provided the following data:

Year 1

Inventories: Beginning (units) 200Ending (units) 170

Variable costing net operating income

$1,080,40

The company's fixed manufacturing overhead per unit was constant at $560 for all three years.

Requirement 1:Determine each year's absorption costing net operating income. response.)

Absorption costing net operating income $ 1,063,600

Total grade: 0.0×1/3 + 0.0×1/3 + 0.0×1/3 = 0% + 0% + 0%Feedback:

Year 1 Year 2 Year 3Beginning inventories 200 170 180Ending inventories 170 180 220Change in inventories (30) 10 40Fixed manufacturing overhead in beginning inventories

(@$560 per unit) $ 112,000 $ 95,200 $ 100,800Fixed manufacturing overhead in ending inventories

(@$560 per unit) 95,200 100,800 123,200Fixed manufacturing overhead deferred in (released

from) inventories (@$560 per unit) $ (16,800) $ 5,600 $ 22,400Variable costing net operating income $ 1,080,400 $ 1,032,400 $ 996,400Add (deduct) fixed manufacturing overhead cost

deferred in (released from) inventory under (16,800) 5,600 22,400

absorption costing Absorption costing net operating income $ 1,063,600 $ 1,038,000 $ 1,018,800

Requirement 2:In Year 4, the company's variable costing net operating income was $984,400 and its absorption costing net operating income was $1,012,400.

(a) Did inventories increase or decrease during Year 4?

Your Answer:

Choice Selected

Increase

Decrease

Feedback: Because absorption costing net operating income was greater than variable costing net operating income in Year 4, inventories must have increased during the year.


(b)

How much fixed manufacturing overhead cost was deferred or released from inventory during Year 4? (Omit the "$" sign in your response.)

Deferred (50%) fixed manufacturing overhead cost

(b)

How much fixed manufacturing overhead cost was deferred or released from inventory during Year 4? (Omit the "$" sign in your response.)

Deferred fixed manufacturing overhead cost

Total grade: 1.0×1/2 + 0.0×1/2 = 50% + 0%Feedback:

Because inventories increased in year 4, fixed manufacturing overhead was deferred in inventories. The amount of the deferral is the difference between the two net operating incomes, or $28,000 = $1,012,400 – $984,400.

Question 4: Score 5/5


Exercise 7-5 Variable and Absorption Costing Unit Product Costs and Income Statements [LO1, LO2]Lynch Company manufactures and sells a single product. The following costs were incurred during the company's first year of operations:

Variable costs per unit: Manufacturing:

Direct materials $Direct labor $Variable manufacturing overhead $

Variable selling and administrative $Fixed costs per year:

Fixed manufacturing overhead $ 300,000Fixed selling and administrative $ 190,000

Exercise 7-5 Variable and Absorption Costing Unit Product Costs and Income Statements [LO1, LO2]Lynch Company manufactures and sells a single product. The following costs were incurred during the company's first year of operations:

Variable costs per unit: Manufacturing:

Direct materials $Direct labor $Variable manufacturing overhead $

Variable selling and administrative $Fixed costs per year:

Fixed manufacturing overhead $ 300,000Fixed selling and administrative $ 190,000

During the year, the company produced 25,000 units and sold 20,000 units. The selling price of the company's product is $50 per unit.

Requirement 1:Assume that the company uses absorption costing:

(a)

Compute the unit product cost. (Omit the "$" sign in your response.)

Unit product cost$ 30 (100%)

During the year, the company produced 25,000 units and sold 20,000 units. The selling price of the company's product is $50 per unit.

Requirement 1:Assume that the company uses absorption costing:

(a)


Unit product cost$ 30

Feedback:The unit product cost under absorption costing would be:

Direct materials $ 6Direct labor 9Variable manufacturing overhead 3Total variable costs 18Fixed manufacturing overhead ($300,000 ÷25,000 units)

12

Absorption costing unit product cost $ 30


(b) Prepare an income statement for the year.(Input all amounts as positive values. Omit the "$" sign in your response.)

Sales (10%)Cost of goods sold (10%)Gross profit (10%)Selling and administrative expenses (10%)Net operating income (10%)

(b) Prepare an income statement for the year.(Input all amounts as positive values. Omit the "$" sign in your response.)

SalesCost of goods soldGross profitSelling and administrative expensesNet operating income

Feedback:The absorption costing income statement:

Sales (20,000 units × $50 per unit) = $1,000,000Cost of goods sold (20,000 units × $30 per unit) = $600,000Selling and administrative expenses = $270,000 **(20,000 units × $4 per unit) + $190,000 = $270,000.


Requirement 2:Assume that the company uses variable costing:

(a)



Requirement 2:Assume that the company uses variable costing:

(a)



Feedback:The unit product cost under variable costing would be:

Direct materials $ 6Direct labor 9Variable manufacturing overhead 3Variable costing unit product cost $ 18


(b) Prepare an income statement for the year. (Input all amounts as positive values. Omit the "$" sign in your response.)

Sales (6%)Variable expenses:Variable cost of goods sold (6%)Variable selling and administrative (6%)

Contribution margin (6%)Fixed expenses:

Fixed manufacturing overheadFixed selling and administrative expense (6%)

Net operating income (6%)

E7_5_id16

E7_5_id18

E7_5_id23

E7_5_id25

(b) Prepare an income statement for the year. (Input all amounts as positive values. Omit the "$" sign in your response.)

SalesVariable expenses:Variable cost of goods soldVariable selling and administrative


Fixed manufacturing overheadFixed selling and administrative expense


E7_5_id16

E7_5_id18

E7_5_id23

E7_5_id25

Feedback:The variable costing income statement:

Sales (20,000 units × $50 per unit) = $1,000,000Variable cost of goods sold (20,000 units × $18 per unit) = $360,000Variable selling expense (20,000 units × $4 per unit) = $80,000



Exercise 7-7 Variable Costing Income Statement; Reconciliation [LO2, LO3]Whitman Company has just completed its first year of operations. The company's absorption costing income statement for the year appears below:

Whitman Company Income Statement

Sales (35,000 units × $25 per unit)Cost of goods sold (35,000 units × $16 per unit)Gross marginSelling and administrative expenses Net operating income

The company's selling and administrative expenses consist of $210,000 per year in fixed expenses and $2 per unit sold in variable expenses. The $16 per unit product cost given above is computed as follows:

Direct materialsDirect laborVariable manufacturing overhead Fixed manufacturing overhead ($160,000 ÷ 40,000 units) Absorption costing unit product cost

Requirement 1:Redo the company's income statement in the contribution format using variable costing. amounts as positive values. Omit the "$" sign in your response.)

Sales (7%)Variable expenses:Variable cost of goods sold (7%) $ 490000

Variable selling and administrative expenses (7%)

Contribution marginFixed expenses:Fixed manufacturing overhead (7%)Fixed selling and administrative expenses (7%)

Net operating loss (0%)

Exercise 7-7 Variable Costing Income Statement; Reconciliation [LO2, LO3]Whitman Company has just completed its first year of operations. The company's absorption costing income statement for the year appears below:

Whitman Company Income Statement

Sales (35,000 units × $25 per unit)Cost of goods sold (35,000 units × $16 per unit)Gross marginSelling and administrative expenses Net operating income

The company's selling and administrative expenses consist of $210,000 per year in fixed expenses and $2 per unit sold in variable expenses. The $16 per unit product cost given above is computed as follows:

Direct materialsDirect laborVariable manufacturing overhead Fixed manufacturing overhead ($160,000 ÷ 40,000 units) Absorption costing unit product cost

Requirement 1:Redo the company's income statement in the contribution format using variable costing. amounts as positive values. Omit the "$" sign in your response.)

SalesVariable expenses:Variable cost of goods soldVariable selling and administrative expenses

Contribution marginFixed expenses:Fixed manufacturing overheadFixed selling and administrative expenses


Total grade: 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 0.0×1/15 + 1.0×1/15 + 1.0×1/15 + 0.0×1/15 + 0.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 0.0×1/15 + 0.0×1/15 = 7% + 7% + 7% + 0% + 7% + 7% + 0% + 0% + 7% + 7% + 7% + 7% + 7% + 0% + 0%

Feedback:Variable cost of goods sold (35,000 units × $12 per unit*) = $420,000Variable selling and administrative expenses (35,000 units × $2 per unit) = $70,000

*Direct materials $ 5 Direct labor 6 Variable manufacturing overhead 1 Total variable manufacturing cost $ 12


Requirement 2:Reconcile any difference between the net operating income on your variable costing income statement and the net operating income on the absorption costing income statement above. the "$" sign in your response.)

Variable costing net operating income (loss)

Add (25%): Fixed manufacturing overhead cost deferredAbsorption costing net operating income (loss)

E7_7_id4

E7_7_id6

E7_7_id10

E7_7_id12

Requirement 2:Reconcile any difference between the net operating income on your variable costing income statement and the net operating income on the absorption costing income statement above. the "$" sign in your response.)

Variable costing net operating income (loss)Add: Fixed manufacturing overhead cost deferredAbsorption costing net operating income (loss)

E7_7_id4

E7_7_id6

E7_7_id10

E7_7_id12

Total grade: 0.0×1/4 + 1.0×1/4 + 0.0×1/4 + 1.0×1/4 = 0% + 25% + 0% + 25%Feedback:

Fixed manufacturing overhead cost deferred in inventory under absorption costing (5,000 units × $4 per unit in fixed manufacturing cost) = $20,000



Exercise 7-8 Variable Costing Unit Product Cost and Income Statement; Break-Even [LO1, LO2]Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for $210. Data for last year's operations follow:

Exercise 7-8 Variable Costing Unit Product Cost and Income Statement; Break-Even [LO1, LO2]Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for $210. Data for last year's operations follow:

Units in beginning inventoryUnits producedUnits sold Units in ending inventoryVariable costs per unit:

Direct materials Direct laborVariable manufacturing overheadVariable selling and administrativeTotal variable cost per unit

Fixed costs:Fixed manufacturing overheadFixed selling and administrativeTotal fixed costs

Requirement 1:Assume that the company uses variable costing. Compute the unit product cost for one barbecue grill. (Omit the "$" sign in your response.)


Units in beginning inventoryUnits producedUnits sold Units in ending inventoryVariable costs per unit:

Direct materials Direct laborVariable manufacturing overheadVariable selling and administrativeTotal variable cost per unit

Fixed costs:Fixed manufacturing overheadFixed selling and administrativeTotal fixed costs

Requirement 1:Assume that the company uses variable costing. Compute the unit product cost for one barbecue grill. (Omit the "$" sign in your response.)


Feedback:Under variable costing, only the variable manufacturing costs are included in product costs.


Note that selling and administrative expenses are not treated as product costs; that is, they are not included in the costs that are inventoried. These expenses are always treated as period costs.


Requirement 2:Assume that the company uses variable costing. Prepare a contribution format income statement for the year. (Input all amounts as positive values. Omit the "$" sign in your response.)

Sales (6%)Variable expenses:

Variable cost of goods sold (6%)Variable selling and administrative expenses (6%)

Contribution margin (6%)Fixed expenses:

Fixed manufacturing overhead (6%)Fixed selling and

Requirement 2:Assume that the company uses variable costing. Prepare a contribution format income statement for the year. (Input all amounts as positive values. Omit the "$" sign in your response.)

SalesVariable expenses:

Variable cost of goods soldVariable selling and administrative expenses


Fixed manufacturing overheadFixed selling and administrative expenses

Net operating loss

administrative expenses (6%) Net operating income (0%)

Total grade: 1.0×1/16 + 1.0×1/16 + 1.0×1/16 + 1.0×1/16 + 1.0×1/16 + 0.0×1/16 + 0.0×1/16 + 1.0×1/16 + 0.0×1/16 + 1.0×1/16 + 1.0×1/16 + 1.0×1/16 + 1.0×1/16 + 1.0×1/16 + 0.0×1/16 + 0.0×1/16 = 6% + 6% + 6% + 6% + 6% + 0% + 0% + 6% + 0% + 6% + 6% + 6% + 6% + 6% + 0% + 0%

Feedback:Variable cost of goods sold (19,000 units × $150 per unit) = $2,850,000Variable selling and administrative expenses (19,000 units × $10 per unit)

= $190,000


Requirement 3:What is the company's break-even point in terms of the number of barbecue grills sold?

Break-even point 18352 (0%) units

E7_8_id5

E7_8_id7

E7_8_id12

E7_8_id14

Requirement 3:What is the company's break-even point in terms of the number of barbecue grills sold?

Break-even point19,700 units

E7_8_id5

E7_8_id7

E7_8_id12

E7_8_id14


The break-even point in units sold can be computed using the contribution margin per unit as follows:

Selling price per unit $ 210Variable cost per unit 160Contribution margin per unit $ 50



Exercise 7-9 Absorption Costing Unit Product Cost and Income Statement [LO1 , LO2]Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for $210. Data for last year's operations follow:

Units in beginning inventoryUnits produced 20,000Units sold 19,000Units in ending inventory 1,000Variable costs per unit:

Direct materials $Direct laborVariable manufacturing overheadVariable selling and administrativeTotal variable cost per unit $ 160

Fixed costs:Fixed manufacturing overhead $ 700,000Fixed selling and administrative 285,000Total fixed costs $ 985,000

Assume that the company uses absorption costing.

Requirement 1:Compute the unit product cost for one barbecue grill.


Exercise 7-9 Absorption Costing Unit Product Cost and Income Statement [LO1 , LO2]Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for $210. Data for last year's operations follow:

Units in beginning inventoryUnits produced 20,000Units sold 19,000Units in ending inventory 1,000Variable costs per unit:

Direct materials $Direct laborVariable manufacturing overheadVariable selling and administrativeTotal variable cost per unit $ 160

Fixed costs:Fixed manufacturing overhead $ 700,000Fixed selling and administrative 285,000Total fixed costs $ 985,000

Assume that the company uses absorption costing.

Requirement 1:Compute the unit product cost for one barbecue grill.


Feedback:Under absorption costing, all manufacturing costs (variable and fixed) are included in product costs.

Direct materials $ 50Direct labor 80Variable manufacturing overhead 20Fixed manufacturing overhead ($700,000 ÷ 20,000 units)

35

Absorption costing unit product cost $ 185


Requirement 2:Prepare an income statement. (Leave no cells blank - be certain to enter "0" wherever required. Input all amounts as positive values. Omit the "$" sign in your response.)

Sales (10%)Cost of goods sold (10%)Gross profit (10%)Selling and administrative expenses Net operating loss (0%)

Requirement 2:Prepare an income statement. (Leave no cells blank - be certain to enter "0" wherever required. Input all amounts as positive values. Omit the "$" sign in your response.)

SalesCost of goods soldGross profitSelling and administrative expensesNet operating income

Total grade: 1.0×1/10 + 1.0×1/10 + 1.0×1/10 + 1.0×1/10 + 1.0×1/10 + 1.0×1/10 + 1.0×1/10 + 1.0×1/10 + 0.0×1/10 + 1.0×1/10 = 10% + 10% + 10% + 10% + 10% + 10% + 10% + 10% + 0% + 10%Feedback:

Sales (19,000 units × $210 per unit) = $3,990,000Cost of goods sold (19,000 units × $185 per unit) = $3,515,000Selling and administrative expenses ($285,000 + 19,000 units × $10 per unit) = $475,000



Exercise 8-1 ABC Cost Hierarchy [LO1]Classify each of the activities as either a unit-level, batch-level, product-level, or organization sustaining activity.

a.Receive raw materials from suppliers.

b. Manage parts inventories.

c. Do rough milling work on products.

d. Interview and process new employees in the personnel department.

e. Design new products.

f. Perform periodic preventive maintenance on general-use equipment.

g. Use the general factory building.h. Issue purchase orders for a job.

Exercise 8-1 ABC Cost Hierarchy [LO1]Classify each of the activities as either a unit-level, batch-level, product-level, or organization sustaining activity.

a.Receive raw materials from suppliers.

b. Manage parts inventories.c. Do rough milling work on products.

d. Interview and process new employees in the personnel department.

e. Design new products.

f. Perform periodic preventive maintenance on general-use equipment.

g. Use the general factory building.

h. Issue purchase orders for a job.

Total grade: 1.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 1.0×1/8 + 1.0×1/8 + 0.0×1/8 + 1.0×1/8 = 13% + 0% + 0% + 0% + 13% + 13% + 0% + 13%



Problem 7-11 Variable Costing Income Statement; Reconciliation [LO2, LO3]During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows:

Sales (@ $25 per unit) $

Cost of goods sold (@ $18 per unit)Gross marginSelling and administrative expenses*Net operating income $

*$2 per unit variable; $130,000 fixed each year.

The company's $18 unit product cost is computed as follows:

Direct materials

Problem 7-11 Variable Costing Income Statement; Reconciliation [LO2, LO3]During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows:

Sales (@ $25 per unit) $

Cost of goods sold (@ $18 per unit)Gross marginSelling and administrative expenses*Net operating income $

*$2 per unit variable; $130,000 fixed each year.

The company's $18 unit product cost is computed as follows:

Direct materials

Direct laborVariable manufacturing overheadFixed manufacturing overhead ($270,000 ÷ 45,000 units)Absorption costing unit product cost

Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on production equipment and buildings.

Production and cost data for the two years are:

Year 1

Year 2

Units produced 45,000 45,000Units sold 40,000 50,000

Requirement 1: Prepare a variable costing contribution format income statement for each year. as positive values. Omit the "$" sign in your response.)

Sales (4%)Variable expenses:Variable cost of goods sold (4%)Variable selling and administrative

expenses (4%)Total variable expensesContribution margin (4%)Fixed expenses:Fixed manufacturing overhead (4%)Fixed selling and administrative

expenses (4%)Total fixed expensesNet Operating income (4%)

Direct laborVariable manufacturing overheadFixed manufacturing overhead ($270,000 ÷ 45,000 units)Absorption costing unit product cost

Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on production equipment and buildings.

Production and cost data for the two years are:

Year 1

Year 2

Units produced 45,000 45,000Units sold 40,000 50,000

Requirement 1: Prepare a variable costing contribution format income statement for each year. as positive values. Omit the "$" sign in your response.)

SalesVariable expenses:Variable cost of goods soldVariable selling and administrative

expensesTotal variable expensesContribution marginFixed expenses:Fixed manufacturing overheadFixed selling and administrative expenses

Total fixed expensesNet Operating income

Feedback:The unit product cost under the variable costing is computed as follows:


Year 1 Year 2

Variable cost of goods sold (@ $12 per unit) 480,000 600,000Variable selling and administrative expenses (@ $2 per

unit) 80,000 100,000


Requirement 2:Determine the absorption costing and variable costing net operating income figures for each year. (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)

Variable costing net operating income Add/(deduct): Fixed manufacturing overhead

deferred in inventory under absorption costingAbsorption costing net operating income

P7_11_id5

P7_11_id8

P7_11_id16

P7_11_id19

Requirement 2:Determine the absorption costing and variable costing net operating income figures for each year. (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)

Variable costing net operating income Add/(deduct): Fixed manufacturing overhead deferred in

inventory under absorption costingAbsorption costing net operating income

P7_11_id5

P7_11_id8

P7_11_id16

P7_11_id19

Total grade: 1.0×1/6 + 1.0×1/6 + 1.0×1/6 + 0.0×1/6 + 1.0×1/6 + 1.0×1/6 = 17% + 17% + 17% + 0% + 17% + 17%Feedback:Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing (5,000 units × $6 per unit in Year 1; 5,000 units × $6 per unit in Year 2)



Exercise 8-2 First-Stage Allocation [LO2]SecuriCorp operates a fleet of armored cars that make scheduled pickups and deliveries in the Los Angeles area. The company is implementing an activity-based costing system that has four activity cost pools: Travel, Pickup and Delivery, Customer Service, and Other. The activity measures are miles for the Travel cost pool, number of pickups and deliveries for the Pickup and Delivery cost pool, and number of customers for the Customer Service cost pool. The Other cost pool has no activity measure because it is an organization-sustaining activity. The following costs will be assigned using the activity-based costing system:

Driver and guard wagesVehicle operating expenseVehicle depreciationCustomer representative salaries and expensesOffice expensesAdministrative expensesTotal cost

The distribution of resource consumption across the activity cost pools is as follows:

Exercise 8-2 First-Stage Allocation [LO2]SecuriCorp operates a fleet of armored cars that make scheduled pickups and deliveries in the Los Angeles area. The company is implementing an activity-based costing system that has four activity cost pools: Travel, Pickup and Delivery, Customer Service, and Other. The activity measures are miles for the Travel cost pool, number of pickups and deliveries for the Pickup and Delivery cost pool, and number of customers for the Customer Service cost pool. The Other cost pool has no activity measure because it is an organization-sustaining activity. The following costs will be assigned using the activity-based costing system:

Driver and guard wagesVehicle operating expenseVehicle depreciationCustomer representative salaries and expensesOffice expensesAdministrative expensesTotal cost

The distribution of resource consumption across the activity cost pools is as follows:

Travel

Driver and guard wages 50 %

Vehicle operating expense 70 %

Vehicle depreciation 60 %

Customer representative salaries and expenses

0 %

Office expenses 0 %

Administrative expenses 0 %

Required:Complete the first-stage allocations of costs to activity cost pools. to enter "0" wherever required. Omit the "$" sign in your response.)

TravelDriver and guard wages $ 360000 (3%) $Vehicle operating expense

196000 (3%)

Vehicle depreciation 72000 (3%) Customer representative

salariesand expenses

0 (3%)

Office expenses 0 (3%) Administrative expenses 0 (3%) Total cost $ 628000 (3%) $

TravelPickup and

Driver and guard wages 50 % Vehicle operating expense 70 % Vehicle depreciation 60 % Customer representative

salaries and expenses

0 %

Office expenses 0 % Administrative expenses 0 %

Required:Complete the first-stage allocations of costs to activity cost pools. to enter "0" wherever required. Omit the "$" sign in your response.)

Driver and guard wagesVehicle operating expenseVehicle depreciationCustomer representative salaries

and expensesOffice expensesAdministrative expensesTotal cost

Feedback:Each entry in the table is derived by multiplying the total cost for the cost category by the percentage taken from the table above that shows the distribution of resource consumption.



Exercise 8-3 Compute Activity Rates [LO3]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:

Activity Cost PoolCaring for lawn Square feet of lawnCaring for garden beds–low maintenance Square feet of low maintenance beds

Exercise 8-3 Compute Activity Rates [LO3]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:

Activity Cost PoolCaring for lawn Square feet of lawnCaring for garden beds–low maintenance Square feet of low maintenance beds

Caring for garden beds–high maintenance

Square feet of high maintenance beds

Travel to jobs MilesCustomer billing and service Number of customers

The company has already completed its first stage allocations of costs and has summarized its annual costs and activity as follows:

Activity cost Pool

EstimatedOverhead

CostCaring for lawn $ 72,000Caring for garden beds–low maintenance

$ 26,400


$ 41,400

Travel to jobs $ 3,250Customer billing and service $ 8,750

Required:Compute the activity rate for each of the activity cost pools. places. Omit the "$" sign in your response.)

Activity Cost PoolCaring for lawn $

Caring for garden beds–low maintenance $ 1.32

Caring for garden beds–high maintenance $ 2.76Travel to jobs $Customer billing and service $


Square feet of high maintenance beds

Travel to jobs MilesCustomer billing and service Number of customers

The company has already completed its first stage allocations of costs and has summarized its annual costs and activity as follows:

Activity cost Pool

EstimatedOverhead

CostCaring for lawn $ 72,000Caring for garden beds–low maintenance

$ 26,400


$ 41,400

Travel to jobs $ 3,250Customer billing and service $ 8,750

Required:Compute the activity rate for each of the activity cost pools. places. Omit the "$" sign in your response.)

Activity Cost PoolCaring for lawn $

Caring for garden beds–low maintenance $

Caring for garden beds–high maintenance $

Travel to jobs $Customer billing and service $

Feedback:

Activity Cost Pool

EstimatedOverhead

cost Expected Activity Activity Rate

Caring for lawn $ 72,000150,00

0square feet of lawn $ 0.48

per square foot of lawn

Caring for garden beds–lowmaintenance

$ 26,400 20,000square feet of low maintenance beds

$ 1.32per square foot of low maintenance beds


$ 41,400 15,000square feet of high maintenance beds

$ 2.76 per square foot of high maintenance beds

Travel to jobs $ 3,250 12,500 miles $ 0.26 per milesCustomer billing and service

$ 8,750 25 customers $ 350 per Customer

The activity rate for each activity cost pool is computed by dividing its estimated overhead cost by its expected activity.



Exercise 8-5 Product and Customer Profitability Analysis [LO4, LO5]Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management has designed an activity-based costing system with the following activity cost pools and activity rates:

Activity Cost PoolActivity Rate

Supporting direct labor $ 26 per direct labor-hourOrder processing $ 284 per orderCustom designing processing $ 186 per custom designCustomer service $ 379 per customer

Management would like an analysis of the profitability of a particular customer, Big Sky Outfitters, which has ordered the following products over the last 12 months:

StandardModel

Number of gliders Number of orders Number of custom designs Direct labor-hours per glider 26.35Selling price per glider $ 1,850Direct materials cost per glider $ 564

The company's direct labor rate is $19.50 per hour.

Required:Using the company's activity-based costing system, compute the customer margin of Big Sky Outfitters. (Round your answers to the nearest dollar amount. Omit the "$" sign in your response.)

Sales $Costs: Direct materials $ 35742 (0%) Direct labor 11915 (11%) Supporting direct

labor 15886 (11%)

Order processing 1136 (11%) Custom designing 558 (11%) Customer service 379 (11%)

Customer margin $

Exercise 8-5 Product and Customer Profitability Analysis [LO4, LO5]Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management has designed an activity-based costing system with the following activity cost pools and activity rates:


Supporting direct labor $ 26 per direct labor-hourOrder processing $ 284 per orderCustom designing processing $ 186 per custom designCustomer service $ 379 per customer

Management would like an analysis of the profitability of a particular customer, Big Sky Outfitters, which has ordered the following products over the last 12 months:

StandardModel

Number of gliders 20Number of orders Number of custom designs Direct labor-hours per glider 26.35Selling price per glider $ 1,850Direct materials cost per glider $ 564

The company's direct labor rate is $19.50 per hour.

Required:Using the company's activity-based costing system, compute the customer margin of Big Sky Outfitters. (Round your answers to the nearest dollar amount. Omit the "$" sign in your response.)

Sales Costs: Direct materials $ 13,182Direct labor 11915Supporting direct labor 15886Order processing 1136Custom designing 558

Customer service 379

Customer margin

Total grade: 1.0×1/9 + 0.0×1/9 + 1.0×1/9 + 1.0×1/9 + 1.0×1/9 + 1.0×1/9 + 1.0×1/9 + 0.0×1/9 + 0.0×1/9 = 11% + 0% + 11% + 11% + 11% + 11% + 11% + 0% + 0%

Feedback:

Sales ($1,850 per standard model glider × 20 standard model gliders + $2,400 per custom designed glider × 3 custom designed gliders)

$ 44,200

Costs: Direct materials ($564 per standard model glider × 20 standard model gliders

+ $634 per custom designed glider × 3 custom designed gliders) $ 13,182

Direct labor ($19.50 per direct labor-hour × 26.35 direct labor-hours per standard model glider × 20 standard model gliders + $19.50 per direct labor-hour × 28 direct labor-hours per custom designed glider × 3 custom designed gliders)

11,915

Supporting direct labor ($26 per direct labor-hour × 26.35 direct labor-hours per standard model glider × 20 standard model gliders + $26 per direct labor-hour × 28 direct labor-hours per custom designed glider × 3 custom designed gliders)

15,886

Order processing ($284 per order × 4 orders) 1,136 Custom designing ($186 per custom design × 3 custom designs) 558 Customer service ($379 per customer × 1 customer) 379 43,056

Customer margin $ 1,144



Exercise 8-6 Activity Measures [LO1]Various activities at Ming Corporation, a manufacturing company, are listed below. Each activity has been classified as a unit-level, batch-level, product-level, or customer-level activity. Complete the table by providing an example of an activity measure for each activity.

Activity

a. Direct labor workers assemble a product

b. Products are designed by engineers

c. Equipment is set up

d. Machines are used to shape and cut materials

e. Monthly bills are sent out to regular customers

f.Materials are moved from the receiving dock to production lines

g. All completed units are inspected for defects

Exercise 8-6 Activity Measures [LO1]Various activities at Ming Corporation, a manufacturing company, are listed below. Each activity has been classified as a unit-level, batch-level, product-level, or customer-level activity. Complete the table by providing an example of an activity measure for each activity.

Activitya. Direct labor workers assemble a product

b. Products are designed by engineers

c. Equipment is set up

d. Machines are used to shape and cut materials

e. Monthly bills are sent out to regular customers

f.Materials are moved from the receiving dock to production lines

g. All completed units are inspected for defects

Total grade: 0.0×1/7 + 1.0×1/7 + 1.0×1/7 + 1.0×1/7 + 1.0×1/7 + 1.0×1/7 + 1.0×1/7 = 0% + 14% + 14% + 14% + 14% + 14% + 14%Feedback:

1. In all cases except for direct labor in part (a), two activity measures are listed. The first is a "transaction driver" and the second is a "duration driver." Transaction drivers are simple counts of the number of times an activity occurs such as the number of times materials are moved. Duration drivers are measures of the amount of time required to perform an activity such as the time spent moving materials. In general, duration drivers are more accurate measures of the consumption of resources than transaction drivers, but they take more effort to record.



Exercise 8-7 Computing ABC Product Costs [LO3, LO4]

Fogerty Company makes two products, titanium Hubs and Sprockets. Data regarding the two products follow:

Direct Labor-Hours

per UnitAnnual

ProductionHubs 0.80 10,000 unitsSprockets 0.40 40,000 units

Additional information about the company follows:a. Hubs require $32 in direct materials per unit, and Sprockets require $18.b. The direct labor wage rate is $15 per hour.c. Hubs are more complex to manufacture than Sprockets and they require special processing.d. The ABC system has the following activity cost pools:

Activity Cost Pool Activity Measure

EstimatedOverhead

CostMachine setups Number of setups $ 72,000Special processing Machine-hours $ 200,000General factory Direct labor-hours $ 816,000

Requirement 1:Compute the activity rate for each activity cost pool.


Machine setups $180 (33%

)per setup

Special processing $ 40 (33%) per MHGeneral factory $ 34 (33%) per DLH

Exercise 8-7 Computing ABC Product Costs [LO3, LO4]

Fogerty Company makes two products, titanium Hubs and Sprockets. Data regarding the two products follow:

Direct Labor-Hours

per UnitAnnual

ProductionHubs 0.80 10,000 unitsSprockets 0.40 40,000 units

Additional information about the company follows:a. Hubs require $32 in direct materials per unit, and Sprockets require $18.b. The direct labor wage rate is $15 per hour.c. Hubs are more complex to manufacture than Sprockets and they require special processing.d. The ABC system has the following activity cost pools:

Activity Cost Pool Activity Measure

EstimatedOverhead

CostMachine setups Number of setups $ 72,000Special processing Machine-hours $ 200,000General factory Direct labor-hours $ 816,000

Requirement 1:Compute the activity rate for each activity cost pool.


Machine setups $ 180per setupSpecial processing $ 40 per MHGeneral factory $ 34per DLH

Feedback:Activity rates are computed as follows:

Activity Cost Pool

(a)Estimated Overhead

Cost

(b)Expected Activity

(a) ÷ (b)Activity Rate

Machine setups $ 72,000 400 setups $180

per setup

Special processing $ 200,000 5,000 MHs $ 40 per MH

General factory $ 816,00024,00

0DLHs $ 34 per DLH


Requirement 2:Determine the unit cost of each product according to the ABC system, including direct materials and direct labor. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

Hubs Sprockets

Direct materials $ 32 (13%) $Direct labor 15.8 (0%) Overhead 49 (13%) Unit cost $ 96.80 (0%) $ 48.35

Requirement 2:Determine the unit cost of each product according to the ABC system, including direct materials and direct labor. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

Hubs

Direct materials $ 32Direct labor 12Overhead 49Unit cost $ 93

Total grade: 1.0×1/8 + 1.0×1/8 + 0.0×1/8 + 0.0×1/8 + 1.0×1/8 + 1.0×1/8 + 0.0×1/8 + 0.0×1/8 = 13% + 13% + 0% + 0% + 13% + 13% + 0% + 0%Feedback:

Overhead is assigned to the two products as follows:Hubs:

Activity Cost Pool(a)

Activity Rate(b)

Activity(a) × (b)

ABC Cost

Machine setups $ 180 per setup 100setups

$ 18,000

Special processing $ 40 per MH 5,000 MHs 200,000General factory $ 34 per DLH 8,000 DLHs 272,000Total $ 490,000

Sprockets:


Activity Rate(b)

Activity(a) × (b)

ABC Cost

Machine setups $ 180per setup

300setups

$ 54,000

Special processing $ 40 per MH 0 MHs 0

General factory $ 34per DLH

16,000 DLHs 544,000

Total $ 598,000

Hubs Sprockets

Direct materials $32.0

0$ 18.00

Direct labor:

$15 per DLH × 0.80 DLHs per unit

12.0

0

$15 per DLH × 0.40 DLHs per unit

6.00

Overhead:

$490,000 ÷ 10,000 units 49.0

0

$598,000 ÷ 40,000 units 14.95

Unit cost $93.0

0$ 38.95



Exercise 8-8 Second-Stage Allocation to an Order [LO4]Durban Metal Products, Ltd., of the Republic of South Africa makes specialty metal parts used in applications ranging from the cutting edges of bulldozer blades to replacement parts for Land Rovers. The company uses an activity-based costing system for internal decision-making purposes. The company has four activity cost pools as listed below:

Activity Cost Pool

Activity Measure

Order sizeNumber of direct labor-hours

Customer orders Number of customer ordersProduct testing Number of testing hoursSelling Number of sales calls

Note: The currency in South Africa is the Rand, denoted here by R.

The managing director of the company would like information concerning the cost of a recently completed order for heavy-duty trailer axles. The order required 200 direct labor-hours, 4 hours of product testing, and 2 sales calls.

Required:Determine the total overhead cost of the order for heavy-duty trailer axles according to the activity based costing system. (Omit the "R" sign in your response.)

Activity Cost PoolABC cost

Order size R 3370 (20%)Customer orders 320 (20%)Product testing 356 (20%)Selling 2180 (20%)Total R 6226 (20%)

Exercise 8-8 Second-Stage Allocation to an Order [LO4]Durban Metal Products, Ltd., of the Republic of South Africa makes specialty metal parts used in applications ranging from the cutting edges of bulldozer blades to replacement parts for Land Rovers. The company uses an activity-based costing system for internal decision-making purposes. The company has four activity cost pools as listed below:

Activity Cost Pool

Activity Measure

Order sizeNumber of direct labor-hours

Customer orders Number of customer ordersProduct testing Number of testing hoursSelling Number of sales calls

Note: The currency in South Africa is the Rand, denoted here by R.

The managing director of the company would like information concerning the cost of a recently completed order for heavy-duty trailer axles. The order required 200 direct labor-hours, 4 hours of product testing, and 2 sales calls.

Required:Determine the total overhead cost of the order for heavy-duty trailer axles according to the activity based costing system. (Omit the "R" sign in your response.)

Activity Cost PoolABC cost

Order size R 3370Customer orders 320Product testing 356Selling 2180Total R 6226

Feedback:Activity Cost

Pool(a)

Activity Rate(b)

Activity(a) × (b)

ABC CostOrder size R 16.85 per direct labor-hour 200 direct labor-hours R 3,370

Customer orders R 320.00 per customer order 1 customer order 320

Product testing R 89.00per product testing hour

4product testing hours

356

Selling R 1,090.00 per sales call 2 sales calls 2,180Total R 6,226

According to these calculations, the total overhead cost of the order is R 6,226



Exercise 8-11 Cost Hierarchy [LO1]CD Express, Inc., provides CD duplicating services to software companies. The customer provides a master CD from which CD Express makes copies. An order from a customer can be for a single copy or for thousands of copies. Most jobs are broken down into batches to allow smaller jobs, with higher priorities, to have access to the machines.

Required:Classify each of the activities above as either a unit-level, batch-level, product-level, customer-level, or organization-sustaining activity. An order to duplicate a particular CD is a product-level activity. Assume the order is large enough that it must be broken down into batches.

Activity

a. Sales representatives' periodic visits to customers to keep them informed about the services provided by CD Express.

b. Ordering labels from the printer for a particular CD.

c. Setting up the CD duplicating machine to make copies from a particular master CD.

d. Loading the automatic labeling machine with labels for a particular CD.

e. Visually inspecting CDs and placing them by hand into protective plastic cases prior to shipping.

f. Preparation of the shipping documents for the order.

g. Periodic maintenance of equipment.

h. Lighting and heating the company's production facility.

i. Preparation of quarterly financial reports.

Exercise 8-11 Cost Hierarchy [LO1]CD Express, Inc., provides CD duplicating services to software companies. The customer provides a master CD from which CD Express makes copies. An order from a customer can be for a single copy or for thousands of copies. Most jobs are broken down into batches to allow smaller jobs, with higher priorities, to have access to the machines.

Required:Classify each of the activities above as either a unit-level, batch-level, product-level, customer-level, or organization-sustaining activity. An order to duplicate a particular CD is a product-level activity. Assume the order is large enough that it must be broken down into batches.

Activity

a. Sales representatives' periodic visits to customers to keep them informed about the services provided by CD Express.

b. Ordering labels from the printer for a particular CD.c. Setting up the CD duplicating machine to make copies from a particular

master CD.d. Loading the automatic labeling machine with labels for a particular CD.e. Visually inspecting CDs and placing them by hand into protective plastic

cases prior to shipping.f. Preparation of the shipping documents for the order.

g. Periodic maintenance of equipment.

h. Lighting and heating the company's production facility.

i. Preparation of quarterly financial reports.

Total grade: 1.0×1/9 + 0.0×1/9 + 0.0×1/9 + 1.0×1/9 + 1.0×1/9 + 0.0×1/9 + 0.0×1/9 + 0.0×1/9 + 1.0×1/9 = 11% + 0% + 0% + 11% + 11% + 0% + 0% + 0% + 11%Feedback:The cost of the labels themselves would be part of direct materials.b. Ordering labels from the printer for a particular CDd. Loading the automatic labeling machine with labels for a particular CD



Exercise 8-12 Second-Stage Allocations and Margin Calculations [LO4, LO5]Foam Products, Inc., makes foam seat cushions for the automotive and aerospace industries. The company's activity-based costing system has four activity cost pools, which are listed below along with their activity measures and activity rates:

Activity Cost PoolActivity Measure

Supporting direct laborNumber of direct labor-hours

Batch processing Number of batchesOrder processing Number of ordersCustomer service Number of customers

The company just completed a single order from Interstate Trucking for 1,000 custom seat cushions. The order was produced in two batches. Each seat cushion required 0.25 direct labor-hours. The selling price was $20 per unit, the direct materials cost was $8.50 per unit, and the direct labor cost was $6.00 per unit. This was Interstate Trucking's only order during the year.

Required:Prepare a report showing the customer margin on sales to Interstate Trucking for the year. amounts as postitive numbers. Round your answers to 2 decimal places. Omit the "$" sign in your response.)

Customer Margin—ABC AnalysisSales $Costs:

Direct materials $ 8500 (11%)Direct labor 6000 (11%)Supporting direct labor

1387.50 (11%)

Batch processing 214 (11%)Order processing 275 (11%)Customer service overhead

2463 (11%)

Customer margin $

Exercise 8-12 Second-Stage Allocations and Margin Calculations [LO4, LO5]Foam Products, Inc., makes foam seat cushions for the automotive and aerospace industries. The company's activity-based costing system has four activity cost pools, which are listed below along with their activity measures and activity rates:

Activity Cost PoolActivity Measure

Supporting direct laborNumber of direct labor-hours

Batch processing Number of batchesOrder processing Number of ordersCustomer service Number of customers

The company just completed a single order from Interstate Trucking for 1,000 custom seat cushions. The order was produced in two batches. Each seat cushion required 0.25 direct labor-hours. The selling price was $20 per unit, the direct materials cost was $8.50 per unit, and the direct labor cost was $6.00 per unit. This was Interstate Trucking's only order during the year.

Required:Prepare a report showing the customer margin on sales to Interstate Trucking for the year. amounts as postitive numbers. Round your answers to 2 decimal places. Omit the "$" sign in your response.)

Customer Margin—ABC AnalysisSales Costs:

Direct materials $ 8500Direct labor 6000Supporting direct labor 1387.50Batch processing 214Order processing 275Customer service overhead 2463

Customer margin

Feedback:Sales (1,000 seats × $20 per unit) = $20,000.00Direct materials ($8.50 per unit × 1,000 seats) = $8,500.00Direct labor ($6.00 per unit × 1,000 seats) = 6,000.00Supporting direct labor ($5.55 per DLH × 0.25 DLH per unit × 1,000 seats) = 1,387.50Batch processing ($107 per batch × 2 batches) = 214.00Order processing ($274 per order × 1 order) = 275.00Customer service overhead ($2,463 per customer × 1 customer) = 2,463.00



Exercise 8-13 Contrasting Traditional and ABC Product Costs [LO1, LO5]Model X100 sells for $120 per unit whereas Model X200 offers advanced features and sells for $500 per unit. Management expects to sell 50,000 units of Model X100 and 5,000 units of Model

Exercise 8-13 Contrasting Traditional and ABC Product Costs [LO1, LO5]Model X100 sells for $120 per unit whereas Model X200 offers advanced features and sells for $500 per unit. Management expects to sell 50,000 units of Model X100 and 5,000 units of Model

X200 next year. The direct material cost per unit is $50 for Model X100 and $220 for Model X200. The company's total manufacturing overhead for the year is expected to be $1,995,000. A unit of Model X100 requires 2 direct labor-hours and a unit of Model X200 requires 5 direct labor-hours. The direct labor wage rate is $20 per hour.

Requirement 1:(a) Calculate the predetermined overhead rate. (Round your answer to 2 decimal places. Omit

the "$" sign in your response.)

Predetermined overhead rate

$ 36.27 (0%)

X200 next year. The direct material cost per unit is $50 for Model X100 and $220 for Model X200. The company's total manufacturing overhead for the year is expected to be $1,995,000. A unit of Model X100 requires 2 direct labor-hours and a unit of Model X200 requires 5 direct labor-hours. The direct labor wage rate is $20 per hour.

Requirement 1:(a) Calculate the predetermined overhead rate. (Round your answer to 2 decimal places. Omit

the "$" sign in your response.)

Predetermined overhead rate$ 15.96


Under the traditional direct labor-hour based costing system, manufacturing overhead is applied to products using the predetermined overhead rate computed as follows:

*50,000 units of Model X100 @ 2.0 DLH per unit + 5,000 units of Model X200 @ 5.0 DLH per unit = 100,000 DLHs + 25,000 DLHs = 125,000 DLHs


(b)

Using this traditional approach, compute the product margins for X100 and X200. amount should be indicated by a minus sign. Omit the "$" sign in your response.)

Model X100 Model X200Product margin

$ -313500

(0%)$ 718650

(b)

Using this traditional approach, compute the product margins for X100 and X200. amount should be indicated by a minus sign. Omit the "$" sign in your response.)

Model X100

Model X200

Product margin $-

96,000 $ 501,000


Consequently, the product margins using the traditional approach would be computed as follows:

Model X100Model X200

Total

Sales $ 6,000,000 $2,500,00

0$ 8,500,000

Direct materials 2,500,000 1,100,00

03,600,000

Direct labor 2,000,000 500,000 2,500,000Manufacturing overhead applied @ $15.96 per direct labor-hour

1,596,000 399,000 1,995,000

Total manufacturing cost 6,096,000 1,999,00

08,095,000

Product margin $ (96,000) $ 501,000 $ 405,000

Note that all of the manufacturing overhead cost is applied to the products under the company's traditional costing system.


Requirement 2:Management is considering an activity-based costing system and would like to know what impact this would have on product costs. Preliminary analysis suggests that under activity-based costing, a total of $1,000,000 in manufacturing overhead cost would be assigned to Model X100 and a total of $600,000 would be assigned to Model X200. In addition, a total of $150,000 in nonmanufacturing overhead would be applied to Model X100 and a total of $350,000 would be applied to Model X200. Using the activity-based costing approach, compute the product margins for X100 and X200. (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)

Model X100 Model X200Product margin

$ -313500 (

0%)$ 718650 (

0%)

Requirement 2:Management is considering an activity-based costing system and would like to know what impact this would have on product costs. Preliminary analysis suggests that under activity-based costing, a total of $1,000,000 in manufacturing overhead cost would be assigned to Model X100 and a total of $600,000 would be assigned to Model X200. In addition, a total of $150,000 in nonmanufacturing overhead would be applied to Model X100 and a total of $350,000 would be applied to Model X200. Using the activity-based costing approach, compute the product margins for X100 and X200. (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)

Model X100Model X200

Product margin $ 350,000 $ 50,000


Under the activity-based costing system, the product margins would be computed as follows:

Model X100 Model X200 TotalSales $ 6,000,000 $ 2,500,000 $ 8,500,000Direct materials 2,500,000 1,100,000 3,600,000Direct labor 2,000,000 500,000 2,500,000Manufacturing overhead applied 1,000,000 600,000 1,600,000Nonmanufacturing overhead applied

150,000 350,000 500,000

Total cost 5,650,000 2,550,000 8,200,000Product margin $ 350,000 $ (50,000) $ 300,000



Exercise 8-14 Comprehensive Activity-Based Costing Exercise [LO2, LO3, LO4, LO5]Advanced Products Corporation has supplied the following data from its activity-based costing system:

Overhead CostsWages and salaries $ 300,000Other overhead costs 100,000Total overhead costs $ 400,000

Exercise 8-14 Comprehensive Activity-Based Costing Exercise [LO2, LO3, LO4, LO5]Advanced Products Corporation has supplied the following data from its activity-based costing system:

Overhead CostsWages and salaries $ 300,000Other overhead costs 100,000Total overhead costs $ 400,000

Activity Cost Pool Activity MeasureSupporting direct labor Number of direct labor-hoursOrder processing Number of customer ordersCustomer support Number of customersOther This is an organization-

sustaining activity

Distribution of Resource Consumption Across ActivitiesSupporting

Direct Labor

Order Processing

Wages and salaries 40%Other overhead costs 30%

During the year, Advanced Products completed one order for a new customer, Shenzhen Enterprises. This customer did not order any other products during the year. Data concerning that order follow:

Data concerning the Shenzhen Enterprises OrderUnits ordered 10 unitsDirect labor-hours 2 DLHs per unitSelling price $ 300 per unitDirect materials $ 180 per unitDirect labor $ 50 per unit

Requirement 1:Prepare a report showing the first-stage allocations of overhead costs to the activity cost pools. (Omit the "$" sign in your response.)

Direct Labor Support

OrderProcessing

Wages and salaries $ 120000 (7%) $ 90000Other overhead costs

30000 (7%) 10000

Total cost $ 150000 (7%) $ 100000

Activity Cost Pool Activity MeasureSupporting direct labor Number of direct labor-hoursOrder processing Number of customer ordersCustomer support Number of customersOther This is an organization-

sustaining activity

Distribution of Resource Consumption Across ActivitiesSupporting

Direct Labor

Order Processing

Wages and salaries 40%Other overhead costs 30%

During the year, Advanced Products completed one order for a new customer, Shenzhen Enterprises. This customer did not order any other products during the year. Data concerning that order follow:

Data concerning the Shenzhen Enterprises OrderUnits ordered 10 unitsDirect labor-hours 2 DLHs per unitSelling price $ 300 per unitDirect materials $ 180 per unitDirect labor $ 50 per unit

Requirement 1:Prepare a report showing the first-stage allocations of overhead costs to the activity cost pools. (Omit the "$" sign in your response.)

SupportWages and salaries $ 120000Other overhead costsTotal cost $ 150000


Requirement 2:Compute the activity rates for the activity cost pools. decimal places. Omit the "$" sign in your response.)

Activity Cost PoolsActivity Rate

Supporting direct labor $7.5 (33%

)per DLH

Order processing $250 (33%

)per order

Requirement 2:Compute the activity rates for the activity cost pools. decimal places. Omit the "$" sign in your response.)


Supporting direct labor $ 7.5 per DLHOrder processing $ 250 per orderCustomer support $ 400 per customer

Customer support $400 (33%

)per customer

Feedback:Computation of activity rates:

Activity Cost Pools(a)

Total Cost(b)

Total Activity(a) ÷ (b)

Activity RateSupporting direct labor $ 150,000 20,000 DLHs $ 7.50 per DLHOrder processing $ 100,000 400 orders $ 250 per orderCustomer support $ 80,000 200 customers $ 400 per customer


Requirement 3:Determine the overhead costs for the order from Shenzhen Enterprises, including customer support costs. (Omit the "$" sign in your response.)

Activity Cost PoolABC Cost

Supporting direct labor $ 150 (25%)Order processing 250 (25%)Customer support 400 (25%)Total $ 800 (25%)

Requirement 3:Determine the overhead costs for the order from Shenzhen Enterprises, including customer support costs. (Omit the "$" sign in your response.)

Activity Cost PoolABC Cost

Supporting direct labor $ 150Order processing 250Customer support 400Total $ 800

Feedback:Computation of the overhead costs for the Shenzhen Enterprises order:


Activity Rate(b)

Activity

(a) x (b)

ABC Cost

Supporting direct labor $ 7.50 per DLH 20 DLHs* $ 150Order processing 250 per order 1 order 250Customer support $ 400 per customer 1 customer 400Total $ 800

*2 DLHs per unit × 10 units = 20 DLHs


Requirement 4:Prepare a report showing the customer margin for Shenzhen Enterprises. postitive numbers. Omit the "$" sign in your response.)

Customer Margin-ABC AnalysisSales (7%)Costs:

Direct materials (7%)Direct labor (7%)Supporting direct labor overheadOrder processing overhead (7%)

Requirement 4:Prepare a report showing the customer margin for Shenzhen Enterprises. postitive numbers. Omit the "$" sign in your response.)

Customer Margin-ABC AnalysisSalesCosts:

Direct materialsDirect laborSupporting direct labor overheadOrder processing overhead

Other (0%)Customer margin Negative (7%)

E8_14_id26

E8_14_id28

E8_14_id30

E8_14_id32

E8_14_id34

Customer support overheadCustomer margin Negative

E8_14_id26

E8_14_id28

E8_14_id30

E8_14_id32

E8_14_id34

Total grade: 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 0.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 = 7% + 7% + 7% + 7% + 7% + 7% + 7% + 7% + 7% + 7% + 0% + 7% + 7% + 7% + 7%

Feedback:Sales (10 units × $300 per unit) = $3,000Direct materials ($180 per unit × 10 units) = $1,800Direct labor ($50 per DLH × 10 DLH per unit) = $500



Exercise 8-15 Calculating and Interpreting Activity-Based Costing Data [LO3, LO4]Hiram's Lakeside is a popular restaurant located on Lake Washington in Seattle. The owner of the restaurant has been trying to better understand costs at the restaurant and has hired a student intern to conduct an activity-based costing study. The intern, in consultation with the owner, identified three major activities and then completed the first-stage allocations of costs to the activity cost pools. The results appear below.

Activity Cost Pool Activity MeasureServing a party of diners Number of parties servedServing a diner Number of diners servedServing drinks Number of drinks ordered

The above costs include all of the costs of the restaurant except for organization-sustaining costs such as rent, property taxes, and top-management salaries.

A group of diners who ask to sit at the same table are counted as a party. Some costs, such as the costs of cleaning linen, are the same whether one person is at a table or the table is full. Other costs, such as washing dishes, depend on the number of diners served.

Prior to the activity-based costing study, the owner knew very little about the costs of the restaurant. She knew that the total cost for the month (including organization-sustaining costs) was $240,000 and that 15,000 diners had been served. Therefore, the average cost per diner was $16.

Requirement 1:

Exercise 8-15 Calculating and Interpreting Activity-Based Costing Data [LO3, LO4]Hiram's Lakeside is a popular restaurant located on Lake Washington in Seattle. The owner of the restaurant has been trying to better understand costs at the restaurant and has hired a student intern to conduct an activity-based costing study. The intern, in consultation with the owner, identified three major activities and then completed the first-stage allocations of costs to the activity cost pools. The results appear below.

Activity Cost Pool Activity MeasureServing a party of diners Number of parties servedServing a diner Number of diners servedServing drinks Number of drinks ordered

The above costs include all of the costs of the restaurant except for organization-sustaining costs such as rent, property taxes, and top-management salaries.

A group of diners who ask to sit at the same table are counted as a party. Some costs, such as the costs of cleaning linen, are the same whether one person is at a table or the table is full. Other costs, such as washing dishes, depend on the number of diners served.

Prior to the activity-based costing study, the owner knew very little about the costs of the restaurant. She knew that the total cost for the month (including organization-sustaining costs) was $240,000 and that 15,000 diners had been served. Therefore, the average cost per diner was $16.

Requirement 1:

According to the activity-based costing system, what is the total cost of serving each of the following parties of diners? (Round your answers to 1 decimal place. Omit the "$" sign in your response.)


Serving parties $ 5.5 (17%)Serving diners $ 9.2 (17%)Serving drinks $ 2.4 (17%)

a.

A party of four diners who order three drinks in total.

b.

A party of two diners who do not order any drinks.

c. A lone diner who orders two drinks.

According to the activity-based costing system, what is the total cost of serving each of the following parties of diners? (Round your answers to 1 decimal place. Omit the "$" sign in your response.)


Serving parties $ 5.5Serving diners $ 9.2Serving drinks $ 2.4

a.

A party of four diners who order three drinks in total.

b.

A party of two diners who do not order any drinks.


Feedback:1. The first step is to determine the activity rates:

Activity Cost Pools(a)

Total Cost(b)

Total Activity(a) ÷ (b)

Activity Rate

Serving parties $ 33,000 6,000parties

$5.5

0per party

Serving diners $138,00

015,000 diners $

9.20

per diner

Serving drinks $ 24,000 10,000 drinks $2.4

0per drink

According to the activity-based costing system, the cost of serving each of the parties can be computed as follows:

a.

Party of 4 persons who order a total of 3 drinks:


Activity Rate(b)

Activity(a) × (b)

ABC Cost

Serving parties $ 5.50per party

1 party $ 5.50

Serving diners $ 9.20per diner

4 diners 36.80

Serving drinks $ 2.40per drink

3 drinks 7.20

Total $ 49.50

b.Party of 2 persons who order no drinks:


Activity Rate(b)

Activity(a) × (b)

ABC Cost


1 party $ 5.50

Serving diners $ 9.20 per 2 diners 18.40

diner


0 drinks 0

Total $ 23.90

c.

Party of 1 person who orders 2 drinks:


Activity Rate(b)

Activity(a) × (b)

ABC Cost


1 party $ 5.50

Serving diners $ 9.20per diner

1 diners 9.20


2 drinks 4.80

Total $ 19.50


Requirement 2:Convert the total costs you computed in (1) above to costs per diner. In other words, what is the average cost per diner for serving each of the following parties? decimal places. Omit the "$" sign in your response.)

a.A party of four diners who order three drinks in total.

b.A party of two diners who do not order any drinks.


Requirement 2:Convert the total costs you computed in (1) above to costs per diner. In other words, what is the average cost per diner for serving each of the following parties? decimal places. Omit the "$" sign in your response.)

a. A party of four diners who order three drinks in total.b. A party of two diners who do not order any drinks.c. A lone diner who orders two drinks.

Feedback:The average cost per diner for each party can be computed by dividing the total cost of the party by the number of diners in the party as follows:a. $49.50 ÷ 4 diners = $12.375 per dinerb. $23.90 ÷ 2 diners = $11.95 per dinerc. $19.50 ÷ 1 diner = $19.50 per diner

Requirement 3:The activity-based costing system itself does not recognize all of the differences in diners' demands on resources. State whether the statement is true or false.

Your Answer:

Choice Selected

True

False

20840 2 example problems ch. 7 8

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