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ACC 560 Week 3 Homework Chapter 4 (BE 4-7, BE 4-12, E4-1, E4-6, E4-14)
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ACC 560 Week 3 Homework Chapter 4 (BE 4-7, BE 4-12, E4-1, E4-6, E4-14)

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ACC 560 Week 3 Homework Chapter 4 (BE 4-7, BE 4-12, E4-1, E4-6, E4-14)

 

Chapter 4: Activity-Based Costing

 

ACC 560 WEEK 3 Chapter 4 Brief Exercises 7 and 12; Exercises 1, 6, and 14

BE4-7

Spud, Inc. a manufacturer of gourmet potato chips, employs activity-based costing. The budgeted data for each of the activity cost pools is provided below for the year 2017.

Activity Cost Pools                Estimated Overhead                         Expected Use of Cost Drivers per Activity

Ordering and receiving                                   $84,000                                   12,000 orders

Food processing                                  480,000                                   60,000 machine hours

Packaging                                            1,760,000                                440,000 labor hours

 

For 2017, the company had 11,000 orders and used 50,000 machine hours, and labor hours totaled 500,000. What is the total overhead applied?

 

BE4-12

Spin Cycle Architecture uses three activity pools to apply overhead to its projects. Each activity has a cost driver used to allocate the overhead costs to the projects. The activities and related overhead costs are as follows: initial concept formation $40,000, design $300,000, and construction oversight $100,000. The cost drivers and expected use are as follows.

Activities                                 Cost Drivers                           Expected Use of Cost Drivers per Activity

Initial concept formation        Number of project changes                          20

Design                                     Square feet                                                      150,000

Construction oversight            Number of months                                        100

 

(a) Compute the predetermined overhead rate for each activity.

 

(b) Classify each of these activities as unit-level, batch-level, product-level, or facility-level.

 

E4-1

 Saddle Inc. has two types of handbags: standard and custom. The controller has decided to use a plant wide overhead rate based on direct labor costs. The president has heard of activity-based costing and wants to see how the results would differ if this system were used. Two activity cost pools were developed: machining and machine setup. Presented below is information related to the company's operations.

                                    Standard                     Custom

Direct labor costs        $50,000                       $100,000

Machine hours                         1,000                           1,000

Setup hours                 100                              400

Total estimated overhead costs are $240,000. Overhead cost allocated to the machining activity cost pool is $140,000, and $100,000 is allocated to the machine setup activity cost pool.

Instructions:

a. Compute the overhead rate using the traditional (plant wide) approach.

b. Compute the overhead rates using the activity-based costing approach.

c. Determine the difference in allocation between the two approaches.

 

E4-6

 Santana Corporation manufactures snowmobiles in its Blue Mountain, Wisconsin, plant. The following costs are budgeted for the first quarter's operations.

Machine setup, indirect materials                   4,000

Inspections                                                      16,000

Tests                                                                4,000

Insurance, plant                                               110,000

Engineering design                                         140,000

Depreciation, machinery                                 520,000

Machine setup, indirect labor                          20,000

Property taxes                                                             29,000

Oil, heating                                                     19,000

Electricity, plant lighting                                21,000

Engineering prototypes                                   60,000

Depreciation, plant                                          210,000

Electricity, machinery                                     36,000

Machine maintenance wages                          19,000

 

Instructions

Classify the above costs of Santana Corporation into activity cost pools using the following: engineering, machinery, machine setup, quality control, factory utilities, and maintenance. Next, identify a cost driver that may be used to assign each cost pool to each line of snowmobiles.

 

E4-14

 Venus Creations sells window treatments (shades, blinds, and awnings) to both commercial and residential customers. The following information relates to its budgeted operations for the current year.

The controller, Peggy Kingman, is concerned about the residential product line. She cannot understand why this line is not more profitable given that the installations of window coverings are less complex for residential customers. In addition, the residential client base resides in close proximity to the company office, so travel costs are not as expensive on a per client visit for residential customers. As a result, she has decided to take a closer look at the overhead costs assigned to the two product lines to determine whether a more accurate product costing model can be developed. Here are the three activity cost pools and related information she developed:

Activity Cost Pools                Estimated Overhead                         Cost Drivers

Scheduling and travel                         $85,000                                   Hours of travel

Setup time                                90,000                                   Number of setups

Supervision                              60,000                                   Direct labor cost

Expected Use of Cost Drivers per Product

                                                            Commercial               Residential

Scheduling and travel                                                 750                              500

Setup time                                                       350                              250

Instructions

a. Compute the activity-based overhead rates for each of the three cost pools, and determine the overhead cost assigned to each product line.

b. Compute the operating income for each product line, using the activity-based overhead rates.

c. What do you believe Peggy Kingman should do?

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