ACC431 Lecture 6: Garrison11ce_Ch07

27 views4 pages

greenmuskrat329

2 Feb 2020

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Abc is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity, and. Abc is typically used as a supplement to a company"s usual costing therefore, affect fixed as well as variable costs. Identify and define activities, activity cost pools and activity measures. Assign overhead costs to activity cost pools. Assign overhead costs to cost objects using the activity rates and activity measures. At classic brass, the abc team, selected the following activity cost pools and activity measures: Identify and define activities, activity cost pools, and activity. Assign overhead costs to activity cost pools a two-stage process. Calculate activity rates: the abc team determines that classic brass will have these total activities for each activity cost pool . Let"s take a look at how classic brass system works for just one of the. 250 customers windward yachts who placed a total of three. Product margins computed using the traditional cost system.

Related Questions

Direct labor or machine hours may not be the appropriate costdriver for overhead

in all areas of manufacturing due to the complexities of manymanufacturing

processes. Many companies use activity-based costing (ABC) whichuses multiple drivers

(items that consume resources) rather than just one driver toapply overhead to their

activities. With ABC, a company can use a cost driver that has adirect cause/effect relationship

in its applied overhead costs.

Evian looked into ABC as a method of costing because of thevariety of items it

produces and the many different activities in which it isinvolved. The activities listed

below are a sample of possible cost pools for Evian.

Assembling

Payroll

Billing

Plant supervision

Digging trenches

Purchasing materials

Machine maintenance

Selling

Machine setups

Testing

Molding

Welding

Packaging

Instructions for part 4

(a) For each of these cost pools, what would be thelikely activity cost driver?

(b) Using the following information, determine theoverhead rates and the actual cost assigned for each of theactivity cost pools in a possible ABC system forEvian.

EVIAN CORPORATION

Expected

Use of Actual

Estimated CostDrivers Use of

Activity CostPools Cost Drivers Overhead per Activity Drivers

Irrigationinstallation Labor cost $1,999,500 12,900 12,941

Machining (all machine use) Machine hours 1,670,400 33,408,000 33,409,000

Customer orders # of orders 30,636 2,553 2,520

Shipping none(direct) N/A traced directly

Design Cost per design 820 10 7

Selling Number of calls 372,300 21,900 22,100

(d) (1) The results of ABC can provide a more accuratepicture of costs. Discuss the value of Evian using this system todetermine overhead costs.

(2) How might using ABC affect decision making atEvian?

lemonjackal901

PROBLEM 7-17 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, L07-4, L07-5] Smoky Mountain Corporation makes two types of hiking boots—Xtreme and the Pathfinder. Data concerning these two product lines appear below: Xtreme Pathfinder Selling price per unit ....... Direct materials per unit ...... Direct labor per unit ........ Direct labor-hours per unit ............ Estimated annual production and sales ..... $140.00 $72.00 $24.00 2.0 DLHS 20,000 units $99.00 $53.00 $12.00 1.0 DLHs 80,000 units The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below: Estimated total manufacturing overhead ........ Estimated total direct labor-hours .............. $1,980,000 120,000 DLHs Required: Using Exhibit 7-13 as a guide, compute the product margins for the Xtreme and the Path- finder products under the company's traditional costing system. 2. The company is considering replacing its traditional costing system with an activity-based costing system that would assign its manufacturing overhead to the following four activ- ity cost pools (the Other cost pool includes organization-sustaining costs and idle capacity costs): Activities and Activity Measures Supporting direct labor (direct labor-hours) ... Batch setups (setups) ... Product sustaining (number of products) .... Estimated Expected Activity Overhead Cost Xtreme Pathfinder Total $ 783,600 40,000 80,000 120,000 495,000 200 100 300 602,400 99,000 NA NA NA $1,980,000 Other .. Total manufacturing overhead cost ........ Using Exhibit 7-11 as a guide, compute the product margins for the Xtreme and the Path- finder products under the activity-based costing system. 3. Using Exhibit 7-14 as a guide, prepare a quantitative comparison of the traditional and activity-based cost assignments. Explain why the traditional and activity-based cost assign- ments differ.

Smoky Mountain Corporation makes two types of hikingbootsâXtreme and the Pathfinder. Data concerning these two productlines appear below:

	Xtreme			Pathfinder
Selling price per unit	$	124.00		$	88.00
Direct materials per unit	$	63.40		$	53.00
Direct labor per unit	$	14.40		$	8.00
Direct labor-hours per unit		1.8	DLHs		1.0	DLHs
Estimated annual production and sales		23,000	units		70,000	units

The company has a traditional costing system in whichmanufacturing overhead is applied to units based on directlabor-hours. Data concerning manufacturing overhead and directlabor-hours for the upcoming year appear below:


Estimated total manufacturing overhead	$2,005,200
Estimated total direct labor-hours	111,400 DLHs

Required:
1.	Compute the product margins for the Xtreme and the Pathfinderproducts under the companyâs traditional costing system.(Do not round your intermediate calculations.)

2.	The company is considering replacing its traditional costingsystem with an activity-based costing system that would assign itsmanufacturing overhead to the following four activity cost pools(the Other cost pool includes organization-sustaining costs andidle capacity costs):

	Estimated		Expected Activity
Activities and Activity Measures	Overhead Cost		Xtreme	Pathfinder	Total
Supporting direct labor (direct labor-hours)	$	712,960	41,400	70,000	111,400
Batch setups (setups)		504,000	230	190	420
Product sustaining (number of products)		740,000	1	1	2
Other		48,240	NA	NA	NA

Total manufacturing overhead cost	$	2,005,200

Compute the product margins for the Xtreme and the Pathfinderproducts under the activity-based costing system. (Negativeproduct margins should be indicated with a minus sign. Round yourintermediate calculations to 2 decimal places.)

3.	Prepare a quantitative comparison of the traditional andactivity-based cost assignments. (Do not round intermediatecalculations. Round your "Percentage" answer to 1 decimal place.(i.e. .1234 should be entered as 12.3))

yelloweagle158

ACC431 Lecture 6: Garrison11ce_Ch07

Document Summary

Get access

Related Questions