ACCT 210 Lecture Notes - Lecture 4: Activity-Based Costing, Direct Labor Cost, Cost Driver

20 views3 pages

pucemouse259

15 Dec 2019

School

University of Arizona

Department

Accounting

Course

ACCT 210

Professor

Blanchard

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

Document Summary

Allocates overhead using a single plant-wide predetermined moh rate. Direct labor cost may be the relevant activity base. Machine hours may be the relevant activity base. Significant transformation in manufacturing and service industries. Decrease in amount of direct labor usage. It is inappropriate to use plantwide one size fits all predetermined overhead rates bc lack of individual costs. Separate manufacturing overhead to multiple activity cost pools . Assign those activity cost pools to products/jobs/services by means of multiple. Total moh cost is the same, but the allocation between products or processes that utilize common cost pools is more closely related to actual cost consumption behavior. Activity cost pool = overhead cost attributed to a distinct activity. Cost driver = any factor or activity that has a direct cause-effect relationship with resources consumed. I. e. purchasing-number of purchase orders, storing-number of square feet, machining-number of machine hours, supervising- number of employees.

Related Questions

Maryville Manufacturing designs and builds custom mudroomstorage benches. All of the mudroom storage benches are constructedwith rustic hickory. Its budgeted manufacturing costs for the 2018year are as follows.

Overhead Cost Pools	Amount
Purchasing	$ 45,000
Handling materials	50,000
Production (cutting, milling, finishing)	130,000
Setting up machines	85,000
Inspecting	60,000
Inventory control (raw materials and finished goods)	80,000
Utilities	100,000
Total budgeted overhead costs	$550,000

For the last 5 years, Maryville Manufacturing has been chargingoverhead to products on the basis of materials cost. For the year2018, materials cost of $500,000 were budgeted.

Jim Johnson, owner-manager of Maryville Manufacturing, recentlydirected his accountant, Ledger Kaufman, to implement theactivity-based costing system that he has repeatedly proposed. AtJimâs request, Ledger and the production foreman identify thefollowing cost drivers and their usage for the previously budgetedoverhead cost pools.

Overhead Cost Pools	Activity Cost Drivers	Expected Use of Cost Drivers
Purchasing	Number of orders	500
Handling materials	Number of moves	5,000
Production (cutting, milling, finishing)	Direct labor hours	65,000
Setting up machines	Number of setups	1,000
Inspecting	Number of inspections	4,000
Inventory control (raw materials and finished goods)	Number of components	40,000
Utilities	Square feet occupied	50,000

Doug Russell, sales manager, has received an order for 12 custommudroom storage benches from Homes by Kathy. At Dougâs request,Ledger prepares costs estimates for producing 12 mudroom storagebenches so Doug can submit a contract price per mudroom storagebench to Homes by Kathy. He accumulates the following data for theproduction of 12 mudroom storage benches.

Direct materials	$5,200
Direct labor	$3,500
Direct labor hours	200
Number of purchase orders	3
Number of material moves	32
Number of machine setups	4
Number of inspections	20
Number of components	640
Number of square feet occupied	320

Required:

Compute the predetermined overhead rate using traditionalcosting with direct materials cost as the allocation base.

Compute the total cost of manufacturing one mudroom storagebench using direct materials cost as the allocation base formanufacturing overhead.

Compute the predetermined overhead rate using traditionalcosting with direct labor hours as the allocation base.

Compute the total cost of manufacturing one mudroom storagebench using direct labor hours as the allocation for manufacturingoverhead.

Compute the predetermined overhead rate per cost driver for eachof the overhead cost pools using the proposed activity-basedcosting system.

Compute the total cost of manufacturing one mudroom storagebench using the proposed activity-based costing system.

Which allocation base is preferable under traditional costingand why?

Which costing system (traditional or activity-based) ispreferable in pricing decisions and why?

chocolateporpoise891

PROBLEM 6-12. Activity-Based Costing [LO 5] The CheesecakeShoppe is a national bakery that is known for its strawberrycheesecake.It makes 12 different kinds of cheesecake as well asmany other types of bakery items. It has recently adopted anactivity-based costing system to assign manufacturing overhead toproducts.The following data relate to its strawberry cheesecake andthe ABC cost pools:

Strawberry Cheesecake:

Annualproduction 19,500 units

Direct materials perunit $10

Direct labor perunit $2

CostPool Cost Cost Driver

Materialsordering $72,000 Number of purchase orders

Materialsinspection 75,000 Number of receiving reports

Equipmentsetup 105,000 Number of setups

Qualitycontrol 69,000 Number of inspections

Other 100,000 Direct labor cost

Total manufacturing overhead $421,000

Annual activity information related to cost drivers:

CostPool AllProducts Strawberry Cheesecake

Materialsordering 8,000orders 100

Materials inspection 375 receivingreports 60

Equipmentsetup 3,000setups 30

Qualitycontrol 3,000inspections 150

Other $2,000,000 directlabor $39,000

Required

a. Calculate the overhead rate per unit of activity for each ofthe ï¬ve cost pools.

b. Calculate the total overhead assigned to the production ofthe strawberry cheesecake.

c. Calculate the overhead cost per unit for the strawberrycheesecake.Round to three decimal places.

d. Calculate the total unit cost for the strawberry cheesecake.Round to three decimal places.

e. Suppose that the Cheesecake Shoppe allocates overhead by atraditional production volume-based method using direct labordollars as the allocation base and one cost pool. Determine theoverhead rate per direct labor dollar and the per unit overheadassigned to the strawberry cheesecake.Discuss the difference incost allocations between the traditional method and theactivity-based costing approach. Round to three decimal places.

blackhare277

Hi-Tek Manufacturing Inc. makes two types of industrial component partsâthe B300 and the T500. An absorption costing income statement for the most recent period is shown below: Hi-Tek Manufacturing Inc. Income Statement Sales $ 1,780,400 Cost of goods sold 1,234,191 Gross margin 546,209 Selling and administrative expenses 560,000 Net operating loss $ (13,791) Hi-Tek produced and sold 60,400 units of B300 at a price of $21 per unit and 12,800 units of T500 at a price of $40 per unit. The companyâs traditional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the companyâs two product lines is shown below: B300 T500 Total Direct materials $ 400,400 $ 162,400 $ 562,800 Direct labor $ 120,600 $ 42,800 163,400 Manufacturing overhead 507,991 Cost of goods sold $ 1,234,191 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tekâs ABC implementation team concluded that $55,000 and $104,000 of the companyâs advertising expenses could be directly traced to B300 and T500, respectively. The remainder of the selling and administrative expenses was organization-sustaining in nature. The ABC team also distributed the companyâs manufacturing overhead to four activities as shown below: Manufacturing Activity Activity Cost Pool (and Activity Measure) Overhead B300 T500 Total Machining (machine-hours) $ 203,091 90,500 62,200 152,700 Setups (setup hours) 143,500 70 280 350 Product-sustaining (number of products) 100,600 1 1 2 Other (organization-sustaining costs) 60,800 NA NA NA Total manufacturing overhead cost $ 507,991 1. Compute the product margins for the B300 and T500 under the companyâs traditional costing system. 1b. Compute the product margins for the B300 and T500 under the companyâs traditional costing system. 1c. 3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.

maroonbat751

ACCT 210 Lecture Notes - Lecture 4: Activity-Based Costing, Direct Labor Cost, Cost Driver

Document Summary

Get access

Related Documents

ACCT 210 Midterm: Exam 1 Review Practice With Solutions

ACCT 2102 Chapter Notes - Chapter 4: Activity-Based Costing, Cost Driver

ACTG 1P12 Lecture Notes - Lecture 8: Soldering, Deutsche Luft Hansa, Activity-Based Costing

Related Questions