1. Most Managers believe that the ideal cost- allocation base isthe __________ of the indirect costs, since there is a cause andeffect relationship between the cost allocation base and theindirect costs.
A. Cost analysis B. Cost drive C.Costing system D. Cost base E. Cost period.
2. Casio Company
1. Most Managers believe that the ideal cost- allocation base isthe __________ of the indirect costs, since there is a cause andeffect relationship between the cost allocation base and theindirect costs.
A. Cost analysis B. Cost drive C.Costing system D. Cost base E. Cost period.
2. Casio Company
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AirComp Corporation produces component parts for the aircraftindustry. In prior years, they maintained a job-costing systemconsisting of direct materials and direct labor cost andmanufacturing overhead. Manufacturing overhead was allocated toproduction jobs using a single-indirect cost allocation rate, whichwas $115 per direct labor hour.
For 20x1, the Company decided to change the method of allocatingmanufacturing overhead to production jobs from the single-indirectcost allocation approach to the activity-based costing (âABCâ)indirect cost allocation approach. For purposes of developing theABC allocation rates, AirCompâs cost accounting team prepared thefollowing analysis:
Activity | Cost Driver | Allocation Rate |
Material handling | Parts handled | $0.40 |
Lathe work | No. of lathe turns | $0.20 |
Milling | Machine hours | $20.00 |
Grinding | No. of parts ground | $0.80 |
Testing | No. of units tested | $15.00 |
For 20x1, AirCompâs cost accountant team prepared the followinganalysis of the direct costs and indirect cost activities for Job100 and Job 200, the only production jobs in process for theperiod:
Job 100 | Job 200 | |
Direct materials cost | $9,700 | $59,900 |
Direct labor cost | $750 | $11,250 |
No. of direct manufacturing labor hours | 25 | 375 |
No. of parts ground | 500 | 2,000 |
No. of lathe turns | 20,000 | 60,000 |
Machine hours | 150 | 1,050 |
No. of units produced during period (all are tested) | 10 | 200 |
Required
1.For each job, determine total per unit cost using direct laborhours to allocate manufacturing overhead to each job.
2.For each job, determine total per unit cost using anactivity-based costing approach to allocate manufacturing overheadcost to job.
3.Compare the per unit cost figures for each job computed instep a. and step b., above. Why do the new ABC approach differ fromthe single-indirect cost allocation systems differ in the amount ofthe per unit indirect cost allocated to each job (i.e. what was theimplications of the cost allocation method change on the amount ofper unit cost allocated to each job and what factors caused theobserved changes).
4.How might AirComp Corporation use the information from ABCallocation approach to better manage its business, i.e. what arethe advantages of using an activity-based costing approach?
| Georgia Orchards produced a good crop of peaches this year. After preparing the following income statement, the company believes it should have given its No. 3 peaches to charity and saved its efforts. |
| GEORGIA ORCHARDS Income Statement For Year Ended December 31, 2015 | ||||||||||||
| No. 1 | No. 2 | No. 3 | Combined | |||||||||
| Sales (by grade) | ||||||||||||
| No. 1: 234,000 Ibs. @ $2.10/lb | $ | 491,400 | ||||||||||
| No. 2: 234,000 Ibs. @ $1.90/lb | $ | 444,600 | ||||||||||
| No. 3: 936,000 Ibs. @ $0.25/lb | $ | 234,000 | ||||||||||
| Total sales | $ | 1,170,000 | ||||||||||
| Costs | ||||||||||||
| Tree pruning and care @ $0.30/Ib | 70,200 | 70,200 | 280,800 | 421,200 | ||||||||
| Picking, sorting, and grading @ $0.20/Ib | 46,800 | 46,800 | 187,200 | 280,800 | ||||||||
| Delivery costs | 17,000 | 17,000 | 39,500 | 73,500 | ||||||||
| Total costs | 134,000 | 134,000 | 507,500 | 775,500 | ||||||||
| Net income (loss) | $ | 357,400 | $ | 310,600 | $ | (273,500 | ) | $ | 394,500 | |||
| In preparing this statement, the company allocated joint costs among the grades on a physical basis as an equal amount per pound. The companyâs delivery cost records show that $34,000 of the $73,500 relates to crating the No. 1 and No. 2 peaches and hauling them to the buyer. The remaining $39,500 of delivery costs is for crating the No. 3 peaches and hauling them to the cannery. |
Prepare reports showing cost allocations on a sales value basis to the three grades of peaches. Separate the delivery costs into the amounts directly identifiable with each grade. Then allocate any shared delivery costs on the basis of the relative sales value of each grade. (Do not round intermediate calculations.)
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