ACCT 2230 Chapter Notes - Chapter 7: Cost Driver, Activity-Based Costing, European Cooperation In Science And Technology

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A costing method based on activities that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore fixed costs: overhead cost pools. An event that causes consumption of overhead resources: activity cost pool. A (cid:498)bucket(cid:499) in which costs are accumulated that relate to a single activity measure in the activity-based costing system: activity measure. An allocation base in an activity-based costing system; ideally, a measure of the amount of activity that drives the costs in an activity cost pool; also called a cost driver: transaction driver. A simple count of the number of times an activity occurs: duration driver. A measure of the amount of time required to perform an activity: unit-level activities. Activities that arise as a result of the total volume of goods produced and services performed each time a unit is produced: batch-level activities.

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EXERCISE 7-2 First Stage Allocation [LO7-2] 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 activ- ity 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 wages ... Vehicle operating expense .. Vehicle depreciation ..... Customer representative salaries and expenses Office expenses ... Administrative expenses .. Total cost .... $ 720,000 280,000 120,000 160,000 30,000 320,000 $1,630,000 The distribution of resource consumption across the activity cost pools is as follows: Pickup and Delivery 35% 5% 15% Travel 50% 70% 60% Driver and guard wages Vehicle operating expense ...... Vehicle depreciation .......... Customer Service 10% 0% 0% Other 5% 25% 25% Totals 100% 100% 100% Customer representative salaries and expenses Office expenses ........ Administrative expenses ....... 3 0% 0% 0% 0% 20% na 90% 30% 60% 10% 50% 35% 100% 100% 100% ..... 5% Required: Complete the first stage allocations of costs to activity cost pools as illustrated in Exhibit 7-6.

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 wages	$	920,000
Vehicle operating expense		350,000
Vehicle depreciation		230,000
Customer representative salaries and expenses		260,000
Office expenses		120,000
Administrative expenses		420,000
Total cost	$	2,300,000

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

	Travel		Pickup and Delivery		Customer Service		Other		Totals
Driver and guard wages	50	%	35	%	10	%	5	%	100	%
Vehicle operating expense	70	%	5	%	0	%	25	%	100	%
Vehicle depreciation	60	%	15	%	0	%	25	%	100	%
Customer representative salaries and expenses	0	%	0	%	90	%	10	%	100	%
Office expenses	0	%	20	%	30	%	50	%	100	%
Administrative expenses	0	%	5	%	60	%	35	%	100	%

Required:

Complete the first stage allocations of costs to activity cost pools.

		Pickup and	Customer
	Travel	Delivery	Service	Other	Totals
Driver and guard wages					$0
Vehicle operating expense					0
Vehicle depreciation					0
Customer representative salaries and expenses					0
Office expenses					0
Administrative expenses					0
Total cost	$0	$0	$0	$0	$0

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PA4-1 Assigning Costs Using Traditional System, ABC System [LO 4-1, 4-3, 4-4, 4-6]

Hazelnut Corp. manufactures lawn ornaments. It currently has two product lines, the basic and the luxury. Hazelnut has a total of $160,188 in overhead.

The company has identified the following information about its overhead activity cost pools and the two product lines:

Activity Cost Pools	Cost Driver	Cost Assigned to Pool			Quantity/Amount Consumed by Basic	Quantity/Amount Consumed by Luxury
Materials handling	Number of moves		$	4,108	18 moves	61 moves
Quality control	Number of inspections		$	31,280	240 inspections	100 inspections
Machine maintenance	Number of machine hours		$	124,800	5,400 machine hours	4,200 machine hours

Required:
1. Suppose Hazelnut used a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount.)


Basic Model		Overhead Assigned
Luxury Model		Overhead Assigned

2. Calculate the activity rates for each cost pool in Hazelnutâs ABC system.

3. Calculate the amount of overhead that Hazelnut will assign to the basic line if it uses an ABC system.

4. Determine the amount of overhead Hazelnut will assign to the luxury line if it uses an ABC system.

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ACCT 2230 Chapter Notes - Chapter 7: Cost Driver, Activity-Based Costing, European Cooperation In Science And Technology

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