INTRODUCTION TO MANAGEMENT ACCOUNTING 16E
Problem 4-59
(50-60 min.)
Return to Assignments
Name
Section
Donice Staten
101
4-59 Traditional Costing Versus Activity-Based Costing (Horngren, Sundem, Schatzberg, & Burgstahler, 2012, p. 178-179)
Goal: Create an Excel spreadsheet to compare traditional costing versus activity-based costing. Use the results to answer questions about
your findings.
Scenario: Suppose Sunstar Corporation is one of Dell’s circuit board suppliers. Sunstar currently uses traditional costing for making
business decisions. At the urging of Dell, however, the company has decided to move to activity-based costing for circuit board production
related to products PCB124 and PCB136. As one of the company’s accountants, you have been asked to prepare a spreadsheet comparing
the two costing methods for the next company board meeting. Your supervisor has given you the following quarterly data: (Horngren,
Sundem, Schatzberg, & Burgstahler, 2012, p. 176)
Horngren, Charles T., Gary Sundem, Jeff Schatzberg, Dave Burgstahler. Introduction to Management Accounting, 16th Edition. Pearson
Total Indirect Costs for the Quarter:
Assembly
$
630,000
Soldering
$
270,000
Inspection
$
160,000
PCB124
PCB136
Direct costs (materials, labor)
$
162,400
$
178,240
Machine hours (assembly)
$
480
$
1,080
INTRODUCTION TO MANAGEMENT ACCOUNTING 16E
Problem 4-59
(50-60 min.)
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Number of units produced (soldering)
$
6,000
$
4,000
Testing hours (inspection)
$
6,000
$
8,000
Name
Section
Donice Staten
101
a.
What is the total manufacturing cost per unit using traditional costing for PCB124? For PCB136? Use machine
hours as the cost-allocation base.
b.
What is the total manufacturing cost per unit using activity-based costing for PCB124? For PCB136?
c.
What conclusions can be drawn from your spreadsheet results?
Step-by-Step:
1
Open a new Excel spreadsheet.
2
In column A, create a bold-faced heading that contains the following:
Row 1: Chapter 4 Decision Guideline
Row 2: Sunstar Corporation
Row 3: Traditional Versus Activity-Based Costing
Row 4: Today’s Date
INTRODUCTION TO MANAGEMENT ACCOUNTING 16E
Problem 4-59
(50-60 min.)
Return to Assignments
Name
Section
Donice Staten
101
Note: Adjust column widths as follows: Column A (41.57), Columns B, C, and D (21.0). Column D is for check
figures only. The column widths have been designed to ensure that Column D will not print on the final version
of the spreadsheet if only page 1 is printed.
3
Merge and center the four heading rows across columns A–C.
4
In column A, create the following row headings:
Row 7: Raw data
Row 8: Indirect costs for the quarter:
Row 9: Assembly
Row 10: Soldering
Row 11: Inspection
Row 12: Total indirect costs
Skip two rows.
Row 15: Direct costs (Materials, labor)
Row 16: Machine hours (Assembly)
Row 17: Number of units produced (Soldering)
INTRODUCTION TO MANAGEMENT ACCOUNTING 16E
Problem 4-59
(50-60 min.)
Return to Assignments
Row 18: Testing hours (Inspection)
Skip two rows.
Row 21: Traditional costing system
Row 22: Indirect cost driver (machine hours)
Row 23: Allocated indirect costs
Skip a row.
Row 25: Cost per product
Row 26: Direct costs
Row 27: Manufacturing overhead
Row 28: Total manufacturing costs per product
Skip a row.
Row 30: Number of units
Row 31: Total manufacturing costs per unit
Name
Section
Donice Staten
101
INTRODUCTION TO MANAGEMENT ACCOUNTING 16E
Problem 4-59
(50-60 min.)
Return to Assignments
Skip two rows.
Row 34: Activity-based costing system
Row 35: Assembly cost driver (machine hours)
Row 36: Allocated assembly cost
Row 37: Soldering cost driver (units)
Row 38: Allocated soldering cost
Row 39: Inspection cost driver (testing hours)
Row 40: Allocated inspection cost
Skip a row.
Row 42: Cost per product
Row 43: Direct costs
Row 44: Manufacturing overhead
Row 45: Assembly
Row 46: Soldering
Name
Section
Donice Staten
101
INTRODUCTION TO MANAGEMENT ACCOUNTING 16E
Problem 4-59
(50-60 min.)
Return to Assignments
Name
Section
Donice Staten
101
Row 47: Inspection
Row 48: Total manufacturing costs per product
Skip a row.
Row 50: Number of units
Row 51: Total manufacturing costs per unit
5
Change the format of Raw data (row 7), Traditional costing system (row 21), and Activity-based costing system
Hint: Use the control key for highlighting multiple cells or rows when making changes.
6
Change the format of Cost per product (rows 25 and 42) to underlined headings.
7
In rows 14, 21, 25, 34, and 42 create the following bold-faced, right-justified column headings:
Column B: PCB124
Column C: PCB136
8
In rows 21 and 34 create the following bold-faced, right-justified column headings:
Column D: Total
INTRODUCTION TO MANAGEMENT ACCOUNTING 16E
Problem 4-59
9
(50-60 min.)
Return to Assignments
Name
Section
Donice Staten
101
Use the scenario data to fill in the Raw data section.
Use the SUM function to calculate Total indirect costs (row 12).
10
Traditional costing system:
Fill in rows 26 and 30 with information from the Raw data section.
Use appropriate formulas from this chapter to calculate the cost driver and allocated costs.
Use the SUM function to calculate the Total column for manufacturing overhead costs.
Complete the remainder of the Cost per product data using formulas and calculations.
Calculate the Total manufacturing costs per product.
11
Activity-based costing system:
Fill in rows 43 and 50 with information from the Raw data section.
Use appropriate formulas from this chapter to calculate the cost drivers and allocated costs.
Use the SUM function to calculate the Total columns for all allocated costs.
Complete the remainder of the Cost per product data using formulas and calculations.
Calculate the Total manufacturing costs per product.
INTRODUCTION TO MANAGEMENT ACCOUNTING 16E
Problem 4-59
(50-60 min.)
Return to Assignments
Name
Section
Donice Staten
101
Hint: If using the SUM function to calculate Total manufacturing costs, verify range.
12
Format all amounts as follows:
Number tab:
Category:
Decimal places:
Symbol:
Negative numbers:
Currency
2
None
Red with parentheses
13
Change the format of hours and units in rows 16–18, 30, and 50 to display no decimal places.
14
Change the format of the amounts in rows 9, 12, 15, 23, 26, 28, 31, 36, 38, 40, 43, 48, and 51 to display a dollar
symbol.
15
Change the format of the row headings in rows 9–11, 15–18, 23, 36, 38, 40, and 45–47 to display as indented.
Alignment tab:
16
Left (Indent)
1
Change the format of the amounts in rows 12, 28, and 48 to display a top border, using the default Line Style.
Border tab:
17
Horizontal:
Indent:
Icon:
Top Border
Change the format of the cost driver calculations in rows 22, 35, 37, and 39 to display as left-justified
percentages with two decimal places.
INTRODUCTION TO MANAGEMENT ACCOUNTING 16E
Problem 4-59
(50-60 min.)
Number tab:
Alignment tab:
18
Category:
Decimal places:
Horizontal:
Indent:
Name
Section
Donice Staten
101
Percentage
2
Left (Indent)
0
Accentuate the Cost per product information for each costing method by applying cell shading to columns A, B,
and C of rows 25–31 and 42–51.
Patterns tab:
19
Return to Assignments
Color:
Lightest grey
Save your work, and print a copy for your files.
Note: The final version of the spreadsheet will be on page 1.
Chapter 4 Decision Guideline
Sunstar Corporation
Traditional vs. Activity-based Costing
August 15, 2003
Raw Data
Indirect costs for the quarter:
Assembly
Soldering
Inspection
Total indirect costs
$630,000.00
270,000.00
160,000.00
$1,060,000.00
Direct costs (Materials, labor)
Machine hours (Assembly)
Number of units produced (Soldering)
Testing hours (Inspection)
Traditional costing system
Indirect cost driver (machine hours)
Allocated indirect costs
Number of units
Total manufacturing costs per unit
Cost per product
Direct costs
Manufacturing overhead:
PCB-136
$178,240.00
1,080
4,000
8,000
PCB-124
PCB-136
30.77%
Cost per product
Direct costs
Manufacturing overhead
Total manufacturing costs per product
Activity-based costing system
Assembly cost driver (machine hours)
Allocated assembly cost
Soldering cost driver (units)
Allocated soldering cost
Inspection cost driver (testing hours)
Allocated inspection cost
PCB-124
$162,400.00
480
6,000
6,000
69.23%
$326,153.85
$733,846.15
PCB-124
$162,400.00
326,153.85
$488,553.85
PCB-136
$178,240.00
733,846.15
$912,086.15
6,000
$81.43
4,000
$228.02
PCB-124
PCB-136
30.77%
69.23%
$193,846.15
60.00%
$436,153.85
40.00%
$162,000.00
42.86%
$108,000.00
57.14%
$68,571.43
$91,428.57
PCB-124
$162,400.00
PCB-136
$178,240.00
Assembly
Soldering
Inspection
Total manufacturing costs per product
Number of units
Total manufacturing costs per unit
193,846.15
162,000.00
68,571.43
$586,817.58
436,153.85
108,000.00
91,428.57
$813,822.42
6,000
$97.80
4,000
$203.46
Answers to Questions:
1. Using traditional costing, the total manufacturing cost per unit for PCB-124 is $81.43.
Using traditional costing, the total manufacturing cost per unit for PCB-136 is $228.02.
2. Using activity-based costing, the total manufacturing cost per unit for PCB-124 is $97.80.
Using activity-based costing, the total manufacturing cost per unit for PCB-136 is $203.46.
3. Activity-based costing provides managers with more detailed information concerning the
manufacturing overhead costs for each of the two product lines. In addition, activity-based costing
provides managers with a more precise picture of the total manufacturing costs per unit. Using
traditional costing, Circuitech believed that PCB-124 was less expensive to produce than it actually
is. PCB-136 appeared to cost more to manufacture than it does.
Total
$1,060,000.00
Total
$630,000.00
$270,000.00
$160,000.00
Compare the two costing methods. Explain how they can be used to make and support business decision
Activity-based costing and traditional costing are two different methods for allocating indirect (overhead) costs to pr
Both methods estimate overhead costs related to production and then assign these costs to products based on a costrate. The differences are in the accuracy and complexity of the two methods. Traditional costing is more simplistic a
accurate than ABC, and typically assigns overhead costs to products based on an arbitrary average rate. ABC is m
complex and more accurate than traditional costing. This method first assigns indirect costs to activities and then assi
costs to products based on the products’ usage of the activities. Traditional costing systems can also result in signif
under-costing and over-costing.
port business decisions.
t (overhead) costs to products.
oducts based on a cost-driver
ng is more simplistic and less
average rate. ABC is more
activities and then assigns the
can also result in significant