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Advanced Manag
Question 1: Score 2.5/5
Your response
Exercise 7-1 Variable and Absorption Costing Unit Product Costs [LO1]
Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the
island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument
called a gamelan that is similar to a xylophone. The sounding bars are cast from brass and handfiled to attain just the right sound. The bars are then mounted on an intricately hand-carved wooden
base. The gamelans are sold for 850 (thousand) rupiahs. (The currency in Indonesia is the rupiah,
which is denoted by Rp.) Selected data for the company's operations last year follow (all currency
values are in thousands of rupiahs):
Units in beginning inventory
Units produced
Units sold
Units in ending inventory
Variable costs per unit:
Direct materials
Direct labor
Variable manufacturing overhead
Variable selling and administrative
Fixed costs:
Fixed manufacturing overhead
Fixed selling and administrative
0
340
295
45
Rp
Rp
Rp
Rp
260
370
62
24
Rp 52,000
Rp 39,000
Requirement 1:
Assume that the company uses absorption costing. Compute the unit product cost for one gamelan.
(Omit the "Rp" sign in your response. Round your answer to the nearest whole number.)
Unit product
cost
Rp
1105
(0%)
Correct response
Exercise 7-1 Variable and Absorption Costing Unit Product Costs [LO1]
Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the
island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument
called a gamelan that is similar to a xylophone. The sounding bars are cast from brass and handfiled to attain just the right sound. The bars are then mounted on an intricately hand-carved wooden
base. The gamelans are sold for 850 (thousand) rupiahs. (The currency in Indonesia is the rupiah,
which is denoted by Rp.) Selected data for the company's operations last year follow (all currency
values are in thousands of rupiahs):
Units in beginning inventory
Units produced
Units sold
Units in ending inventory
Variable costs per unit:
Direct materials
Direct labor
Variable manufacturing overhead
Variable selling and administrative
Fixed costs:
Fixed manufacturing overhead
Fixed selling and administrative
0
340
295
45
Rp
Rp
Rp
Rp
260
370
62
24
Rp 52,000
Rp 39,000
Requirement 1:
Assume that the company uses absorption costing. Compute the unit product cost for one gamelan.
(Omit the "Rp" sign in your response. Round your answer to the nearest whole number.)
Unit product cost
Rp 845
Total grade: 0.0×1/1 = 0%
Feedback:
Under absorption costing, all manufacturing costs (variable and fixed) are included in product
costs. (All currency values are in thousands of rupiah, denoted by Rp.)
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Rp 260
370
62
(Rp52,000 ÷ 340 units)
Absorption costing unit product cost
153
Rp 845
Your response
Correct response
Requirement 2:
Assume that the company uses variable costing. Compute the unit product cost for one gamelan.
(Omit the "Rp" sign in your response.)
Requirement 2:
Assume that the company uses variable costing. Compute the unit product cost for one gamelan.
(Omit the "Rp" sign in your response.)
Unit product cost
Rp 692 (100%)
Unit product cost
Rp 692
Feedback:
Under variable costing, only the variable manufacturing costs are included in product costs. (All
currency values are in thousands of rupiah, denoted by Rp.)
Direct materials
Direct labor
Variable manufacturing overhead
Variable costing unit product cost
Rp 260
370
62
Rp 692
Note that selling and administrative expenses are not treated as product costs under either
absorption or variable costing. These expenses are always treated as period costs and are charged
against the current period's revenue.
Question 2: Score 2.93/5
Your response
Correct response
Exercise 7-2 Variable Costing Income Statement; Explanation of Difference in Net Operating
Income [LO2]
Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the
island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument
called a gamelan that is similar to a xylophone. The sounding bars are cast from brass and handfiled to attain just the right sound. The bars are then mounted on an intricately hand-carved wooden
base. The gamelans are sold for 850 (thousand) rupiahs. (The currency in Indonesia is the rupiah,
which is denoted by Rp.) Selected data for the company's operations last year follow (all currency
values are in thousands of rupiahs):
Exercise 7-2 Variable Costing Income Statement; Explanation of Difference in Net Operating
Income [LO2]
Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the
island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument
called a gamelan that is similar to a xylophone. The sounding bars are cast from brass and handfiled to attain just the right sound. The bars are then mounted on an intricately hand-carved wooden
base. The gamelans are sold for 850 (thousand) rupiahs. (The currency in Indonesia is the rupiah,
which is denoted by Rp.) Selected data for the company's operations last year follow (all currency
values are in thousands of rupiahs):
Units in beginning inventory
Units produced
Units sold
Units in ending inventory
Variable costs per unit:
Direct materials
Direct labor
Variable manufacturing overhead
Variable selling and administrative
Fixed costs:
Fixed manufacturing overhead
Fixed selling and administrative
0
250
225
25
Rp
Rp
Rp
Rp
100
320
40
20
Rp 60,000
Rp 20,000
The absorption costing income statement prepared by the company's accountant for last year
appears below (all currency values are in thousands of rupiahs):
Sales
Cost of goods sold
Gross margin
Selling and administrative expenses
Rp 191,250
157,500
33,750
24,500
Units in beginning inventory
Units produced
Units sold
Units in ending inventory
Variable costs per unit:
Direct materials
Direct labor
Variable manufacturing overhead
Variable selling and administrative
Fixed costs:
Fixed manufacturing overhead
Fixed selling and administrative
0
250
225
25
Rp
Rp
Rp
Rp
100
320
40
20
Rp 60,000
Rp 20,000
The absorption costing income statement prepared by the company's accountant for last year
appears below (all currency values are in thousands of rupiahs):
Sales
Cost of goods sold
Gross margin
Selling and administrative expenses
Rp 191,250
157,500
33,750
24,500
Net operating income
Rp
9,250
Net operating income
Requirement 1:
Determine how much of the ending inventory consists of fixed manufacturing overhead cost
deferred in inventory to the next period. (Omit the "Rp" sign in your response.)
Fixed manufacturing
overhead
Rp
60000
9,250
Requirement 1:
Determine how much of the ending inventory consists of fixed manufacturing overhead cost
deferred in inventory to the next period. (Omit the "Rp" sign in your response.)
Fixed manufacturing overhead
(0%)
Rp
Rp 6,000
Total grade: 0.0×1/1 = 0%
Feedback:
25 units in ending inventory × Rp 240 per unit fixed manufacturing overhead per unit = Rp 6,000
Your response
Correct response
Requirement 2:
Prepare an income statement for the year using the variable costing method. (Input all amounts as
positive values. Omit the "Rp" sign in your response.)
Sales (7%)
Variable expenses:
Variable cost of goods sold (7%)
Variable selling and
administrative expenses (7%)
Contribution margin
Fixed expenses:
Fixed manufacturing
overhead (7%)
Fixed selling and
administrative expenses (7%)
Net operating income (7%)
Rp
Rp
191250 (7%)
103500 (7%)
5000
(0%)
108500
(0%)
82750
(0%)
60000 (7%)
20000 (7%)
80000 (7%)
Rp
2750
(0%)
Requirement 2:
Prepare an income statement for the year using the variable costing method. (Input all amounts as
positive values. Omit the "Rp" sign in your response.)
Sales
Variable expenses:
Variable selling and administrative
expenses
Variable cost of goods sold
Contribution margin
Fixed expenses:
Fixed manufacturing overhead
Fixed selling and administrative
expenses
Net operating income
Rp
Rp
191250
4,500
103500
108,000
83,250
60000
20000
80000
Rp
3,250
E7_2_id5
E7_2_id5
E7_2_id7
E7_2_id7
E7_2_id11
E7_2_id11
E7_2_id13
E7_2_id13
Total grade: 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 0.0×1/15 + 1.0×1/15 + 1.0×1/15 + 0.0×1/15 + 0.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 0.0×1/15 = 7% + 7% + 7% + 0% + 7% + 7% + 0% + 0% + 7% + 7% + 7% + 7% + 7% +
7% + 0%
Feedback:
Variable cost of goods sold (225 units sold × Rp460 per unit)
Variable selling and administrative expenses (225 units × Rp20 per
unit)
Rp 103,500
Rp
4,500
Question 3: Score 2.5/5
Your response
Correct response
Exercise 7-3 Reconciliation of Absorption and Variable Costing Net Operating Incomes
[LO3]
Jorgansen Lighting, Inc., manufactures heavy-duty street lighting systems for municipalities. The
company uses variable costing for internal management reports and absorption costing for external
reports to shareholders, creditors, and the government. The company has provided the following
data:
Year 1
Inventories:
Beginning (units)
Ending (units)
Variable costing net operating
income
Year 2
Year 3
200
170
170
180
180
220
$ 1,080,400
$ 1,032,400
$ 996,400
Year 1
Inventories:
Beginning (units)
Ending (units)
Variable costing net operating
income
The company's fixed manufacturing overhead per unit was constant at $560 for all three years.
Requirement 1:
Determine each year's absorption costing net operating income. (Omit the "$" sign in your
response.)
Year 1
Absorption costing net
operating income
$
16800
Year 2
(0%)
5600
$
$
16800
Year 1
200
170
(30)
(0%)
Year 2
170
180
10
Year 3
180
220
40
95,200
$ 100,800
95,200
100,800
123,200
$ (16,800)
$ 1,080,400
$
5,600
$ 1,032,400
$ 22,400
$ 996,400
(16,800)
$ 1,063,600
5,600
$ 1,038,000
22,400
$ 1,018,800
$ 112,000
$
Requirement 2:
In Year 4, the company's variable costing net operating income was $984,400 and its absorption
costing net operating income was $1,012,400.
(a) Did inventories increase or decrease during Year 4?
Your Answer:
Choice
Selecte
Year 3
200
170
170
180
180
220
$ 1,080,400
$ 1,032,400
$ 996,400
The company's fixed manufacturing overhead per unit was constant at $560 for all three years.
Year 3
(0%)
Year 2
Requirement 1:
Determine each year's absorption costing net operating income. (Omit the "$" sign in your
response.)
Total grade: 0.0×1/3 + 0.0×1/3 + 0.0×1/3 = 0% + 0% + 0%
Feedback:
Beginning inventories
Ending inventories
Change in inventories
Fixed manufacturing overhead in beginning inventories
(@$560 per unit)
Fixed manufacturing overhead in ending inventories
(@$560 per unit)
Fixed manufacturing overhead deferred in (released
from) inventories (@$560 per unit)
Variable costing net operating income
Add (deduct) fixed manufacturing overhead cost
deferred in (released from) inventory under
absorption costing
Absorption costing net operating income
Exercise 7-3 Reconciliation of Absorption and Variable Costing Net Operating Incomes
[LO3]
Jorgansen Lighting, Inc., manufactures heavy-duty street lighting systems for municipalities. The
company uses variable costing for internal management reports and absorption costing for external
reports to shareholders, creditors, and the government. The company has provided the following
data:
Absorption costing net operating income
Year 1
$ 1,063,600
Year 2
$ 1,038,000
Year 3
$ 1,018,800
d
Increase
Decreas
e
Feedback:
Because absorption costing net operating income was greater than variable costing net operating
income in Year 4, inventories must have increased during the year.
Your response
Correct response
(b) How much fixed manufacturing overhead cost was deferred or released from inventory during
Year 4? (Omit the "$" sign in your response.)
Deferred (50%) fixed manufacturing overhead
cost
$
16800
(0%)
(b) How much fixed manufacturing overhead cost was deferred or released from inventory during
Year 4? (Omit the "$" sign in your response.)
$ 28,000
Deferred fixed manufacturing overhead cost
Total grade: 1.0×1/2 + 0.0×1/2 = 50% + 0%
Feedback:
Because inventories increased in year 4, fixed manufacturing overhead was deferred in inventories.
The amount of the deferral is the difference between the two net operating incomes, or $28,000 =
$1,012,400 – $984,400.
Question 4: Score 5/5
Your response
Correct response
Exercise 7-5 Variable and Absorption Costing Unit Product Costs and Income Statements
[LO1, LO2]
Lynch Company manufactures and sells a single product. The following costs were incurred during
the company's first year of operations:
Exercise 7-5 Variable and Absorption Costing Unit Product Costs and Income Statements
[LO1, LO2]
Lynch Company manufactures and sells a single product. The following costs were incurred during
the company's first year of operations:
Variable costs per unit:
Manufacturing:
Direct materials
Direct labor
Variable manufacturing overhead
Variable selling and administrative
Fixed costs per year:
Fixed manufacturing overhead
Fixed selling and administrative
$
$
$
$
6
9
3
4
$ 300,000
$ 190,000
Variable costs per unit:
Manufacturing:
Direct materials
Direct labor
Variable manufacturing overhead
Variable selling and administrative
Fixed costs per year:
Fixed manufacturing overhead
Fixed selling and administrative
$
$
$
$
6
9
3
4
$ 300,000
$ 190,000
During the year, the company produced 25,000 units and sold 20,000 units. The selling price of the
company's product is $50 per unit.
During the year, the company produced 25,000 units and sold 20,000 units. The selling price of the
company's product is $50 per unit.
Requirement 1:
Assume that the company uses absorption costing:
Requirement 1:
Assume that the company uses absorption costing:
(a) Compute the unit product cost. (Omit the "$" sign in your response.)
(a) Compute the unit product cost. (Omit the "$" sign in your response.)
Unit product cost
$ 30 (100%)
Unit product cost
$ 30
Feedback:
The unit product cost under absorption costing would be:
Direct materials
Direct labor
Variable manufacturing overhead
Total variable costs
Fixed manufacturing overhead ($300,000 ÷25,000
units)
Absorption costing unit product cost
$ 6
9
3
18
12
$ 30
Your response
Correct response
(b) Prepare an income statement for the year.(Input all amounts as positive values. Omit the "$"
sign in your response.)
Sales (10%)
Cost of goods sold (10%)
Gross profit (10%)
Selling and administrative
expenses (10%)
Net operating income (10%)
$ 1000000 (10%)
600000 (10%)
400000 (10%)
270000 (10%)
$ 130000 (10%)
(b) Prepare an income statement for the year.(Input all amounts as positive values. Omit the "$"
sign in your response.)
Sales
Cost of goods sold
Gross profit
Selling and administrative expenses
Net operating income
$ 1000000
600000
400000
270000
$ 130000
Feedback:
The absorption costing income statement:
Sales (20,000 units × $50 per unit) = $1,000,000
Cost of goods sold (20,000 units × $30 per unit) = $600,000
Selling and administrative expenses = $270,000 *
*(20,000 units × $4 per unit) + $190,000 = $270,000.
Your response
Correct response
Requirement 2:
Assume that the company uses variable costing:
Requirement 2:
Assume that the company uses variable costing:
(a) Compute the unit product cost. (Omit the "$" sign in your response.)
(a) Compute the unit product cost. (Omit the "$" sign in your response.)
Unit product cost
$ 18 (100%)
Unit product cost
$ 18
Feedback:
The unit product cost under variable costing would be:
Direct materials
Direct labor
Variable manufacturing overhead
Variable costing unit product cost
$ 6
9
3
$ 18
Your response
Correct response
(b) Prepare an income statement for the year. (Input all amounts as positive values. Omit the
"$" sign in your response.)
Sales (6%)
Variable expenses:
Variable cost of goods sold (6%)
Variable selling and
administrative (6%)
Contribution margin (6%)
Fixed expenses:
Fixed manufacturing overhead (6%)
Fixed selling and administrative
expense (6%)
Net operating income (6%)
$ 1000000 (6%)
$ 360000 (6%)
80000 (6%)
440000 (6%)
560000 (6%)
300000 (6%)
190000 (6%)
490000 (6%)
$
70000 (6%)
(b) Prepare an income statement for the year. (Input all amounts as positive values. Omit the
"$" sign in your response.)
Sales
Variable expenses:
Variable cost of goods sold
Variable selling and administrative
Contribution margin
Fixed expenses:
Fixed manufacturing overhead
Fixed selling and administrative
expense
Net operating income
$
$
360000
80000
1000000
440000
560000
300000
190000
490000
$
70000
E7_5_id16
E7_5_id16
E7_5_id18
E7_5_id18
E7_5_id23
E7_5_id23
E7_5_id25
E7_5_id25
Feedback:
The variable costing income statement:
Sales (20,000 units × $50 per unit) = $1,000,000
Variable cost of goods sold (20,000 units × $18 per unit) = $360,000
Variable selling expense (20,000 units × $4 per unit) = $80,000
Question 5: Score 2.91/5
Your response
Correct response
Exercise 7-7 Variable Costing Income Statement; Reconciliation [LO2, LO3]
Whitman Company has just completed its first year of operations. The company's absorption
costing income statement for the year appears below:
Exercise 7-7 Variable Costing Income Statement; Reconciliation [LO2, LO3]
Whitman Company has just completed its first year of operations. The company's absorption
costing income statement for the year appears below:
Whitman Company
Income Statement
Sales (35,000 units × $25 per unit)
Cost of goods sold (35,000 units × $16 per unit)
Gross margin
Selling and administrative expenses
Net operating income
$ 875,000
560,000
315,000
280,000
$ 35,000
The company's selling and administrative expenses consist of $210,000 per year in fixed expenses
and $2 per unit sold in variable expenses. The $16 per unit product cost given above is computed
as follows:
Whitman Company
Income Statement
Sales (35,000 units × $25 per unit)
Cost of goods sold (35,000 units × $16 per unit)
Gross margin
Selling and administrative expenses
Net operating income
$ 875,000
560,000
315,000
280,000
$ 35,000
The company's selling and administrative expenses consist of $210,000 per year in fixed expenses
and $2 per unit sold in variable expenses. The $16 per unit product cost given above is computed
as follows:
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead ($160,000 ÷ 40,000 units)
Absorption costing unit product cost
$ 5
6
1
4
$ 16
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead ($160,000 ÷ 40,000 units)
Absorption costing unit product cost
Requirement 1:
Redo the company's income statement in the contribution format using variable costing. (Input all
amounts as positive values. Omit the "$" sign in your response.)
Sales (7%)
Variable expenses:
Variable cost of goods
sold (7%)
Variable selling and
administrative
expenses (7%)
Contribution margin
Fixed expenses:
Fixed manufacturing
overhead (7%)
Fixed selling and
administrative
expenses (7%)
Net operating loss (0%)
875000 (7%)
$
$
490000
(0%)
70000 (7%)
560000
(0%)
315000
(0%)
160000 (7%)
210000 (7%)
$ 5
6
1
4
$ 16
Requirement 1:
Redo the company's income statement in the contribution format using variable costing. (Input all
amounts as positive values. Omit the "$" sign in your response.)
Sales
Variable expenses:
Variable cost of goods sold
Variable selling and administrative
expenses
Contribution margin
Fixed expenses:
Fixed manufacturing overhead
Fixed selling and administrative
expenses
Net operating income
$
875000
$ 420,000
70000
490,000
385,000
160000
210000
370000
$
15,000
370000 (7%)
55000
$
(0%)
Total grade: 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 0.0×1/15 + 1.0×1/15 + 1.0×1/15 + 0.0×1/15 + 0.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 0.0×1/15 + 0.0×1/15 = 7% + 7% + 7% + 0% + 7% + 7% + 0% + 0% + 7% + 7% + 7% + 7% + 7% +
0% + 0%
Feedback:
Variable cost of goods sold (35,000 units × $12 per unit*) = $420,000
Variable selling and administrative expenses (35,000 units × $2 per unit) =
$70,000
*Direct materials
Direct labor
Variable manufacturing overhead
Total variable manufacturing cost
$ 5
6
1
$ 12
Your response
Correct response
Requirement 2:
Reconcile any difference between the net operating income on your variable costing income
statement and the net operating income on the absorption costing income statement above. (Omit
the "$" sign in your response.)
Requirement 2:
Reconcile any difference between the net operating income on your variable costing income
statement and the net operating income on the absorption costing income statement above. (Omit
the "$" sign in your response.)
Variable costing net operating income (loss)
Add (25%): Fixed manufacturing overhead cost deferred
$
55000
80000
(0%)
(0%)
Variable costing net operating income (loss)
Add: Fixed manufacturing overhead cost deferred
Absorption costing net operating income (loss)
$
$
15,000
20,000
35000
Absorption costing net operating income (loss)
$
35000 (25%)
E7_7_id4
E7_7_id4
E7_7_id6
E7_7_id6
E7_7_id10
E7_7_id10
E7_7_id12
E7_7_id12
Total grade: 0.0×1/4 + 1.0×1/4 + 0.0×1/4 + 1.0×1/4 = 0% + 25% + 0% + 25%
Feedback:
Fixed manufacturing overhead cost deferred in inventory under absorption costing (5,000 units ×
$4 per unit in fixed manufacturing cost) = $20,000
Question 6: Score 3.06/5
Your response
Exercise 7-8 Variable Costing Unit Product Cost and Income Statement; Break-Even [LO1,
LO2]
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it
sells for $210. Data for last year's operations follow:
Units in beginning inventory
Units produced
Units sold
Units in ending inventory
Variable costs per unit:
Direct materials
Direct labor
Variable manufacturing overhead
Variable selling and administrative
Total variable cost per unit
Fixed costs:
Fixed manufacturing overhead
Fixed selling and administrative
Total fixed costs
0
20,000
19,000
1,000
$
$
50
80
20
10
160
$ 700,000
285,000
$ 985,000
Requirement 1:
Assume that the company uses variable costing. Compute the unit product cost for one barbecue
grill. (Omit the "$" sign in your response.)
Unit product cost
$ 150 (100%)
Feedback:
Under variable costing, only the variable manufacturing costs are included in product costs.
Correct response
Exercise 7-8 Variable Costing Unit Product Cost and Income Statement; Break-Even [LO1,
LO2]
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it
sells for $210. Data for last year's operations follow:
Units in beginning inventory
Units produced
Units sold
Units in ending inventory
Variable costs per unit:
Direct materials
Direct labor
Variable manufacturing overhead
Variable selling and administrative
Total variable cost per unit
Fixed costs:
Fixed manufacturing overhead
Fixed selling and administrative
Total fixed costs
0
20,000
19,000
1,000
$
$
50
80
20
10
160
$ 700,000
285,000
$ 985,000
Requirement 1:
Assume that the company uses variable costing. Compute the unit product cost for one barbecue
grill. (Omit the "$" sign in your response.)
Unit product cost
$ 150
Direct materials
Direct labor
Variable manufacturing overhead
Variable costing unit product cost
$ 50
80
20
$ 150
Note that selling and administrative expenses are not treated as product costs; that is, they are not
included in the costs that are inventoried. These expenses are always treated as period costs.
Your response
Correct response
Requirement 2:
Assume that the company uses variable costing. Prepare a contribution format income statement
for the year. (Input all amounts as positive values. Omit the "$" sign in your response.)
Sales (6%)
Variable expenses:
Variable cost of goods
sold (6%)
Variable selling and
administrative expenses (6%)
Contribution margin (6%)
Fixed expenses:
Fixed manufacturing
overhead (6%)
Fixed selling and
administrative expenses (6%)
Net operating income (0%)
$
$
3990000 (6%)
2850000 (6%)
19010
(0%)
2869010
(0%)
1120990
(0%)
700000 (6%)
285000 (6%)
985000 (6%)
$
Requirement 2:
Assume that the company uses variable costing. Prepare a contribution format income statement
for the year. (Input all amounts as positive values. Omit the "$" sign in your response.)
135990
Sales
Variable expenses:
Variable cost of goods sold
Variable selling and administrative
expenses
Contribution margin
Fixed expenses:
Fixed manufacturing overhead
Fixed selling and administrative
expenses
Net operating loss
$
$
3990000
2850000
190,000
3,040,000
950,000
700000
285000
985000
$
35,000
(0%)
Total grade: 1.0×1/16 + 1.0×1/16 + 1.0×1/16 + 1.0×1/16 + 1.0×1/16 + 0.0×1/16 + 0.0×1/16 + 1.0×1/16 + 0.0×1/16 + 1.0×1/16 + 1.0×1/16 + 1.0×1/16 + 1.0×1/16 + 1.0×1/16 + 0.0×1/16 + 0.0×1/16 = 6% + 6% + 6% + 6% + 6% + 0% + 0% + 6% + 0% + 6% + 6% +
6% + 6% + 6% + 0% + 0%
Feedback:
Variable cost of goods sold (19,000 units × $150 per unit)
= $2,850,000
Variable selling and administrative expenses (19,000 units ×
=
$190,000
$10 per unit)
Your response
Requirement 3:
What is the company's break-even point in terms of the number of barbecue grills sold?
Break-even point
18352
(0%) units
Correct response
Requirement 3:
What is the company's break-even point in terms of the number of barbecue grills sold?
Break-even point
E7_8_id5
E7_8_id5
E7_8_id7
E7_8_id7
E7_8_id12
E7_8_id12
E7_8_id14
E7_8_id14
19,700 units
Total grade: 0.0×1/1 = 0%
Feedback:
The break-even point in units sold can be computed using the contribution margin per unit as
follows:
Selling price per unit
Variable cost per unit
Contribution margin per unit
$ 210
160
$ 50
Question 7: Score 4.59/5
Your response
Correct response
Exercise 7-9 Absorption Costing Unit Product Cost and Income Statement [LO1 , LO2]
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it
sells for $210. Data for last year's operations follow:
Exercise 7-9 Absorption Costing Unit Product Cost and Income Statement [LO1 , LO2]
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it
sells for $210. Data for last year's operations follow:
Units in beginning inventory
Units produced
Units sold
Units in ending inventory
Variable costs per unit:
Direct materials
Direct labor
Variable manufacturing overhead
Variable selling and administrative
Total variable cost per unit
Fixed costs:
Fixed manufacturing overhead
Fixed selling and administrative
Total fixed costs
0
20,000
19,000
1,000
$
$
50
80
20
10
160
$ 700,000
285,000
$ 985,000
Units in beginning inventory
Units produced
Units sold
Units in ending inventory
Variable costs per unit:
Direct materials
Direct labor
Variable manufacturing overhead
Variable selling and administrative
Total variable cost per unit
Fixed costs:
Fixed manufacturing overhead
Fixed selling and administrative
Total fixed costs
0
20,000
19,000
1,000
$
$
50
80
20
10
160
$ 700,000
285,000
$ 985,000
Assume that the company uses absorption costing.
Assume that the company uses absorption costing.
Requirement 1:
Compute the unit product cost for one barbecue grill. (Omit the "$" sign in your response.)
Requirement 1:
Compute the unit product cost for one barbecue grill. (Omit the "$" sign in your response.)
Unit product cost
$ 185 (100%)
Feedback:
Under absorption costing, all manufacturing costs (variable and fixed) are included in product
Unit product cost
$ 185
costs.
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead ($700,000 ÷
20,000 units)
Absorption costing unit product cost
$ 50
80
20
35
$ 185
Your response
Correct response
Requirement 2:
Prepare an income statement. (Leave no cells blank - be certain to enter "0" wherever
required. Input all amounts as positive values. Omit the "$" sign in your response.)
Requirement 2:
Prepare an income statement. (Leave no cells blank - be certain to enter "0" wherever
required. Input all amounts as positive values. Omit the "$" sign in your response.)
Sales (10%)
Cost of goods sold (10%)
Gross profit (10%)
Selling and administrative expenses (10%)
Net operating loss (0%)
$ 3990000 (10%)
3515000 (10%)
475000 (10%)
475000 (10%)
0 (10%)
$
Sales
Cost of goods sold
Gross profit
Selling and administrative expenses
Net operating income
$ 3990000
3515000
475000
475000
0
$
Total grade: 1.0×1/10 + 1.0×1/10 + 1.0×1/10 + 1.0×1/10 + 1.0×1/10 + 1.0×1/10 + 1.0×1/10 + 1.0×1/10 + 0.0×1/10 + 1.0×1/10 = 10% + 10% + 10% + 10% + 10% + 10% + 10% + 10% + 0% + 10%
Feedback:
Sales (19,000 units × $210 per unit) = $3,990,000
Cost of goods sold (19,000 units × $185 per unit) = $3,515,000
Selling and administrative expenses ($285,000 + 19,000 units × $10 per unit) = $475,000
Question 8: Score 2.5/5
Your response
Correct response
Exercise 8-1 ABC Cost Hierarchy [LO1]
Classify each of the activities as either a unit-level, batch-level, product-level, or organization
sustaining activity.
a. Receive raw materials from suppliers.
b. Manage parts inventories.
c. Do rough milling work on products.
d. Interview and process new employees in the personnel department.
e. Design new products.
f. Perform periodic preventive maintenance on general-use equipment.
g. Use the general factory building.
h. Issue purchase orders for a job.
Batch-level (13%)
Organizationsustaining (0%)
Batch-level (0%)
Productlevel (0%)
Product-level (13%)
Organizationsustaining (13%)
Unit-level (0%)
Batch-level (13%)
Exercise 8-1 ABC Cost Hierarchy [LO1]
Classify each of the activities as either a unit-level, batch-level, product-level, or organization
sustaining activity.
a. Receive raw materials from suppliers.
b. Manage parts inventories.
c. Do rough milling work on products.
d. Interview and process new employees in the personnel department.
e. Design new products.
f. Perform periodic preventive maintenance on general-use equipment.
g. Use the general factory building.
h. Issue purchase orders for a job.
Total grade: 1.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 1.0×1/8 + 1.0×1/8 + 0.0×1/8 + 1.0×1/8 = 13% + 0% + 0% + 0% + 13% + 13% + 0% + 13%
Batch-level
Product-level
Unit-level
Organizationsustaining
Product-level
Organizationsustaining
Organizationsustaining
Batch-level
Question 9: Score 4.58/5
Your response
Correct response
Problem 7-11 Variable Costing Income Statement; Reconciliation [LO2, LO3]
During Heaton Company's first two years of operations, the company reported absorption costing
net operating income as follows:
Sales (@ $25 per unit)
Cost of goods sold (@ $18 per unit)
Gross margin
Selling and administrative expenses*
Net operating income
Year 1
$ 1,000,000
720,000
280,000
210,000
$ 70,000
Year 2
$ 1,250,000
900,000
350,000
230,000
$ 120,000
Sales (@ $25 per unit)
Cost of goods sold (@ $18 per unit)
Gross margin
Selling and administrative expenses*
Net operating income
*$2 per unit variable; $130,000 fixed each year.
The company's $18 unit product cost is computed as follows:
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead ($270,000 ÷ 45,000
units)
Absorption costing unit product cost
Units produced
Units sold
45,000
40,000
$ 4
7
1
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead ($270,000 ÷ 45,000
units)
Absorption costing unit product cost
6
$ 18
Year
2
45,000
50,000
Year 2
$ 1,250,000
900,000
350,000
230,000
$ 120,000
Units produced
Units sold
Year 1
$ 1000000 (4%)
Year 2
$ 1250000 (4%)
480000 (4%)
600000 (4%)
80000 (4%)
100000 (4%)
560000 (4%)
440000 (4%)
700000 (4%)
550000 (4%)
270000 (4%)
270000 (4%)
130000 (4%)
130000 (4%)
400000 (4%)
$ 40000 (4%)
400000 (4%)
$ 150000 (4%)
Feedback:
The unit product cost under the variable costing is computed as follows:
$ 4
7
1
6
$ 18
Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder
consists of depreciation charges on production equipment and buildings.
Production and cost data for the two years are:
Year 1
Requirement 1:
Prepare a variable costing contribution format income statement for each year. (Input all amounts
as positive values. Omit the "$" sign in your response.)
Sales (4%)
Variable expenses:
Variable cost of goods sold (4%)
Variable selling and administrative
expenses (4%)
Total variable expenses
Contribution margin (4%)
Fixed expenses:
Fixed manufacturing overhead (4%)
Fixed selling and administrative
expenses (4%)
Total fixed expenses
Net Operating income (4%)
Year 1
$ 1,000,000
720,000
280,000
210,000
$ 70,000
*$2 per unit variable; $130,000 fixed each year.
The company's $18 unit product cost is computed as follows:
Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder
consists of depreciation charges on production equipment and buildings.
Production and cost data for the two years are:
Year 1
Problem 7-11 Variable Costing Income Statement; Reconciliation [LO2, LO3]
During Heaton Company's first two years of operations, the company reported absorption costing
net operating income as follows:
45,000
40,000
Year
2
45,000
50,000
Requirement 1:
Prepare a variable costing contribution format income statement for each year. (Input all amounts
as positive values. Omit the "$" sign in your response.)
Sales
Variable expenses:
Variable cost of goods sold
Variable selling and administrative
expenses
Total variable expenses
Contribution margin
Fixed expenses:
Fixed manufacturing overhead
Fixed selling and administrative expenses
Total fixed expenses
Net Operating income
$
$
Year 1
1000000
$
Year 2
1250000
480000
600000
80000
100000
560000
440000
700000
550000
270000
130000
400000
40000
270000
130000
400000
150000
$
Direct materials
Direct labor
Variable manufacturing overhead
Variable costing unit product cost
$ 4
7
1
$ 12
Variable cost of goods sold (@ $12 per unit)
Variable selling and administrative expenses (@ $2 per
unit)
Year 1
480,000
Year 2
600,000
80,000
100,000
Your response
Correct response
Requirement 2:
Determine the absorption costing and variable costing net operating income figures for each year.
(Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)
Variable costing net operating income
Add/(deduct): Fixed manufacturing overhead
deferred in inventory under absorption costing
Absorption costing net operating income
Year 1
$ 40000 (17%)
30000 (17%)
$ 70000 (17%)
$
Year 2
150000 (17%)
$
30000 (0%)
120000 (17%)
Requirement 2:
Determine the absorption costing and variable costing net operating income figures for each year.
(Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)
Variable costing net operating income
Add/(deduct): Fixed manufacturing overhead deferred in
inventory under absorption costing
Absorption costing net operating income
P7_11_id5
P7_11_id5
P7_11_id8
P7_11_id8
P7_11_id16
P7_11_id16
P7_11_id19
P7_11_id19
$
Year 1
40000
$
30000
70000
$
Year 2
150000
-30,000
$ 120000
Total grade: 1.0×1/6 + 1.0×1/6 + 1.0×1/6 + 0.0×1/6 + 1.0×1/6 + 1.0×1/6 = 17% + 17% + 17% + 0% + 17% + 17%
Feedback:
Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption
costing (5,000 units × $6 per unit in Year 1; 5,000 units × $6 per unit in Year 2)
Question 10: Score 5/5
Your response
Exercise 8-2 First-Stage Allocation [LO2]
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:
Correct response
Exercise 8-2 First-Stage Allocation [LO2]
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
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
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:
Driver and guard wages
Vehicle operating expense
Vehicle depreciation
Customer representative salaries
and expenses
Office expenses
Administrative expenses
Travel
50 %
70 %
60 %
0%
0%
0%
Pickup and
Delivery
35 %
5%
15 %
Customer
Service
10 %
0%
0%
Other
5%
25 %
25 %
Totals
100 %
100 %
100 %
0%
20 %
5%
90 %
30 %
60 %
10 %
50 %
35 %
100 %
100 %
100 %
The distribution of resource consumption across the activity cost pools is as follows:
Driver and guard wages
Vehicle operating expense
Vehicle depreciation
Customer representative
salaries and expenses
Office expenses
Administrative expenses
Required:
Complete the first-stage allocations of costs to activity cost pools. (Leave no cells blank - be certain
to enter "0" wherever required. Omit the "$" sign in your response.)
Driver and guard wages
Vehicle operating
expense
Vehicle depreciation
Customer representative
salaries
and expenses
Office expenses
Administrative expenses
Total cost
Travel
$ 360000 (3%)
Pickup and
Delivery
$ 252000 (3%)
Customer
Service
$ 72000 (3%)
Other
$ 36000 (3%)
Totals
$ 720000 (3%)
196000 (3%)
14000 (3%)
0 (3%)
70000 (3%)
280000 (3%)
72000 (3%)
18000 (3%)
0 (3%)
30000 (3%)
120000 (3%)
0 (3%)
0 (3%)
0 (3%)
$ 628000 (3%)
0 (3%)
6000 (3%)
16000 (3%)
$ 306000 (3%)
144000 (3%)
9000 (3%)
192000 (3%)
$ 417000 (3%)
16000 (3%)
15000 (3%)
112000 (3%)
$ 279000 (3%)
160000 (3%)
30000 (3%)
320000 (3%)
$ 1630000 (3%)
Travel
50 %
70 %
60 %
Pickup and
Delivery
35 %
5%
15 %
Customer
Service
10 %
0%
0%
Other
5%
25 %
25 %
Totals
100 %
100 %
100 %
0%
0%
0%
0%
20 %
5%
90 %
30 %
60 %
10 %
50 %
35 %
100 %
100 %
100 %
Required:
Complete the first-stage allocations of costs to activity cost pools. (Leave no cells blank - be certain
to enter "0" wherever required. Omit the "$" sign in your response.)
Driver and guard wages
Vehicle operating expense
Vehicle depreciation
Customer representative salaries
and expenses
Office expenses
Administrative expenses
Total cost
Travel
$ 360000
196000
72000
Pickup and
Delivery
$ 252000
14000
18000
Customer
Service
$ 72000
0
0
$
Other
36000
70000
30000
Totals
$ 720000
280000
120000
0
0
0
$ 628000
0
6000
16000
$ 306000
144000
9000
192000
$ 417000
16000
15000
112000
$ 279000
160000
30000
320000
$ 1630000
Feedback:
Each entry in the table is derived by multiplying the total cost for the cost category by the percentage
taken from the table above that shows the distribution of resource consumption.
Question 11: Score 5/5
Your response
Exercise 8-3 Compute Activity Rates [LO3]
Green Thumb Gardening is a small gardening service that uses activity-based costing to estimate
costs for pricing and other purposes. The proprietor of the company believes that costs are driven
primarily by the size of customer lawns, the size of customer garden beds, the distance to travel to
Correct response
Exercise 8-3 Compute Activity Rates [LO3]
Green Thumb Gardening is a small gardening service that uses activity-based costing to estimate
costs for pricing and other purposes. The proprietor of the company believes that costs are driven
primarily by the size of customer lawns, the size of customer garden beds, the distance to travel to
customers, and the number of customers. In addition, the costs of maintaining garden beds depends
on whether the beds are low maintenance beds (mainly ordinary trees and shrubs) or high
maintenance beds (mainly flowers and exotic plants). Accordingly, the company uses the five
activity cost pools listed below:
Activity Cost Pool
Caring for lawn
Caring for garden beds–low maintenance
Caring for garden beds–high
maintenance
Travel to jobs
Customer billing and service
Activity Measure
Square feet of lawn
Square feet of low maintenance beds
Square feet of high maintenance beds
Miles
Number of customers
customers, and the number of customers. In addition, the costs of maintaining garden beds depends
on whether the beds are low maintenance beds (mainly ordinary trees and shrubs) or high
maintenance beds (mainly flowers and exotic plants). Accordingly, the company uses the five
activity cost pools listed below:
Activity Cost Pool
Caring for lawn
Caring for garden beds–low maintenance
Caring for garden beds–high
maintenance
Travel to jobs
Customer billing and service
Activity Measure
Square feet of lawn
Square feet of low maintenance beds
Square feet of high maintenance beds
Miles
Number of customers
The company has already completed its first stage allocations of costs and has summarized its
annual costs and activity as follows:
The company has already completed its first stage allocations of costs and has summarized its
annual costs and activity as follows:
Estimated
Overhead
Cost
$ 72,000
Estimated
Overhead
Cost
$ 72,000
Activity cost Pool
Caring for lawn
Caring for garden beds–low
maintenance
Caring for garden beds–high
maintenance
Travel to jobs
Customer billing and service
Expected Activity
150,000 square feet of lawn
$ 26,400
20,000 square feet of low maintenance beds
$ 41,400
15,000
$ 3,250
$ 8,750
square feet of high maintenance
beds
12,500 miles
25 customers
Required:
Compute the activity rate for each of the activity cost pools. (Round your answers to 2 decimal
places. Omit the "$" sign in your response.)
Activity Cost Pool
Caring for lawn
$
.48 (20%)
Caring for garden beds–low maintenance
$
1.32 (20%)
Caring for garden beds–high maintenance
$
Travel to jobs
Customer billing and service
2.76 (20%)
$ .26 (20%)
$ 350 (20%)
Activity Rate
per square foot of lawn
per square foot of low maintenance
beds
per square foot of high maintenance
beds
per mile
per customer
Feedback:
Activity Cost Pool
Estimated
Overhead
cost
Caring for lawn
$ 72,000
Caring for garden beds–
low
maintenance
Caring for garden beds–
high
maintenance
Travel to jobs
Customer billing and
service
$ 26,400
20,000
$ 41,400
15,000
$
3,250
12,500 miles
$
8,750
Expected Activity
150,000 square feet of lawn
square feet of low
maintenance beds
square feet of high
maintenance beds
25 customers
Activity Rate
per square foot of
$ 0.48
lawn
$ 1.32
per square foot of low
maintenance beds
$ 2.76 per square foot of
high maintenance
beds
$ 0.26 per miles
$ 350 per Customer
Activity cost Pool
Caring for lawn
Caring for garden beds–low
maintenance
Caring for garden beds–high
maintenance
Travel to jobs
Customer billing and service
Expected Activity
150,000 square feet of lawn
$ 26,400
20,000 square feet of low maintenance beds
$ 41,400
15,000
$ 3,250
$ 8,750
square feet of high maintenance
beds
12,500 miles
25 customers
Required:
Compute the activity rate for each of the activity cost pools. (Round your answers to 2 decimal
places. Omit the "$" sign in your response.)
Activity Cost Pool
Caring for lawn
$
Caring for garden beds–low maintenance
$
Caring for garden beds–high maintenance
$
Travel to jobs
Customer billing and service
$
$
Activity Rate
.48 per square foot of lawn
per square foot of low maintenance
1.32 beds
per square foot of high maintenance
2.76 beds
.26 per mile
350 per customer
The activity rate for each activity cost pool is computed by dividing its estimated overhead cost by
its expected activity.
Question 12: Score 3.33/5
Your response
Correct response
Exercise 8-5 Product and Customer Profitability Analysis [LO4, LO5]
Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The company
has a standard paraglider model, but also makes custom-designed paragliders. Management has
designed an activity-based costing system with the following activity cost pools and activity rates:
Activity Cost Pool
Supporting direct labor
Order processing
Custom designing processing
Customer service
Activity Rate
$ 26 per direct labor-hour
$ 284 per order
$ 186 per custom design
$ 379 per customer
Management would like an analysis of the profitability of a particular customer, Big Sky Outfitters,
which has ordered the following products over the last 12 months:
Number of gliders
Number of orders
Number of custom designs
Direct labor-hours per glider
Selling price per glider
Direct materials cost per glider
Standard
Model
20
1
0
26.35
$ 1,850
$ 564
Custom
Design
3
3
3
28.0
$ 2,400
$ 634
Customer margin
$
15886 (11%)
65616
$
26
284
186
379
Activity Rate
per direct labor-hour
per order
per custom design
per customer
Management would like an analysis of the profitability of a particular customer, Big Sky Outfitters,
which has ordered the following products over the last 12 months:
Standard
Model
20
1
0
26.35
$ 1,850
$ 564
Custom
Design
3
3
3
28.0
$ 2,400
$ 634
Required:
Using the company's activity-based costing system, compute the customer margin of Big Sky
Outfitters. (Round your answers to the nearest dollar amount. Omit the "$" sign in your
response.)
44200 (11%)
35742 (0%)
11915 (11%)
1136 (11%)
558 (11%)
379 (11%)
$
$
$
$
The company's direct labor rate is $19.50 per hour.
Required:
Using the company's activity-based costing system, compute the customer margin of Big Sky
Outfitters. (Round your answers to the nearest dollar amount. Omit the "$" sign in your
response.)
$
Activity Cost Pool
Supporting direct labor
Order processing
Custom designing processing
Customer service
Number of gliders
Number of orders
Number of custom designs
Direct labor-hours per glider
Selling price per glider
Direct materials cost per glider
The company's direct labor rate is $19.50 per hour.
Sales
Costs:
Direct materials
Direct labor
Supporting direct
labor
Order processing
Custom designing
Customer service
Exercise 8-5 Product and Customer Profitability Analysis [LO4, LO5]
Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The
company has a standard paraglider model, but also makes custom-designed paragliders. Management
has designed an activity-based costing system with the following activity cost pools and activity rates:
21416
(0%)
(0%)
Sales
Costs:
Direct materials
Direct labor
Supporting direct labor
Order processing
Custom designing
Customer service
Customer margin
$
44200
$ 13,182
11915
15886
1136
558
379
43,056
with a
tolerance
of ±0.5
1,144
$
with a
tolerance
of ±0.5
Total grade: 1.0×1/9 + 0.0×1/9 + 1.0×1/9 + 1.0×1/9 + 1.0×1/9 + 1.0×1/9 + 1.0×1/9 + 0.0×1/9 + 0.0×1/9 = 11% + 0% + 11% + 11% + 11% + 11% + 11% + 0% + 0%
Feedback:
Sales ($1,850 per standard model glider × 20 standard model gliders + $2,400
per custom designed glider × 3 custom designed gliders)
Costs:
Direct materials ($564 per standard model glider × 20 standard model
gliders + $634 per custom designed glider × 3 custom designed gliders)
Direct labor ($19.50 per direct labor-hour × 26.35 direct labor-hours per
standard model glider × 20 standard model gliders + $19.50 per direct
labor-hour × 28 direct labor-hours per custom designed glider × 3 custom
designed gliders)
Supporting direct labor ($26 per direct labor-hour × 26.35 direct labor-hours
per standard model glider × 20 standard model gliders + $26 per direct
labor-hour × 28 direct labor-hours per custom designed glider × 3 custom
designed gliders)
Order processing ($284 per order × 4 orders)
Custom designing ($186 per custom design × 3 custom designs)
Customer service ($379 per customer × 1 customer)
Customer margin
$ 44,200
$ 13,182
11,915
15,886
1,136
558
379
43,056
$ 1,144
Question 13: Score 4.28/5
Your response
Correct response
Exercise 8-6 Activity Measures [LO1]
Various activities at Ming Corporation, a manufacturing company, are listed below. Each activity
has been classified as a unit-level, batch-level, product-level, or customer-level activity. Complete
the table by providing an example of an activity measure for each activity.
Activity
a. Direct labor workers assemble a product
b. Products are designed by engineers
c. Equipment is set up
Level of
Activity
Unit
Product
Batch
d. Machines are used to shape and cut materials
Unit
e. Monthly bills are sent out to regular customers
Customer
f. Materials are moved from the receiving dock to production lines
Batch
Exercise 8-6 Activity Measures [LO1]
Various activities at Ming Corporation, a manufacturing company, are listed below. Each activity
has been classified as a unit-level, batch-level, product-level, or customer-level activity. Complete
the table by providing an example of an activity measure for each activity.
Examples of Activity Measures
Number of units
processed; machine- a.
hours (0%)
b.
Number of new products
designed; hours of
design time (14%)
c.
Number of setups; setup
hours (14%)
d.
Number of units
processed; machinehours (14%)
Number of bills sent;e.
time spent preparing
f.
bills (14%)
Number of loads
Activity
Direct labor workers assemble a product
Level of
Activity
Unit
Products are designed by engineers
Product
Equipment is set up
Batch
Machines are used to shape and cut materials
Unit
Monthly bills are sent out to regular customers
Customer
Materials are moved from the receiving dock to production lines
Batch
Examples of Activity Measures
Direct labor-hours
Number of new products
designed; hours of
design time
Number of setups; setup
hours
Number of units
processed; machinehours
Number of bills sent;
time spent preparing
bills
Number of loads
transferred; time spent
g. All completed units are inspected for defects
Unit
transferred; time spent
moving materials (14%)
Number of units
g. All completed units are inspected for defects
inspected; Inspection
hours (14%)
Unit
Total grade: 0.0×1/7 + 1.0×1/7 + 1.0×1/7 + 1.0×1/7 + 1.0×1/7 + 1.0×1/7 + 1.0×1/7 = 0% + 14% + 14% + 14% + 14% + 14% + 14%
Feedback:
1. In all cases except for direct labor in part (a), two activity measures are listed. The first is a
"transaction driver" and the second is a "duration driver." Transaction drivers are simple counts of
the number of times an activity occurs such as the number of times materials are moved. Duration
drivers are measures of the amount of time required to perform an activity such as the time spent
moving materials. In general, duration drivers are more accurate measures of the consumption of
resources than transaction drivers, but they take more effort to record.
Question 14: Score 3.75/5
Your response
Correct response
Exercise 8-7 Computing ABC Product Costs [LO3, LO4]
Exercise 8-7 Computing ABC Product Costs [LO3, LO4]
Fogerty Company makes two products, titanium Hubs and Sprockets. Data regarding the two
products follow:
Fogerty Company makes two products, titanium Hubs and Sprockets. Data regarding the two
products follow:
Hubs
Sprockets
Direct
Labor-Hours
per Unit
0.80
0.40
Annual
Production
10,000 units
40,000 units
Hubs
Sprockets
Additional information about the company follows:
a. Hubs require $32 in direct materials per unit, and Sprockets require $18.
b. The direct labor wage rate is $15 per hour.
c. Hubs are more complex to manufacture than Sprockets and they require special processing.
d. The ABC system has the following activity cost pools:
Activity Cost Pool
Machine setups
Special processing
General factory
Activity Measure
Number of setups
Machine-hours
Direct labor-hours
Estimated
Overhead
Cost
$ 72,000
$ 200,000
$ 816,000
Hubs Sprockets
100
300
5,000
0
8,000
16,000
Total
400
5,000
24,000
Activity Rate
$ 180 (33%) per setup
$ 40 (33%) per MH
$ 34 (33%) per DLH
Annual
Production
10,000 units
40,000 units
Additional information about the company follows:
a. Hubs require $32 in direct materials per unit, and Sprockets require $18.
b. The direct labor wage rate is $15 per hour.
c. Hubs are more complex to manufacture than Sprockets and they require special processing.
d. The ABC system has the following activity cost pools:
Activity
Requirement 1:
Compute the activity rate for each activity cost pool. (Omit the "$" sign in your response.)
Activity Cost Pool
Machine setups
Special processing
General factory
Direct
Labor-Hours
per Unit
0.80
0.40
Activity Cost Pool
Machine setups
Special processing
General factory
Activity Measure
Number of setups
Machine-hours
Direct labor-hours
Estimated
Overhead
Cost
$ 72,000
$ 200,000
$ 816,000
Activity
Hubs Sprockets
100
300
5,000
0
8,000
16,000
Total
400
5,000
24,000
Requirement 1:
Compute the activity rate for each activity cost pool. (Omit the "$" sign in your response.)
Activity Cost Pool
Machine setups
Special processing
General factory
$
$
$
Activity Rate
180 per setup
40 per MH
34 per DLH
moving materials
Number of units
inspected; Inspection
hours
Feedback:
Activity rates are computed as follows:
(a)
Estimated
Overhead
Cost
$ 72,000
$ 200,000
$ 816,000
Activity Cost Pool
Machine setups
Special processing
General factory
(b)
Expected
Activity
400 setups
5,000 MHs
24,000 DLHs
(a) ÷ (b)
Activity Rate
$ 180 per setup
$ 40 per MH
$ 34 per DLH
Your response
Correct response
Requirement 2:
Determine the unit cost of each product according to the ABC system, including direct materials
and direct labor. (Round your answers to 2 decimal places. Omit the "$" sign in your
response.)
Requirement 2:
Determine the unit cost of each product according to the ABC system, including direct materials
and direct labor. (Round your answers to 2 decimal places. Omit the "$" sign in your
response.)
Direct materials
Direct labor
Overhead
Unit cost
$
$
Hubs
32 (13%)
15.8 (0%)
49 (13%)
96.80 (0%)
$
$
Sprockets
18 (13%)
15.4 (0%)
14.95 (13%)
48.35 (0%)
Direct materials
Direct labor
Overhead
Unit cost
Total grade: 1.0×1/8 + 1.0×1/8 + 0.0×1/8 + 0.0×1/8 + 1.0×1/8 + 1.0×1/8 + 0.0×1/8 + 0.0×1/8 = 13% + 13% + 0% + 0% + 13% + 13% + 0% + 0%
Feedback:
Overhead is assigned to the two products as follows:
Hubs:
Activity Cost Pool
Machine setups
Special processing
General factory
Total
(a)
Activity Rate
$ 180 per setup
$ 40 per MH
$ 34 per DLH
(b)
Activity
100 setups
5,000 MHs
8,000 DLHs
(a) × (b)
ABC Cost
$ 18,000
200,000
272,000
$ 490,000
(b)
Activity
(a) × (b)
ABC Cost
300 setups
$ 54,000
Sprockets:
Activity Cost Pool
Machine setups
Special processing
General factory
(a)
Activity Rate
per
$ 180
setup
$ 40 per MH
per
$ 34
DLH
0 MHs
16,000 DLHs
Total
Direct materials
Direct labor:
$15 per DLH × 0.80 DLHs per
unit
$15 per DLH × 0.40 DLHs per
0
544,000
$ 598,000
Hubs
$ 32.00
Sprockets
$ 18.00
12.00
6.00
Hubs
$ 32
12
49
$ 93
Sprockets
18
$
6
14.95
$ 38.95
unit
Overhead:
$490,000 ÷ 10,000 units
$598,000 ÷ 40,000 units
Unit cost
49.00
$ 93.00
14.95
$ 38.95
Question 15: Score 5/5
Your response
Correct response
Exercise 8-8 Second-Stage Allocation to an Order [LO4]
Durban Metal Products, Ltd., of the Republic of South Africa makes specialty metal parts used in
applications ranging from the cutting edges of bulldozer blades to replacement parts for Land Rovers.
The company uses an activity-based costing system for internal decision-making purposes. The
company has four activity cost pools as listed below:
Activity Cost
Pool
Order size
Customer orders
Product testing
Selling
Activity Measure
Number of direct laborhours
Number of customer orders
Number of testing hours
Number of sales calls
Exercise 8-8 Second-Stage Allocation to an Order [LO4]
Durban Metal Products, Ltd., of the Republic of South Africa makes specialty metal parts used in
applications ranging from the cutting edges of bulldozer blades to replacement parts for Land Rovers.
The company uses an activity-based costing system for internal decision-making purposes. The
company has four activity cost pools as listed below:
Activity Cost
Pool
Activity Rate
Order size
R16.85 per direct labor-hour
Customer orders
Product testing
Selling
R320.00 per customer order
R89.00 per testing hour
R1,090.00 per sales call
Activity Measure
Activity Rate
Number of direct laborR16.85
hours
Number of customer orders
R320.00
Number of testing hours
R89.00
Number of sales calls
R1,090.00
per direct laborhour
per customer order
per testing hour
per sales call
Note: The currency in South Africa is the Rand, denoted here by R.
Note: The currency in South Africa is the Rand, denoted here by R.
The managing director of the company would like information concerning the cost of a recently
completed order for heavy-duty trailer axles. The order required 200 direct labor-hours, 4 hours of
product testing, and 2 sales calls.
The managing director of the company would like information concerning the cost of a recently
completed order for heavy-duty trailer axles. The order required 200 direct labor-hours, 4 hours of
product testing, and 2 sales calls.
Required:
Determine the total overhead cost of the order for heavy-duty trailer axles according to the activity
based costing system. (Omit the "R" sign in your response.)
Required:
Determine the total overhead cost of the order for heavy-duty trailer axles according to the activity
based costing system. (Omit the "R" sign in your response.)
Activity Cost Pool
Order size
Customer orders
Product testing
Selling
Total
ABC cost
3370
(20%)
R
320 (20%)
356 (20%)
2180 (20%)
R 6226 (20%)
Activity Cost Pool
Order size
Customer orders
Product testing
Selling
Total
Feedback:
Activity Cost
Pool
Order size
Customer orders
Product testing
Selling
Total
(a)
Activity Rate
R 16.85 per direct labor-hour
R 320.00 per customer order
per product testing
R 89.00
hour
R 1,090.00 per sales call
200
1
4
2
(b)
Activity
direct labor-hours
customer order
product testing
hours
sales calls
(a) × (b)
ABC Cost
R 3,370
320
356
2,180
R 6,226
ABC
cost
R 3370
320
356
2180
R 6226
According to these calculations, the total overhead cost of the order is R 6,226
Question 16: Score 2.22/5
Your response
Correct response
Exercise 8-11 Cost Hierarchy [LO1]
CD Express, Inc., provides CD duplicating services to software companies. The customer provides a
master CD from which CD Express makes copies. An order from a customer can be for a single copy
or for thousands of copies. Most jobs are broken down into batches to allow smaller jobs, with higher
priorities, to have access to the machines.
Required:
Classify each of the activities above as either a unit-level, batch-level, product-level, customer-level,
or organization-sustaining activity. An order to duplicate a particular CD is a product-level activity.
Assume the order is large enough that it must be broken down into batches.
Activity
a. Sales representatives' periodic visits to customers to keep them informed
about the services provided by CD Express.
b. Ordering labels from the printer for a particular CD.
c. Setting up the CD duplicating machine to make copies from a particular
master CD.
d. Loading the automatic labeling machine with labels for a particular CD.
e. Visually inspecting CDs and placing them by hand into protective plastic
cases prior to shipping.
f. Preparation of the shipping documents for the order.
g. Periodic maintenance of equipment.
h. Lighting and heating the company's production facility.
i. Preparation of quarterly financial reports.
Activity Level
Customerlevel (11%)
Batchlevel (0%)
Unitlevel (0%)
Batchlevel (11%)
Unit-level (11%)
Customerlevel (0%)
Unitlevel (0%)
Unitlevel (0%)
Organizationsustaining (11%)
Exercise 8-11 Cost Hierarchy [LO1]
CD Express, Inc., provides CD duplicating services to software companies. The customer provides a
master CD from which CD Express makes copies. An order from a customer can be for a single copy
or for thousands of copies. Most jobs are broken down into batches to allow smaller jobs, with higher
priorities, to have access to the machines.
Required:
Classify each of the activities above as either a unit-level, batch-level, product-level, customer-level,
or organization-sustaining activity. An order to duplicate a particular CD is a product-level activity.
Assume the order is large enough that it must be broken down into batches.
a.
b.
c.
d.
e.
f.
Activity
Sales representatives' periodic visits to customers to keep them informed
about the services provided by CD Express.
Ordering labels from the printer for a particular CD.
Setting up the CD duplicating machine to make copies from a particular
master CD.
Loading the automatic labeling machine with labels for a particular CD.
Visually inspecting CDs and placing them by hand into protective plastic
cases prior to shipping.
Preparation of the shipping documents for the order.
g. Periodic maintenance of equipment.
h. Lighting and heating the company's production facility.
i. Preparation of quarterly financial reports.
Activity Level
Customerlevel
Product-level
Batch-level
Batch-level
Unit-level
Product-level
Organizationsustaining
Organizationsustaining
Organizationsustaining
Total grade: 1.0×1/9 + 0.0×1/9 + 0.0×1/9 + 1.0×1/9 + 1.0×1/9 + 0.0×1/9 + 0.0×1/9 + 0.0×1/9 + 1.0×1/9 = 11% + 0% + 0% + 11% + 11% + 0% + 0% + 0% + 11%
Feedback:
The cost of the labels themselves would be part of direct materials.
b. Ordering labels from the printer for a particular CD
d. Loading the automatic labeling machine with labels for a particular CD
Question 17: Score 5/5
Your response
Correct response
Exercise 8-12 Second-Stage Allocations and Margin Calculations [LO4, LO5]
Foam Products, Inc., makes foam seat cushions for the automotive and aerospace industries. The
company's activity-based costing system has four activity cost pools, which are listed below along
with their activity measures and activity rates:
Exercise 8-12 Second-Stage Allocations and Margin Calculations [LO4, LO5]
Foam Products, Inc., makes foam seat cushions for the automotive and aerospace industries. The
company's activity-based costing system has four activity cost pools, which are listed below along
with their activity measures and activity rates:
Activity Cost Pool
Supporting direct labor
Activity Measure
Number of direct laborhours
$
Activity Rate
per direct labor5.55
hour
Activity Cost Pool
Supporting direct labor
Activity Measure
Number of direct labor-
$
Activity Rate
5.55 per direct labor-
Batch processing
Order processing
Customer service
Number of batches
Number of orders
Number of customers
$ 107.00 per batch
$ 275.00 per order
$ 2,463.00 per customer
The company just completed a single order from Interstate Trucking for 1,000 custom seat
cushions. The order was produced in two batches. Each seat cushion required 0.25 direct labor-hours.
The selling price was $20 per unit, the direct materials cost was $8.50 per unit, and the direct labor
cost was $6.00 per unit. This was Interstate Trucking's only order during the year.
Required:
Prepare a report showing the customer margin on sales to Interstate Trucking for the year. (Enter all
amounts as postitive numbers. Round your answers to 2 decimal places. Omit the "$" sign in
your response.)
Customer Margin—ABC Analysis
20000 (11%)
Sales
$
Costs:
8500 (11%)
Direct materials
$
6000 (11%)
Direct labor
Supporting direct
1387.50 (11%)
labor
214 (11%)
Batch processing
275 (11%)
Order processing
Customer service
2463 (11%)
18839.50 (11%)
overhead
Customer margin
$ 1160.50 (11%)
Batch processing
Order processing
Customer service
hours
Number of batches
Number of orders
Number of customers
hour
$ 107.00 per batch
$ 275.00 per order
$ 2,463.00 per customer
The company just completed a single order from Interstate Trucking for 1,000 custom seat
cushions. The order was produced in two batches. Each seat cushion required 0.25 direct labor-hours.
The selling price was $20 per unit, the direct materials cost was $8.50 per unit, and the direct labor
cost was $6.00 per unit. This was Interstate Trucking's only order during the year.
Required:
Prepare a report showing the customer margin on sales to Interstate Trucking for the year. (Enter all
amounts as postitive numbers. Round your answers to 2 decimal places. Omit the "$" sign in
your response.)
Customer Margin—ABC Analysis
Sales
Costs:
8500
Direct materials
$
6000
Direct labor
1387.50
Supporting direct labor
214
Batch processing
275
Order processing
2463
Customer service overhead
Customer margin
$
20000
18839.50
$ 1160.50
Feedback:
Sales (1,000 seats × $20 per unit) = $20,000.00
Direct materials ($8.50 per unit × 1,000 seats) = $8,500.00
Direct labor ($6.00 per unit × 1,000 seats) = 6,000.00
Supporting direct labor ($5.55 per DLH × 0.25 DLH per unit × 1,000 seats) = 1,387.50
Batch processing ($107 per batch × 2 batches) = 214.00
Order processing ($274 per order × 1 order) = 275.00
Customer service overhead ($2,463 per customer × 1 customer) = 2,463.00
Question 18: Score 0/5
Your response
Correct response
Exercise 8-13 Contrasting Traditional and ABC Product Costs [LO1, LO5]
Model X100 sells for $120 per unit whereas Model X200 offers advanced features and sells for
$500 per unit. Management expects to sell 50,000 units of Model X100 and 5,000 units of Model
X200 next year. The direct material cost per unit is $50 for Model X100 and $220 for Model X200.
The company's total manufacturing overhead for the year is expected to be $1,995,000. A unit of
Model X100 requires 2 direct labor-hours and a unit of Model X200 requires 5 direct labor-hours.
The direct labor wage rate is $20 per hour.
Exercise 8-13 Contrasting Traditional and ABC Product Costs [LO1, LO5]
Model X100 sells for $120 per unit whereas Model X200 offers advanced features and sells for
$500 per unit. Management expects to sell 50,000 units of Model X100 and 5,000 units of Model
X200 next year. The direct material cost per unit is $50 for Model X100 and $220 for Model X200.
The company's total manufacturing overhead for the year is expected to be $1,995,000. A unit of
Model X100 requires 2 direct labor-hours and a unit of Model X200 requires 5 direct labor-hours.
The direct labor wage rate is $20 per hour.
Requirement 1:
(a) Calculate the predetermined overhead rate. (Round your answer to 2 decimal places. Omit
the "$" sign in your response.)
Requirement 1:
(a) Calculate the predetermined overhead rate. (Round your answer to 2 decimal places. Omit
the "$" sign in your response.)
Predetermined overhead
rate
$
36.27
$ 15.96
Predetermined overhead rate
(0%)
Total grade: 0.0×1/1 = 0%
Feedback:
Under the traditional direct labor-hour based costing system, manufacturing overhead is applied to
products using the predetermined overhead rate computed as follows:
*50,000 units of Model X100 @ 2.0 DLH per unit + 5,000 units of Model X200 @ 5.0 DLH per
unit = 100,000 DLHs + 25,000 DLHs = 125,000 DLHs
Your response
Correct response
(b) Using this traditional approach, compute the product margins for X100 and X200. (Negative
amount should be indicated by a minus sign. Omit the "$" sign in your response.)
Model X100
Product
margin
$
313500
(0%)
Model X200
$
718650
(b) Using this traditional approach, compute the product margins for X100 and X200. (Negative
amount should be indicated by a minus sign. Omit the "$" sign in your response.)
Total
(0%)
$
405150
(0%)
Product margin
Model
X100
Model X200
Total
$ 96,000
$ 501,000
$ 405,000
Total grade: 0.0×1/3 + 0.0×1/3 + 0.0×1/3 = 0% + 0% + 0%
Feedback:
Consequently, the product margins using the traditional approach would be computed as follows:
$ 6,000,000
2,500,000
2,000,000
Model
X200
$ 2,500,000
1,100,000
500,000
$ 8,500,000
3,600,000
2,500,000
1,596,000
399,000
1,995,000
6,096,000
(96,000)
1,999,000
$ 501,000
8,095,000
$ 405,000
Model X100
Sales
Direct materials
Direct labor
Manufacturing overhead applied @ $15.96 per direct
labor-hour
Total manufacturing cost
Product margin
$
Total
Note that all of the manufacturing overhead cost is applied to the products under the company's
traditional costing system.
Your response
Correct response
Requirement 2:
Management is considering an activity-based costing system and would like to know what impact
this would have on product costs. Preliminary analysis suggests that under activity-based costing, a
Requirement 2:
Management is considering an activity-based costing system and would like to know what impact
this would have on product costs. Preliminary analysis suggests that under activity-based costing, a
total of $1,000,000 in manufacturing overhead cost would be assigned to Model X100 and a total
of $600,000 would be assigned to Model X200. In addition, a total of $150,000 in
nonmanufacturing overhead would be applied to Model X100 and a total of $350,000 would be
applied to Model X200. Using the activity-based costing approach, compute the product margins
for X100 and X200. (Negative amount should be indicated by a minus sign. Omit the "$" sign
in your response.)
Model X100
Product
margin
$
-313500
Model X200
(0%)
$
718650
(0%)
total of $1,000,000 in manufacturing overhead cost would be assigned to Model X100 and a total
of $600,000 would be assigned to Model X200. In addition, a total of $150,000 in
nonmanufacturing overhead would be applied to Model X100 and a total of $350,000 would be
applied to Model X200. Using the activity-based costing approach, compute the product margins
for X100 and X200. (Negative amount should be indicated by a minus sign. Omit the "$" sign
in your response.)
Total
405150
$
Model X100
Model
X200
Total
$ 350,000
$ 50,000
$ 300,000
(0%)
Product margin
Total grade: 0.0×1/3 + 0.0×1/3 + 0.0×1/3 = 0% + 0% + 0%
Feedback:
Under the activity-based costing system, the product margins would be computed as follows:
Sales
Direct materials
Direct labor
Manufacturing overhead applied
Nonmanufacturing overhead
applied
Total cost
Product margin
Model X100 Model X200
Total
$ 6,000,000 $ 2,500,000
$ 8,500,000
2,500,000
1,100,000
3,600,000
2,000,000
500,000
2,500,000
1,000,000
600,000
1,600,000
150,000
350,000
500,000
5,650,000
2,550,000
$ 350,000 $ (50,000)
8,200,000
$ 300,000
Question 19: Score 4.91/5
Your response
Correct response
Exercise 8-14 Comprehensive Activity-Based Costing Exercise [LO2, LO3, LO4, LO5]
Advanced Products Corporation has supplied the following data from its activity-based costing
system:
Overhead Costs
Wages and salaries
Other overhead costs
Total overhead costs
$ 300,000
100,000
$ 400,000
Activity Cost Pool
Supporting direct labor
Order processing
Customer support
Other
Activity Measure
Number of direct labor-hours
Number of customer orders
Number of customers
This is an organizationsustaining activity
Total Activity
for the year
20,000 DLHs
400 orders
200 customers
Not applicable
Exercise 8-14 Comprehensive Activity-Based Costing Exercise [LO2, LO3, LO4, LO5]
Advanced Products Corporation has supplied the following data from its activity-based costing
system:
Overhead Costs
Wages and salaries
Other overhead costs
Total overhead costs
$ 300,000
100,000
$ 400,000
Activity Cost Pool
Supporting direct labor
Order processing
Customer support
Other
Activity Measure
Number of direct labor-hours
Number of customer orders
Number of customers
This is an organizationsustaining activity
Total Activity
for the year
20,000 DLHs
400 orders
200 customers
Not applicable
Distribution of Resource Consumption Across Activities
Supporting
Direct
Order
Customer
Labor
Processing Support
Wages and salaries
40%
30%
20%
Other overhead costs
30%
10%
20%
Other
10%
40%
Distribution of Resource Consumption Across Activities
Supporting
Direct
Order
Customer
Labor
Processing Support
Wages and salaries
40%
30%
20%
Other overhead costs
30%
10%
20%
Total
100%
100%
During the year, Advanced Products completed one order for a new customer, Shenzhen
Enterprises. This customer did not order any other products during the year. Data concerning that
order follow:
Data concerning the Shenzhen Enterprises Order
Units ordered
10 units
Direct labor-hours
2 DLHs per unit
Selling price
$ 300 per unit
Direct materials
$ 180 per unit
Direct labor
$ 50 per unit
Requirement 1:
Prepare a report showing the first-stage allocations of overhead costs to the activity cost pools.
(Omit the "$" sign in your response.)
Wages and salaries
Other overhead
costs
Total cost
Order
Processing
$ 90000 (7%)
Total
100%
100%
During the year, Advanced Products completed one order for a new customer, Shenzhen
Enterprises. This customer did not order any other products during the year. Data concerning that
order follow:
Data concerning the Shenzhen Enterprises Order
Units ordered
10 units
Direct labor-hours
2 DLHs per unit
Selling price
$ 300 per unit
Direct materials
$ 180 per unit
Direct labor
$ 50 per unit
Direct Labor
Support
$ 120000 (7%)
Other
10%
40%
Customer
Support
$ 60000 (7%)
Other
$ 30000 (7%)
Requirement 1:
Prepare a report showing the first-stage allocations of overhead costs to the activity cost pools.
(Omit the "$" sign in your response.)
Direct
Labor
Support
$ 120000
30000
$ 150000
Totals
$ 300000 (7%)
30000 (7%)
10000 (7%)
20000 (7%)
40000 (7%)
100000 (7%)
$ 150000 (7%)
$ 100000 (7%)
$ 80000 (7%)
$ 70000 (7%)
$ 400000 (7%)
Wages and salaries
Other overhead costs
Total cost
Order
Customer
Processing
Support
$ 90000 $ 60000
10000
20000
$ 100000 $ 80000
Your response
Correct response
Requirement 2:
Compute the activity rates for the activity cost pools. (Round the direct labour support to 2
decimal places. Omit the "$" sign in your response.)
Requirement 2:
Compute the activity rates for the activity cost pools. (Round the direct labour support to 2
decimal places. Omit the "$" sign in your response.)
Activity Cost Pools
Supporting direct labor
Order processing
Customer support
Activity Rate
$ 7.5 (33%) per DLH
$ 250 (33%) per order
$ 400 (33%) per customer
Activity Cost Pools
Supporting direct labor
Order processing
Customer support
$
$
$
Activity Rate
7.5 per DLH
250 per order
400 per customer
Feedback:
Computation of activity rates:
Activity Cost Pools
Supporting direct labor
Order processing
Customer support
(a)
Total Cost
$ 150,000
$ 100,000
$ 80,000
(b)
Total Activity
20,000 DLHs
400 orders
200 customers
Your response
(a) ÷ (b)
Activity Rate
$ 7.50 per DLH
$ 250 per order
$ 400 per customer
Correct response
Other
$ 30000
40000
$ 70000
Totals
$ 300000
100000
$ 400000
Requirement 3:
Determine the overhead costs for the order from Shenzhen Enterprises, including customer support
costs. (Omit the "$" sign in your response.)
Activity Cost Pool
Supporting direct labor
Order processing
Customer support
Total
ABC Cost
$ 150 (25%)
250 (25%)
400 (25%)
$ 800 (25%)
Requirement 3:
Determine the overhead costs for the order from Shenzhen Enterprises, including customer support
costs. (Omit the "$" sign in your response.)
Activity Cost Pool
Supporting direct labor
Order processing
Customer support
Total
ABC
Cost
$ 150
250
400
$ 800
Feedback:
Computation of the overhead costs for the Shenzhen Enterprises order:
(a) x (b)
Activity Cost Pool
Supporting direct labor
Order processing
Customer support
Total
(a)
Activity Rate
$ 7.50 per DLH
250 per order
$ 400 per customer
(b)
Activity
20 DLHs*
1 order
1 customer
ABC
Cost
$ 150
250
400
$ 800
*2 DLHs per unit × 10 units = 20 DLHs
Your response
Correct response
Requirement 4:
Prepare a report showing the customer margin for Shenzhen Enterprises. (Enter all amounts as
postitive numbers. Omit the "$" sign in your response.)
Requirement 4:
Prepare a report showing the customer margin for Shenzhen Enterprises. (Enter all amounts as
postitive numbers. Omit the "$" sign in your response.)
Customer Margin-ABC Analysis
Sales (7%)
Costs:
Direct materials (7%)
$ 1800 (7%)
Direct labor (7%)
500 (7%)
Supporting direct labor overhead (7%)
150 (7%)
Order processing overhead (7%)
250 (7%)
Other (0%)
400 (7%)
Customer margin Negative (7%)
$ 3000 (7%)
3100 (7%)
$ 100 (7%)
Customer Margin-ABC Analysis
Sales
Costs:
Direct materials
$
Direct labor
Supporting direct labor overhead
Order processing overhead
Customer support overhead
Customer margin Negative
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E8_14_id28
E8_14_id28
E8_14_id30
E8_14_id30
E8_14_id32
E8_14_id32
E8_14_id34
E8_14_id34
$
3000
$
3100
100
1800
500
150
250
400
Total grade: 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 0.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 = 7% + 7% + 7% + 7% + 7% + 7% + 7% + 7% + 7% + 7% + 0% + 7% + 7% +
7% + 7%
Feedback:
Sales (10 units × $300 per unit) = $3,000
Direct materials ($180 per unit × 10 units) = $1,800
Direct labor ($50 per DLH × 10 DLH per unit) = $500
Question 20: Score 5/5
Your response
Correct response
Exercise 8-15 Calculating and Interpreting Activity-Based Costing Data [LO3, LO4]
Hiram's Lakeside is a popular restaurant located on Lake Washington in Seattle. The owner of the
restaurant has been trying to better understand costs at the restaurant and has hired a student intern
to conduct an activity-based costing study. The intern, in consultation with the owner, identified
three major activities and then completed the first-stage allocations of costs to the activity cost
pools. The results appear below.
Activity Cost Pool
Serving a party of diners
Serving a diner
Serving drinks
Activity Measure
Number of parties served
Number of diners served
Number of drinks ordered
Total
Cost
$ 33,000
$ 138,000
$ 24,000
Total Activity
6,000 parties
15,000 diners
10,000 drinks
The above costs include all of the costs of the restaurant except for organization-sustaining costs
such as rent, property taxes, and top-management salaries.
A group of diners who ask to sit at the same table are counted as a party. Some costs, such as
the costs of cleaning linen, are the same whether one person is at a table or the table is full. Other
costs, such as washing dishes, depend on the number of diners served.
Prior to the activity-based costing study, the owner knew very little about the costs of the
restaurant. She knew that the total cost for the month (including organization-sustaining costs) was
$240,000 and that 15,000 diners had been served. Therefore, the average cost per diner was $16.
Requirement 1:
According to the activity-based costing system, what is the total cost of serving each of the
following parties of diners? (Round your answers to 1 decimal place. Omit the "$" sign in your
response.)
Activity Cost Pools
Serving parties
Serving diners
Serving drinks
Activity Rate
$ 5.5 (17%) per party
$ 9.2 (17%) per diner
$ 2.4 (17%) per drink
A party of four diners who order three drinks in
total.
b. A party of two diners who do not order any drinks.
c. A lone diner who orders two drinks.
a.
(a)
(b)
Activity Cost Pool
Serving a party of diners
Serving a diner
Serving drinks
$ 49.5 (17%)
$ 23.9 (17%)
$ 19.5 (17%)
(a) ÷ (b)
Activity Measure
Number of parties served
Number of diners served
Number of drinks ordered
Total
Cost
$ 33,000
$ 138,000
$ 24,000
Total Activity
6,000 parties
15,000 diners
10,000 drinks
The above costs include all of the costs of the restaurant except for organization-sustaining costs
such as rent, property taxes, and top-management salaries.
A group of diners who ask to sit at the same table are counted as a party. Some costs, such as
the costs of cleaning linen, are the same whether one person is at a table or the table is full. Other
costs, such as washing dishes, depend on the number of diners served.
Prior to the activity-based costing study, the owner knew very little about the costs of the
restaurant. She knew that the total cost for the month (including organization-sustaining costs) was
$240,000 and that 15,000 diners had been served. Therefore, the average cost per diner was $16.
Requirement 1:
According to the activity-based costing system, what is the total cost of serving each of the
following parties of diners? (Round your answers to 1 decimal place. Omit the "$" sign in your
response.)
Activity Cost Pools
Serving parties
Serving diners
Serving drinks
Feedback:
1. The first step is to determine the activity rates:
Activity Cost Pools
Exercise 8-15 Calculating and Interpreting Activity-Based Costing Data [LO3, LO4]
Hiram's Lakeside is a popular restaurant located on Lake Washington in Seattle. The owner of the
restaurant has been trying to better understand costs at the restaurant and has hired a student intern
to conduct an activity-based costing study. The intern, in consultation with the owner, identified
three major activities and then completed the first-stage allocations of costs to the activity cost
pools. The results appear below.
$
$
$
Activity Rate
5.5 per party
9.2 per diner
2.4 per drink
a. A party of four diners who order three drinks in total.
b. A party of two diners who do not order any drinks.
c. A lone diner who orders two drinks.
$ 49.5
$ 23.9
$ 19.5
Total Cost Total Activity
Serving parties
$ 33,000
6,000 parties
Serving diners
$138,000
15,000 diners
Serving drinks
$ 24,000
10,000 drinks
Activity Rate
per
$ 5.50
party
per
$ 9.20
diner
per
$ 2.40
drink
According to the activity-based costing system, the cost of serving each of the parties can be
computed as follows:
a. Party of 4 persons who order a total of 3 drinks:
Activity Cost Pool
Serving parties
Serving diners
Serving drinks
(a)
Activity Rate
per
$ 5.50
party
per
$ 9.20
diner
per
$ 2.40
drink
(b)
(a) × (b)
Activity ABC Cost
1 party
$ 5.50
4 diners
36.80
3 drinks
7.20
Total
$ 49.50
b. Party of 2 persons who order no drinks:
Activity Cost Pool
Serving parties
Serving diners
Serving drinks
(a)
Activity Rate
per
$ 5.50
party
per
$ 9.20
diner
per
$ 2.40
drink
(b)
(a) × (b)
Activity ABC Cost
1 party
$ 5.50
2 diners
18.40
0 drinks
0
Total
$ 23.90
c. Party of 1 person who orders 2 drinks:
Activity Cost Pool
Serving parties
Serving diners
Serving drinks
(a)
Activity Rate
per
$ 5.50
party
per
$ 9.20
diner
per
$ 2.40
drink
(b)
(a) × (b)
Activity ABC Cost
1 party
$ 5.50
1 diners
9.20
2 drinks
4.80
Total
$ 19.50
Your response
Correct response
Requirement 2:
Convert the total costs you computed in (1) above to costs per diner. In other words, what is the
average cost per diner for serving each of the following parties? (Round your answers to 2
decimal places. Omit the "$" sign in your response.)
Requirement 2:
Convert the total costs you computed in (1) above to costs per diner. In other words, what is the
average cost per diner for serving each of the following parties? (Round your answers to 2
decimal places. Omit the "$" sign in your response.)
A party of four diners who order three drinks in
total.
A party of two diners who do not order any
b.
drinks.
a.
c.
A lone diner who orders two drinks.
per
diner
per
$ 11.95 (33%)
diner
per
$ 19.5 (33%)
diner
$ 12.38 (33%)
Feedback:
The average cost per diner for each party can be computed by dividing the total cost of the party by
the number of diners in the party as follows:
a. $49.50 ÷ 4 diners = $12.375 per diner
b. $23.90 ÷ 2 diners = $11.95 per diner
c. $19.50 ÷ 1 diner = $19.50 per diner
Requirement 3:
The activity-based costing system itself does not recognize all of the differences in diners' demands
on resources. State whether the statement is true or false.
Your Answer:
Choice Selected
True
False
a. A party of four diners who order three drinks in total.
b. A party of two diners who do not order any drinks.
c. A lone diner who orders two drinks.
$ 12.38 per diner
$ 11.95 per diner
$ 19.5 per diner