Chapter 4 Solutions
Problem 4-24
(a) Support Cost Driver Rate:
$5,000,000
$2,500,000 (Direct Labor $)
= 2 times Direct Labor Cost
(b) Consulting Engagement Cost:
Labor Cost
Support Cost
(2 * Labor Cost)
$20,000
Total Cost
$60,000
40,000
Problem 4-27
Ingredient A: ($0.40 * 10,000)
Ingredient B: ($0.60 * 20,000)
$4,000
12,000
$16,000
Conversion Costs: ($0.55 * 30,000)
$16,500
Total Costs
Number of gallons of blended vegetable juice
Cost per gallon of blended vegetable juice
$32,500
27,000
$ 1.204
Problem 4-31 (b)
(b) Determine the cost per monitor?
Direct Materials:
Part A327
Part B149
$ 60
120
$180
Direct Labor:
Assembly (6 hrs * $10)
Inspection (1 hr * $12)
60
12
72
Manufacturing Support:
($5 * 7 DL Hrs)
Total Cost per Monitor
35
$287
1
Chapter 4 Solutions
Problem 4-33
(a) Plantwide Cost Driver Rate:
$120,000 + $160,000
(8,000 + 12,000) DL Hours
$280,000
20,000 DLH
= $14 per Direct Labor Hour
Job Cost Sheet: Job #691
Direct Materials:
Milling
Assembly
Totals
$800
50
$850
Direct Labor:
Milling
Assembly
Totals
$100
600
$700
Manufacturing Support:
50 DLH * $14 per DLH
Total Cost
700
$2,250
(b)
Milling Cost Driver Rate:
$120,000
12,000 Machine Hours
= $10 per Machine Hour
Assembly Cost Driver Rate:
$160,000
12,000 DL Hours
= $13.33 per Direct Labor Hour
2
Chapter 4 Solutions
Job Cost Sheet: Job #691
Direct Materials:
Milling
Assembly
Totals
$800
50
$850
Direct Labor:
Milling
Assembly
Totals
$100
600
$700
Manufacturing Support:
Milling: 18 MH * $10 per MH
Assembly: 40 DLH * $13.33 per DLH
Totals
$180
533
$713
Total Cost
$2,263
(c )
Part A
$2,250.00
562.50
$2,812.50
Manufacturing cost
25% Markup
Bid price
Part B
$2,263.00
565.75
$2,828.75
(d) The company may favor the method in (b) if support activity costs in the milling
department have a cause-and-effect relationship with machine hours, while those in the
assembly department have a cause-and-effect relationship with direct labor costs. In
this case, the computed total manufacturing cost in part (a) is of similar magnitude to
the cost in part (b), and therefore, the bid prices are also of similar magnitude. Given
this result, one might be inclined to use the simpler method in part (a) rather than the
more accurate but more complex method in part (b). However, comparisons across
different products may produce greater differences in computed costs and bid prices.
Problem 4-39
(a)
Cutting
Grinding
Drilling
Total
Support Cost
$42,000
$192,000
$228,000
$462,000
5,000
8,000
12,000
25,000
Direct Labor Hours
3
Chapter 4 Solutions
Plantwide Cost Driver Rate:
$462,000
25,000 DL Hours
= $18.48 per Direct Labor Hour
Support Cost Applied to Job ST101:
= $18.48 * (2,000 + 2,500 + 3,000)
= $18.48 * 7,500
= $138,600
(b)
Cutting Cost Driver Rate:
$42,000
80,000 MH
= $0.525 per Machine Hour
Grinding Cost Driver Rate:
$192,000
8,000 DL Hours
= $24 per Direct Labor Hour
Drilling Cost Driver Rate:
$228,000
12,000 DL Hours
= $19 per Direct Labor Hour
Support Cost Applied to Job ST101:
Dept
Cutting
Grinding
Drilling
Totals
Rate
$0.525
$24.00
$19.00
Units of Base Used
20,000 MH
2,500 DLH
3,000 DLH
4
Overhead Cost
$ 10,500
60,000
57,000
$127,500
Chapter 4 Solutions
( c) The Company may favor departmental support cost driver rates if support activity
costs in the cutting department have a cause-and-effect relationship with machine
hours, while those in the grinding and drilling departments have a cause-and-effect
relationship with direct labor hours. The company may use a plantwide cost driver rate
because it is simpler than using multiple departmental rates, though the departmental
rate method is potentially more accurate.
Process-Costing Example
Neptune Company produces customized sailboats.
Its plant has 3 production
departments: Cutting, Machining, and Assembly. Estimated manufacturing support
costs and direct labor costs for each department for 2001 are as follows:
Manufacturing support cost
Direct labor hours
Cutting
$540,000
30,000
Machining
$800,000
20,000
Assembly
$100,000
40,000
In May 2001, the company received an invitation from Duluth Sailing Company to bid for
an order of 5 sailboats that must be delivered by the end of December 2001. This job
would require direct manufacturing costs in the three departments as follows:
Direct material cost
Direct labor hours
Cutting
$12,000
6,500
Machining
$900
1,700
Assembly
$5,600
13,000
Assume that a single, plant-wide manufacturing support cost driver based on direct
labor hours is used. Determine the plant-wide support cost rate and manufacturing
support costs (overhead) applied to the Duluth job.
Normal Level of Manufacturing Support Costs
Normal Level of Activity (DL Hours)
$540,000 + $800,000 + $100,000
30,000 + 20,000 + 40,000
$1,440,000
90,000
$16 / DL Hour
Mfg. Support Costs Applied = $16 * 21,200 DL Hours (6,500 + 1,700 + 13,000)
=$339,200
5
Chapter 4 Solutions
Process-Costing Example – Continued:
Assume that instead of a plant-wide manufacturing support cost rate, Neptune
Company is using departmental manufacturing support cost rates based on direct labor
hours.
Determine the manufacturing support cost rate for each of the three
departments and support costs applied to Duluth job.
Manufacturing support cost
Direct labor hours
Cost Driver Rate
Direct labor hours
Cost driver rate
Support Costs Applied
Cutting
$540,000
30,000
$18
Machining
$800,000
20,000
$40
Cutting Machining
6,500
1,700
$18
$40
$117,000 $68,000
Total Support Costs Applied = $217,500
6
Assembly
$100,000
40,000
$2.50
Assembly
13,000
$2.50
$32,500