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Exerc Exercise ise 7-15 (30 minutes) 1. First-stage allocations of overhead costs to the activity cost pools:

Distribution of Resource Consumption Across Activity Cost Pools Supporting Order Customer Direct Labor Processing Support Other Wages and salaries.......... 40% 30% 20% 10% Other overhead costs....... 30% 10% 20% 40% Direct Labor Order Customer Support Processing Support Wages and salaries.......... $120,000 $ 90,000 $ 60,000 Other overhead costs....... 30,000 10,000 20,000 Total cost........................ $150,000 $100,000 $ 80,000

Other Totals $ 30,000 $300,000 40,000 100,000 $ 70,000 $400,000

Example: 40% of $300,000 is $120,000. 2. Computation of activity rates:

(a) (b) Activity Cost Pools Total Cost Total Activity Supporting direct labor..................... $150,000 20,000 DLHs Order processing...... $100,000 400 orders Customer support..... $80,000 200 customers

(a) ÷ (b) Activity Rate $7.50 per DLH $250 per order $400 per customer

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Exerc Exercise ise 7-15 (continued) 3. Computation of the overhead costs for the Shenzhen Enterprises order:

Activity Cost Pool Supporting direct labor................. Order processing. . Customer support Total....................

(a) Activity Rate

(b) Activity

(a) × (b) ABC Cost

$7.50 per DLH 20 DLHs* $250 per order 1 order $400 per customer 1 customer

$150 250 400 $800

*2 DLHs per unit × 10 units = 20 DLHs. 4. The customer margin for Shenzhen Enterprises is computed as follows:

Customer Margin—ABC Analysis Sales (10 units × $300 per unit)..................... Costs: Direct materials ($180 per unit × 10 units). . . Direct labor ($50 per unit × 10 units)........... Support direct labor overhead (see part 3 above)..................................................... Order processing overhead (see part 3 above)..................................................... Customer support overhead (see part 3 above)..................................................... Customer margin...........................................

$3,000 $1,800 500 150 250 400

3,100 $ (100)

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Problem 7-20 (45 minutes) 1. The first-stage allocation of costs to activity cost pools appears below:

Wages........................................ Cleaning supplies........................ Cleaning equipment depreciation. Vehicle expenses......................... Office expenses........................... President’s compensation.............

Distribution of Resource Consumption Across Activity Cost Pools Cleanin g Travel Job Carpets to Jobs Support Other 70% 20% 0% 10% 100% 0% 0% 0% 80% 0% 0% 20% 0% 60% 0% 40% 0% 0% 45% 55% 0% 0% 40% 60%

Wages......................................... Cleaning supplies......................... Cleaning equipment depreciation. . Vehicle expenses.......................... Office expenses............................ President’s compensation.............. Total cost.....................................

Cleaning Travel Job Carpets to Jobs Support Other Total $105,000 $30,000 $ 0 $ 15,000 $150,000 40,000 0 0 0 40,000 16,000 0 0 4,000 20,000 0 48,000 0 32,000 80,000 0 0 27,000 33,000 60,000 0 0 32,000 48,000 80,000 $161,000 $78,000 $59,000 $132,000 $430,000

Example: 70% of $150,000 = $105,000 Other entries in the table are determined in a similar manner. © The McGraw-Hill Companies, Inc., 2015. All rights reserved. Solutions Manual, Chapter 7

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Problem 7-20 (continued) 2. The activity rates are computed as follows:

(a) (b) Activity Cost Pool Total Cost Total Activity Cleaning carpets... $161,000 20,000 hundred square feet Travel to jobs....... $78,000 60,000 miles Job support.......... $59,000 2,000 jobs

(a) ÷ (b) Activity Rate $8.05 per hundred square feet $1.30 per mile $29.50 per job

3. The cost for the Flying N Ranch job is computed as follows:

(a) (b) Activity Cost Pool Activity Rate Activity Cleaning carpets... $8.05 per hundred 5 hundred square feet square feet Travel to jobs....... $1.30 per mile 75 miles Job support.......... $29.50 per job 1 job Total....................

(a) × (b) ABC Cost $ 40.25 97.50 29.50 $167.25

4. The margin earned on the job can be easily computed by using the costs calculated in part (3) above. Sales......................... $140.00 Costs: Cleaning carpets..... $40.25 Travel to jobs.......... 97.50 Job support............ 29.50 167.25 Margin......................

$(27.25)

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© The McGraw-Hill Companies, Inc., 2015. All rights reserved. Solutions Manual, Chapter 7

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