Man. Acct. Week 3 - Test examples PDF

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Summary

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 fo...

Description

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

$

$

1,160,000 590,000 470,000 500,000 360,000 660,000 3,740,000

The distribution of resource consumption across the activity cost pools is as follows: Pickup and Customer Travel Delivery Service OtherTotals Driver and guard wages 50% 35% 10% 5% 100% Vehicle operating expense 70% 5% 0% 25% 100% Vehicle depreciation 60% 15% 0% 25% 100% Customer representative salaries and expenses 0% 0% 90% 10% 100% Office expenses 0% 20% 30% 50% 100% Administrative expenses 0% 5% 60% 35% 100% Required: Complete the first stage allocations of costs to activity cost pools.

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

Activity Measure

Caring for lawn

Square feet of lawn

Caring for garden beds–low maintenance

Square feet of low maintenance beds

Caring for garden beds–high maintenance

Square feet of high maintenance beds

Travel to jobs

Miles

Customer billing and service

Number of customers

The company already has completed its first stage allocations of costs and has summarized its annual costs and activity as follows:

Activity Cost Pool

Estimated Overhead Cost

Expected Activity

Caring for lawn

$ 78,600

180,000

square feet of lawn

Caring for garden beds–low maintenance

$ 31,200

29,000

square feet of low maintenance beds

Caring for garden beds–high maintenance

$ 63,940

23,000

square feet of high maintenance beds

Travel to jobs

$ 4,600

20,000

miles

Customer billing and service

$ 9,500

38

customers

Fogerty Company makes two products—titanium Hubs and Sprockets. Data regarding the two products follow: Direct Labor-Hours per Unit

Annual Production

0.80

18,000 units

Sprockets 0.40

46,000 units

Hubs

Additional information about the company follows: a.

Hubs require $21 in direct materials per unit, and Sprockets require $19.

b.

The direct labor wage rate is $11 per hour.

c.

Hubs require special equipment and are more complex to manufacture than Sprockets.

d.

The ABC system has the following activity cost pools: Estimated

Activity

Activity Cost Pool (Activity Measure)

Overhead CostHubs SprocketsTotal

Machine setups (number of setups)

$ 23,760

120

Special processing (machine-hours)

$ 180,000

4,000 0

4,000

NA

NA

General factory (organization-sustaining) $ 327,200

96

NA

216

Required: 1. Compute the activity rate for each activity cost pool. 2. Determine the unit product cost of each product according to the ABC system. Activity Cost Pool

(a) Activity Rate(b)

(a) × (b)

Activity Machine setups $110 per setup120

ABC Cost

setups$13,200

Special processing$45 per MH 4,000 MHs

180,000

Total

$193,200

Sprockets: Activity Cost Pool

(a) Activity Rate

(b) Activity

(a) × (b) ABC Cost

Machine setups $110 per setup96 setups$10,560 Special processing$45 per MH 0 MHs Total

Direct materials

0 $10,560

Hubs

Sprockets

21.0 $ 0

$19.00

Direct labor: $11.00 per DLH × 0.80 DLHs per unit 8.80 $11.00 per DLH × 0.40 DLHs per unit

4.40

Overhead: $193,200 ÷ 18,000 units

10.7 3

$10,560 ÷ 46,000 units Unit cost

.23 40.5 $ 3

$23.63

The answer to this requirement is derived in a two-step process. The first step is to calculate the total overhead cost assigned to Hubs ($193,200) and Sprockets ($10,560). The second step is to calculate the unit product cost for Hubs ($40.53) and Sprockets ($23.63)....