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    Cost Accounting

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    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.
    Various individuals manage the parts inventories
    __________

    b.
    A clerk in the factory issues purchase orders for a job
    __________

    c.
    The personnel department trains new production workers
    __________

    d.
    The factory's general manager meets with other department heads such as marketing to coordinate plans
    __________

    e.
    Direct labor workers assemble products
    __________

    f.
    Engineers design new products
    __________

    g.
    The materials storekeeper issues raw materials to be used in jobs
    __________

    h.
    The maintenance department performs periodic preventative maintenance on general-use equipment
    __________

    --------------------------------------------------------------------------------

    Question 2: (9 points)
    Exercise 8-2 First-Stage Allocation [LO2]

    VaultOnWheels Corporation operates a fleet of armored cars that make scheduled pickups and deliveries for its customers in the Phoenix 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. The following costs will be assigned using the activity-based costing system:

    Driver and guard wages
    $
    840,000

    Vehicle operating expense

    270,000

    Vehicle depreciation

    150,000

    Customer representative salaries and expenses

    180,000

    Office expenses

    40,000

    Administrative expenses

    340,000

    Total cost
    $
    1,820,000

    --------------------------------------------------------------------------------

    The distribution of resource consumption across the activity cost pools is as follows:

    Travel
    Pickup and Delivery
    Customer Service
    Other
    Totals

    Driver and guard wages

    40
    %

    45
    %

    10
    %

    5
    %

    100
    %

    Vehicle operating expense

    75
    %

    5
    %

    0
    %

    20
    %

    100
    %

    Vehicle depreciation

    70
    %

    10
    %

    0
    %

    20
    %

    100
    %

    Customer representative salaries and expenses

    0
    %

    0
    %

    85
    %

    15
    %

    100
    %

    Office expenses

    0
    %

    25
    %

    35
    %

    40
    %

    100
    %

    Administrative expenses

    0
    %

    5
    %

    55
    %

    40
    %

    100
    %

    --------------------------------------------------------------------------------

    Required:

    Carry out 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.)

    Travel
    Pickup and Delivery
    Customer Service
    Others
    Totals

    Driver and guard wages
    $
    ____________
    $
    ____________
    $
    ____________
    $
    ____________
    $
    ____________

    Vehicle operating expense

    ____________

    ____________

    ____________

    ____________

    ____________

    Vehicle depreciation

    ____________

    ____________

    ____________

    ____________

    ____________

    Customer representative salaries and expenses

    ____________

    ____________

    ____________

    ____________

    ____________

    Office expenses

    ____________

    ____________

    ____________

    ____________

    ____________

    Administrative expenses

    ____________

    ____________

    ____________

    ____________

    ____________

    Total cost
    $
    ____________
    $
    ____________
    $
    ____________
    $
    ____________
    $
    ____________

    --------------------------------------------------------------------------------

    --------------------------------------------------------------------------------

    Question 3: (9 points)

    Exercise 8-3 Compute Activity Rates [LO3]

    As You Like It 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 cost 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 has already carried out its first-stage allocations of costs. The company's annual costs and activities are summarized as follows:

    Activity cost Pool
    Estimated
    Overhead
    Cost
    Expected Activity

    Caring for lawn
    $
    77,400
    180,000
    square feet of lawn

    Caring for garden beds-low maintenance
    $
    30,000
    24,000
    square feet of low-maintenance beds

    Caring for garden beds high maintenance
    $
    57,600
    18,000
    square feet of high-maintenance beds

    Travel to jobs
    $
    4,200
    15,000
    miles

    Customer billing and service
    $
    8,700
    30
    customers

    --------------------------------------------------------------------------------

    Required:

    Compute the activity rate for each of the activity cost pools. (Omit the "$" sign in your response. Round your answers to 2 decimal places.)

    Activity Cost Pool
    Activity Rate

    Caring for lawn
    $
    ____________
    per square foot of lawn

    Caring for garden beds- low maintenance
    $
    ____________
    per square foot of low maintenance beds

    Caring for garden beds- high maintenance
    $
    ____________
    per square foot of high maintenance beds

    Travel to jobs
    $
    ____________
    per mile

    Customer billing and service
    $
    ____________
    per customer

    --------------------------------------------------------------------------------

    --------------------------------------------------------------------------------

    Question 4: (10 points)
    Exercise 8-5 Product and Customer Profitability Analysis [LO4, LO5]

    Updraft Systems, 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
    Activity Rate

    Supporting manufacturing
    $
    18
    per direct labor-hour

    Order processing
    $
    192
    per order

    Custom designing
    $
    261
    per custom design

    Customer service
    $
    426
    per customer

    --------------------------------------------------------------------------------

    Management would like an analysis of the profitability of a particular customer, Eagle Wings, which has ordered the following products over the last 12 months:

    Standard
    Model
    Custom
    Design

    Number of gliders

    10

    2

    Number of orders

    1

    2

    Number of custom designs

    0

    2

    Direct labor-hours per glider

    28.5

    32.0

    Selling price per glider
    $
    1,650
    $
    2,300

    Direct materials cost per glider
    $
    462
    $
    576

    --------------------------------------------------------------------------------

    The company's direct labor rate is $19 per hour.

    Required:

    Using the company's activity-based costing system, compute the customer margin of Eagle Wings. (Omit the "$" sign in your response.)

    Customer margin
    $
    ____________

    --------------------------------------------------------------------------------

    Question 5: (9 points)

    Exercise 8-6 (Appendix 8A) Preparing an Action Analysis Report [LO6]

    Pro Golf Corporation produces private label golf clubs for pro shops throughout North America. The company uses activity-based costing to evaluate the profitability of serving its customers. This analysis is based on categorizing the company's costs as follows, using the ease of adjustment color coding scheme described in Appendix 8A:

    Ease of
    Adjustment Code

    Direct materials
    Green

    Direct labor
    Yellow

    Indirect labor
    Yellow

    Factory equipment depreciation
    Red

    Factory administration
    Red

    Selling and administrative wages and salaries
    Red

    Selling and administrative depreciation
    Red

    Marketing expenses
    Yellow

    --------------------------------------------------------------------------------

    Management would like to evaluate the profitability of a particular customer-the Peregrine Golf Club of Eagle, Colorado. Over the last 12 months this customer submitted one order for 80 golf clubs that had to be produced in two batches due to differences in product labeling requested by the customer. Summary data concerning the order appear below:

    Number of clubs

    80.00

    Number of orders

    1.00

    Number of batches

    2.00

    Direct labor-hours per club

    0.30

    Selling price per club
    $
    48.00

    Direct materials cost per club
    $
    25.40

    Direct labor rate per hour
    $
    21.50

    --------------------------------------------------------------------------------

    A cost analyst working in the controller's office at the company has already produced the action analysis cost matrix for the Peregrine Golf Club that follows:

    Action Analysis Cost Matrix for Peregrine Golf Club

    Activity Cost Pools

    Volume
    Batch Processing
    Order Processing
    Customer Service

    Activity
    24

    direct labor-hours
    2

    batches
    1

    order
    1

    customer
    Total

    Manufacturing overhead:

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    https://brainmass.com/business/accounting/cost-accounting-252889

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    Solution Summary

    The solution explains various questions in cost accounting relating to unit, batch, product, cost pools, ABC and first-stage allocations

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