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# Activity Based Cost Accounting & CVP Excercise

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Vid-saver, Inc., has five activity cost pools and two products (a budget tape rewinder and a deluxe tape rewinder). Information is presented below:

Activity Cost Cost Estimated Cost Driver by Product

Ordering & Receiving Orders \$110,000 600 400
Machine Setup Setup \$275,000 500 400
Machining Machine Hours \$1,500,000 150,000 100,000
Assembly Parts \$1,200,000 1,200,000 800,000
Inspection Inspections \$300,000 550 450

Instructions:
Compute the overhead cost per unit for each product. Production is 600,000 units of Budget and 300,000 units of Deluxe. Round your answer to the nearest cent.

Solution Template

Ordering & Receiving \$110,000 order
Machine Setup \$275,000 setup
Machining \$1,500,000 machine hr
Assembly \$1,200,000 parts
Inspection \$300,000 inspections

Activity Cost Budget
Cost
Pool Cost Driver Rate Assigned

Ordering & Receiving \$-
Machine Setup \$-
Machining \$-
Assembly \$-
Inspection \$-

Number of Units
Price per unit #DIV/0!

Actvity Cost Deluxe
Cost
Pool Cost Driver Rate Assigned

Ordering & Receiving \$-
Machine Setup \$-
Machining \$-
Assembly \$-
Inspection \$-

Number of Units
Price per unit #VALUE!

Exercise B Complete the following CVP Exercise 2.5 points

Sam Company makes 2 products, footballs and baseballs. Additional information follows:
Footballs Baseballs
Units 4,000 2,500
Sales \$60,000 \$25,000
Variable Costs \$36,000 \$7,000
Fixed Costs \$9,000 \$9,000
Net Income \$15,000 \$9,000

Profit per Unit 3.75 3.60

Instructions: If Sam has unlimited demand for both products, which product should Sam tell his sales
people to emphasize?

Solution template:

Contribution Margin per unit:
Footballs
Baseballs

Sam should tell his sales people to sell more due to

Exercise C: Make or buy decision - Incremental Analysis Exercise 2.5 points

Hernandex, Inc., manufactures 3 models of picture frames for a total of 5,000 frames per year.
The unit cost to produce a metal frame follows:

Direct Materials \$8.00
Direct Labor \$6.00
Total \$21.00

A local company has offered to supply Hernandex the 5,000 metal frames it needs for \$16 each.
Instructions: Create an incremental analysis for the make or buy decision.

Solution Template: (Note in dollars, not price per unit)
Incremental savings:
Direct materials savings
Direct labor savings
Fixed overhead savings - avoidable portion

Exercise D: Complete the following Pricing Decision Exercise 2.5 Points

Tree Top Company is in the process of setting a selling price for its newest model stunt kite, the
looper. The controller of Tree Top estimates variable cost per unit for the new model to be as
follows:
Direct materials \$15.00
Direct labor \$13.00
Variable selling and administrative expenses \$5.00
\$37.00

In addition, Tree Top anticipates incurring the following fixed cost per unit at a budgeted sales
volume of 20,000 units:
Total Cost Budget Cost
Cost Volume per unit
Fixed manufacturing overhead \$240,000 20,000 \$12.00
Fixed selling and administrative expenses \$260,000 20,000 \$13.00
Fixed cost per unit \$25.00

Tree Top uses cost-plus pricing and would like to earn a 12% return on its investment (ROI)
of \$250,000.

Instructions:
Compute the selling price that would provide Tree Top a 12% ROI.

Solution Template: Unit Price

Variable cost per unit
Fixed cost per unit
Desired ROI per unit
Target Selling price

Desired ROI per unit
( * .12% / 20,000 units = )