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Traditional and Activity based costing

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Exercise 3-26
Health Foods Company produces and sells canned vegetable juice. The ingredients are first combined in the blending department and then packed in gallon cans in the canning department. The following information pertains to the blending department for January.
Item Price per Gallon Gallons
Ingredient A $0.40 10,000
Ingredient B $0.60 20,000
Vegetable Juice 27,000
Material Loss 3,000
Conversion costs for the blending department are $0.55 per gallon for January. Determine the cost per gallon of blended vegetable juice before canning.
Answer:
Ingredient A $4,000
Ingredient B $12000
Conversion Costs $16500
Total Costs $32500
Number of gallons of blended vegetable juice 30000
Cost per gallon of blended vegetable juice $1.55
Problem 3-40
Boston Box Company has two service departments, maintenance and grounds, and two production departments, fabricating and assembly. Management has decided to allocate maintenance costs on the basis of machine hours used by the departments and grounds costs on the basis of square feet occupied by the departments. The following data appear in the company's records for last year.
Item Maintenance Grounds Fabricating Assembly
Machine Hours 0 1,500 12,000 6,000
Square Feet 3000 0 15,000 20,000
Support Costs $18,000 $14,000 $45,000 $25,000
a. Direct Method
(a) Allocate service department costs to the production departments using the direct method.
Answer:
Service Departments Production Departments
Maintenance Grounds Fabricating Assembly
Directly identified Costs $18,000 $14,000 $45,000 $25,000
Allocation of Maintenance Dept. Costs
Allocation of Grounds Dept. Costs
Total
b. Sequential Method
(b) Allocate service department costs to the production departments using the sequential method, assuming that the costs of the service department incurring the greatest cost are allocated first.
Answer:
Service Departments Production Departments
Maintenance Grounds Fabricating Assembly
Directly identified Costs $18,000 $14,000 $45,000 $25,000
Allocation of Maintenance Dept. Costs
Allocation of Grounds Dept. Costs
Total

Exercise 4-30
Tetra Company's cost system assigns marketing, distribution, and selling expenses to customers using a rate of 33% of sales revenue. The new controller has discovered that Tetra's customers differ greatly in their ordering patterns and interaction with Tetra's cost system does not accurately assign marketing, based costing system to assign these expenses to customers. She then identified the following marketing distribution, and selling costs for two customers, Ace and Beam:
Ace Beam
Sales representative travel $9,000 $42,000
Service customers 15,000 110,000
Handle customer orders 1,000 12,000
Ship to customers 24,000 72,000
The following additional information is available:
Ace Beam
Sales $430,000 $350,000
Cost of Goods Sold 220,000 155,000

a. Determine Operating Profit
(a) Using the current cost system's approach of assigning marketing, distribution, and selling expense to customers using a rate of 33% of sales revenue, determine the operating profit associated with Ace and Beam.
Answer:
ACE BEAM
Sales $430,000 $350,000
Cost of Goods Sold 220,000
Gross Margin 210000
Marketing, distribution, and selling expenses @ 33% of sales 141900
Operating profit 68100
Operating profit / Sales 15.84%

b. Determine operating profit using activity based profit
(b) Using the activity-based costing information provided, determine the operating profit associated with Ace and with Beam.
Answer:
ACE BEAM
Sales $430,000 $350,000
Cost of Goods Sold 220,000
Gross Margin 210000
Marketing, Distribution, and Selling Expenses:
Sales representative travel 9000
Service customers 15000
Handle customer orders 1000
Ship to Customers 24000
Total activity expenses 49000
Operating profit 161000
Operating profit / Sales 37.44%
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Solution Summary

Word file contains solution for different accounting problems related with allocation of cost, calculation of total cost and profit by using traditional method and Activity based costing.

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