Week 4 Problem 4
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School
University of Nevada, Las Vegas *
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Course
474
Subject
Industrial Engineering
Date
Dec 6, 2023
Type
docx
Pages
2
Uploaded by AgentRookMaster2778
Data
table
Activity
Cost
Pool
Activity
Measure
Total
Activity
for
the
Year
Estimating
jobs
Number
of
job
estimates
125
estimates
Lawn
care
Number
of
direct
labor-hours
10,000
direct
labor-hours
Landscape
design
Number
of
design
hours
125
design
hours
Other
Facility-sustaining
costs
that are not
allocated
to
jobs
Not
applicable
Carter
estimates
that
Home
Garden
USA's
costs
are
distributed
to
the
activity-cost
pools
as
follows:
Estimating
Landscape
Jobs
Lawn
Care
Design
Other
Total
Wages
and
salaries
5%
65%
10%
20%
100%
Depreciation
20%
55%
5%
20%
100%
Supplies
0%
100%
0%
0%
100%
Other
overhead
20%
55%
10%
15%
100%
Sunset
Office
Park,
a
new
development
in
a
nearby
community,
has
contacted
Home
Garden
USA
to
provide
an
estimate
on
landscape
design
and
annual
lawn
maintenance.
The
job
is
estimated
to
require
a
single
landscape
design
requiring
40
design
hours
in
total
and
125
direct
labor-hours
annually.
Home
Garden
USA
has
a
policy
of
pricing
estimates
at
150%
of
cost.
Output
unit-level
costs
are
related
to
the
number
of
units.
The
cost
is
required
for
each
unit
produced.
Batch-level
costs
are
related
to
a
group
of
units
of
the
product.
For
example,
setup
costs
are
done
for
a
group
of
units.
Product-sustaining
costs
are
costs
used
to
support
individual
products
regardiess
of
the
number
of
units
or
batches
produced.
Facility-sustaining
costs
are
costs
that
can
not
be
traced
to
individual
products
but
support
the
company
as
a
whole
Requirement
1.
Allocate
Home
Garden
USA's
costs
to
the
activity-cost
pools
and
determine
the
activity
rate
for
each
pool.
Begin
by
determining
the
amount
of
the
cost-pool
of
estimating
jobs
with
the
wages
and
salaries
costs
Total
wages
Allocation
Amount
allocated
to
andsalaries
x
percentage
=
wages
and
salaries
$
205000
x
5%
=
§
10,250
Now
that
you
understand
how
to
allocate
the
annual
costs
to
each
activity-cost
pool,
go
ahead
and
complete
the
below
schedule.
The
totals
of
the
costs
have been
input
for
your
assistance.
(Enter
zero
in
any
cell
if
no
amount
should
be
allocated
to
the
activity-cost
pool.)
Estimating
Lawn
Landscape
jobs
care
design
Other
Total
Wages
and
salaries
$
10250
$
133,250
§
20,500
§
41,000
§
205000
Depreciation
12,000
33,000
3,000
12,000
60,000
Supplies
0
95,000
0
0
95,000
Other
overhead
90,600
249,150
45,300
67,950
453,000
s
112,850
$
510,400
$
68800
§
120950
§
813,000
Total
Now
use
the
formula
below
to
determine
the
cost
driver
activity
rates
for
each
pool.
(Abbreviation
used:
DLH
=
Direct
labor-hour.
Round
the
answers
to
the
nearest
cent,
"X
XX")
Cost
+
Total
quantity
of
cost
driver
=
Cost
driver
rate
Estimating
jobs
$
112,850
-
125
=
$§
90280
per
estimate
Lawn
care
$
510,400
+
10,000
=
$
51.04
per
DLH
Landscape
design
$
68,300
-
125
=
§
55040
per
design
hour
Requirement
2.
Estimate
total
cost
for
the
Sunset
Office
Park
job.
How
much
would
Home
Garden
USA
bid
to
perform
the
job?
ABC
refines
a
costing
system
by
identifying
individual
activities
as the
fundamental
cost
objects.
An
activity
is
an
event,
task,
or
unit
of
work
with
a
specified
purpose
-
for
example,
designing
products,
setting
up
machines,
operating
machines,
and
distributing
products.
In
this
example
we
have
identified
four
activities:
setup,
shipping,
design,
and
plant
utilities
and
administration.
Each
activity
has
been
assigned
a
cost
and
we
were
given
the
cost-allocation
bases.
There
is
a
seven-step
approach
to
refining
a
cost
system. The
first
five
steps
are
now
complete
Now
we
can
complete
step
6
(compute
the
indirect
costs
allocated
to
the
product)
and
step
7
(compute
the
total
costs
of
the
product)
of
the
activity-based
cost
process.
Refer
to
the
information
given
to
you
to
determine
the
quantity
of
the
cost
drivers
used.
Quantity
of
cost
driver
X
Cost
driver
rate
=
Total
amounts
Estimating
jobs
1‘
x
$
902.80
per
estimate
=
$
902
80‘
Lawn
care
125
x
¢
51.04
per
DLH
=
$
6,380
00‘
Landscape
design
40
x
s
550.40
per
design
hour
=
&
22,016.00
Total
costs
$
2929880
Markup
multiplier
150
%
Bid
estimate
50
Home
Garaen
USA
Did
to
perform
the
Job”
WhiCh
cost
driver
do
you
preter
for
the
Landscape
Uesign
activity?
wny?/
Before
we
can
answer
this
question,
we
must
re-determine
a
cost
driver
rate
for
the
landscape
design
activity.
We
are
told
that
Home
Garden
USA
allocated
costs
of
the
Landscape
Design
activity
based
on the
number
of
landscape
designs
rather
than
the
number
of
landscape
design-hours.
Go
ahead
and
calculate
the
new
cost
driver
rate.
(Round
the
answers
to
the
nearest
cent,
"X
XX".)
Cost
Landscape
design
$
68,800
Total
quantity
of
cost
driver
=
Cost
driver
rate
~
N
34
=
$
202353
per
design
Now
we
can
calculate
the
new
bid
estimate
using
the
number
of
landscape
designs
as the
cost
driver.
Complete
the
table
below.
Amounts
previously
determined
have
been
entered
for
you.
Quantity
of
cost
driver
~
x
Cost
driver
rate
=
Total
amounts
Estimating
jobs
1x
8
902.80
per
estimate
=3
902.80
Lawn
care
125
x
§
51.04
per
DLH
=3
6,380.00
Landscape
design
1x8
2,023.53
per
design
=
8
202353
Total
costs
$
9,306.33
Markup
multiplier
150
%
Bid
estimate
i&
Which
cost
driver
do
you
prefer
for
the
Landscape
Design
activity?
Why?
Compare
the
bid
estimate
using
the
number
of
landscape
designs
as the
cost
driver
to
the
bid
estimate
using
landscape
design-hours.
Consider
which
cost
driver
most
likely
produces
a
more
accurate
measure
of
the
costs
for
a
particular
job.
Requirement
4.
Sunset
Office
Park asks
Home
Garden
USA
to
give
an
estimate
for
providing
its
services
for
a
2-year
period.
What
are
the
advantages
and
disadvantages
for
Home
Garden
USA
to
provide
a
2-year
estimate?
Because
the
landscape
design
and
estimating
costs
are
only
incurred
once
for
the
entire
job,
bidding
on
a
2
year
period
allows
Home
Garden
USA
to
be
more
price
competitive.
However,
after
submitting
an
estimate
for
2
years,
Home
Garden
USA
would
be
locked
into
the
same
price,
regardless
of
cost
increases.
Which
cost
driver
do
you
preter
for
the
Landscape
Design
activity?
Why??
While
the
Yancy
Office
park
landscape
design
is
only
one
of
32
performed
by
Home
Lawncare
USA,
it
accounts
for
more
landscape
design-hours,
making
it
more"
complex
than
the
average
design.
Using
the
number
of
landscape
designs
|
as
the
cost
driver
results
in
a
bid
estimate
that
is
too
low.
Using
the
number
of
landscape
design-hours
is
a
more
accurate
measure
of
Home
Lawncare
USA's
costs
for
each
job
because
it
distinguishes
the
costs
between
simple
and
complex
landscape
designs.
Requirement
4.
Yancy
Office
Park asks
Home
Lawncare
USA
to
give
an
estimate
for
providing
its
services
for
a
2-year
period.
What
are the
advantages
and
disadvantages
for
Home
Lawncare
USA
to
provide
a
2-year
estimate?
Because
the
landscape
design
and
estimating
costs
are
only
incurred
once
for
the
entire
job,
bidding
on
a
2
year
period
allows
Home
Lawncare
USA
to
be
more
price
competitive.
However,
after
submitting
an
estimate
for
2
years,
Home
Lawncare
USA
would
be
locked
into
the
same
price,
regardless
of
cost
increases.
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