Comprehensive Activity-Based Costing Exercise [LO7–2, LO7–3, LO7–4, LO7–5] A dvanced Products Corporation has supplied the following data from its activity-based costing system: Overhead Costs Wages and salaries . . . . . . . . . . . . . $300,000 Other overhead costs . . . . . . . . . . . 100,000 Total overhead costs . . . . . . . . . . . . $400,000 Activity Cost Pool Activity Measure Total Activity for the Year Supporting direct labor . . . . . . . . . . . . . Number of direct labor-hours 20,000 DLHs Order processing . . . . . . . . . . . . . . . . . . Number of customer orders 400 orders Customer support . . . . . . . . . . . . . . . . . Number of customers 200 customers Other . . . . . . . . . . . . . . . . . . . . . . . . . . . This is an organization sustaining activity Not applicable Distribution of Resource Consumption Across Activities Supporting Direct Labor Order Processing Customer Support Other Total Wages and salaries . . . . . 40% 30% 20% 10% 100% Other overhead costs . . . 30% 10% 20% 40% 100% During the year, Advanced Products completed one order for a new customer, Shenzhen Enterprises. This customer did not order any other products during the year. Data concerning that order follow: Data concerning the Shenzhen Enterprises Order Units ordered . . . . . . . . . . . 10 units Direct labor-hours . . . . . . . 2 DLHs per unit Selling price . . . . . . . . . . . . $300 per unit Direct materials . . . . . . . . . $180 per unit Direct labor . . . . . . . . . . . . $50 per unit Required: 1 . Using E xhibit 7–6 as a guide, prepare a report showing the first-stage allocations of overhead costs to the activity cost pools. 2. Using Exhibit 7–7 as a guide, compute the activity rates for the activity cost pools. 3 . Prepare a report showing the overhead costs for the order from Shenzhen Enterprises including customer support costs. 4. Using Exhibit 7–12 as a guide, prepare a report showing the customer margin for Shenzhen Enterprises.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Comprehensive Activity-Based Costing Exercise [LO7–2, LO7–3, LO7–4, LO7–5] A dvanced Products Corporation has supplied the following data from its activity-based costing system:
Wages and salaries . . . . . . . . . . . . . $300,000 Other overhead costs . . . . . . . . . . . 100,000
Total overhead costs . . . . . . . . . . . . $400,000
Activity Cost Pool Activity Measure
Total Activity for the Year
Supporting direct labor . . . . . . . . . . . . . Number of direct labor-hours 20,000 DLHs Order processing . . . . . . . . . . . . . . . . . . Number of customer orders 400 orders Customer support . . . . . . . . . . . . . . . . . Number of customers 200 customers Other . . . . . . . . . . . . . . . . . . . . . . . . . . . This is an organization sustaining activity Not applicable
Distribution of Resource Consumption Across Activities
Supporting Direct Labor Order Processing
Customer Support Other Total
Wages and salaries . . . . . 40% 30% 20% 10% 100% Other overhead costs . . . 30% 10% 20% 40% 100%
During the year, Advanced Products completed one order for a new customer, Shenzhen Enterprises. This customer did not order any other products during the year. Data concerning that order follow:
Data concerning the Shenzhen Enterprises Order
Units ordered . . . . . . . . . . . 10 units Direct labor-hours . . . . . . . 2 DLHs per unit Selling price . . . . . . . . . . . . $300 per unit Direct materials . . . . . . . . . $180 per unit Direct labor . . . . . . . . . . . . $50 per unit
Required: 1 . Using E xhibit 7–6 as a guide, prepare a report showing the first-stage allocations of overhead costs to the activity cost pools. 2. Using Exhibit 7–7 as a guide, compute the activity rates for the activity cost pools. 3 . Prepare a report showing the overhead costs for the order from Shenzhen Enterprises including customer support costs. 4. Using Exhibit 7–12 as a guide, prepare a report showing the customer margin for Shenzhen Enterprises.
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