Concept explainers
a.
Calculate the amount of Maintenance Department costs that would be allocated to each product line (on a per-unit basis) using machine-hours as a single activity base.
a.

Explanation of Solution
Calculate the amount of Maintenance Department costs that would be allocated to each product line (on a per-unit basis) using machine-hours as a single activity base.
Product line |
Machine hours per unit (A) |
Per machine hours in $ (B) |
Amount in $ |
Boots | 0.10(3) | 5(2) | 0.50 |
Poles | 0.05(3) | 5(2) | 0.25 |
Helmets | 1.75(3) | 5(2) | 8.75 |
(Table 1)
Working Notes:
Calculate total machine hours:
Calculate the
Calculate the machine hours on per-unit basis:
Product line |
Machine hours (A) |
Units of production (B) |
Machine hours per -unit |
Boots | 5,000 | 50,000 | 0.10 |
Poles | 10,000 | 200,000 | 0.05 |
Helmets | 35,000 | 20,000 | 1.75 |
(Table 2)
(3)
b.
Calculate the amount of Maintenance Department costs that would be allocated to each product line (on a per-unit basis) using the proposed ABC method.
b.

Explanation of Solution
Activity-based costing:
It is a method that helps in finding the activities performed by a company and it tracks the indirect costs to the activities of the company that consumes resources.
Calculate the amount of Maintenance Department costs that would be allocated to each product line (on a per-unit basis) using the proposed ABC method.
Particulars | Product lines | |||
Total costs allocated | Boots in $ | Poles in $ | Helmets in $ | Total in $ |
Setup activities (9) | 31,250 | 18,750 | 12,500 | 62,500 |
Add: custodial activities (11) | 56,250 | 93,750 | 37,500 | 187,500 |
Total costs allocated (A) | 87,500 | 112,500 | 50,000 | 250,000 |
Units produced (B) | 50,000 | 200,000 | 20,000 | |
Maintenance cost per unit (A÷B) | 1.75 | 0.5625 | 2.50 |
(Table 3)
Working notes:
Calculate the percent of work orders used for setup activities:
Calculate the percent of machine hours used for custodial activities:
Calculate percent of work orders used in each activity pools:
Particulars | Work orders | Percent to total |
Setup activities | 600 | 25% (4) |
Custodial activities | 1,800 | 75% (5) |
Total work orders issued | 2,400 | 100% |
(Table 4)
(6)
Product lines |
Total amount in $ (A) |
Percentage of Allocation (B) |
Cost Allocated |
Setup activities | 100,000 | 25% (6) | 52,500 |
Custodial activities | 100,000 | 75% (6) | 187,500 |
Total | 250,000 |
(Table 5)
(7)
Calculate the percent of setup cost pool to the allocated to each product line using the number of production runs as an activity base.
Particulars | Number of production runs | Percent of total |
Production runs for boots | 500 | 50% |
Production runs for poles | 300 | 30% |
Production runs for helmets | 200 | 20% |
Total production runs | 1,000 | 100% |
(Table 6)
(8)
Allocate the setup cost pool to each of the product line based on the percentage.
Particulars | Amount in $ |
Costs allocated to base | 31,250 |
Costs allocated to poles | 18,750 |
Costs allocated to helmets | 12,500 |
Total order costs allocated to products | 62,500 |
(Table 7)
(9)
Calculate the percent of custodial pool to the allocated to each product line using the number of production runs as an activity base.
Particulars | Percent of total | |
Production runs for boots | 9,000 | 30% |
Production runs for poles | 15,000 | 50% |
Production runs for helmets | 6,000 | 20% |
Total square feet occupied | 30,000 | 100% |
(Table 8)
(10)
Allocate the custodial cost pool to each of the product line based on the percentage.
Particulars | Amount in $ |
Costs allocated to base | 56,250 |
Costs allocated to poles | 93,750 |
Costs allocated to helmets | 37,500 |
Total order costs allocated to products | 187,500 |
(Table 9)
(11)
c.
Explain whether cost allocations distorted using machine-hours as a single activity base
c.

Explanation of Solution
- Using machine hours as a single activity base will result in cost distortions for Company D. The largest distortion, related to product line helmet. Machine hours taken by company while producing helmet is comparatively more than boots, poles. When activity based costing is used by the company only 20% of the maintenance cost is been used to produce helmets.
- While using activity based costing for production it reduces the maintenance cost of helmets and it reallocates the cost with the production of boots and poles
- The following table provides the reallocation of maintenance cost for each product line under activity based costing:
Particulars | Boots | Poles | Helmets |
Maintenance cost per unit (Using machine hours) | 0.50 | 0.25 | 8.75 |
Maintenance cost per unit (Using activity based costing ) | 1.75 | 056 | 2.50 |
Percentage increase (decrease) using Activity based costing | 250% | 124% | (71%) |
(Table 10)
Want to see more full solutions like this?
Chapter 17 Solutions
Financial & Managerial Accounting With Connect Plus Access Code: The Basis For Business Decisions
- Quick answer of this accounting questionsarrow_forwardPlease give me answer general accounting questionarrow_forwardrespond to ceasar Companies make adjusting entries to ensure that their financial statements accurately reflect the true financial position and performance during a specific accounting period. These entries are necessary to account for revenues earned and expenses incurred that may not yet have been recorded in the books. Adjusting entries are typically made at the end of an accounting period, during the preparation of financial statements, as part of the accounting cycle. This step is crucial in aligning the company’s books with the accrual basis of accounting, where revenues and expenses are recognized when they are earned or incurred, rather than when cash is received or paid. By making these adjustments, companies can provide accurate and reliable financial information to stakeholders.arrow_forward
- According to the accrual method of accounting, businesses make adjusting entries to ensure that their financial statements are correctly depicting their financial situation and performance. No matter when cash transactions take place, adjusting entries are required to record revenues when they are generated and expenses when they are incurred (Weygandt et al., 2022). In order to guarantee that financial statements present an accurate and impartial picture of their company's financial health, these entries help in bringing financial records into compliance with the revenue recognition and matching standards. In order to account for things like accumulated revenues, accrued expenses, depreciation, and prepaid expenses, adjusting entries are usually made at the conclusion of an accounting period prior to the preparation of financial statements (Kieso et al., 2020). By implementing these changes, businesses avoid making false representations in their financial reports, which enables…arrow_forwardRequired information Skip to question [The following information applies to the questions displayed below.]Brianna's Boutique has the following transactions related to its top-selling Gucci purse for the month of October. Brianna's Boutique uses a periodic inventory system. Date Transactions Units Unit Cost Total Cost October 1 Beginning inventory 6 $830 $4,980 October 4 Sale 4 October 10 Purchase 5 840 4,200 October 13 Sale 3 October 20 Purchase 4 850 3,400 October 28 Sale 7 October 30 Purchase 6 860 5,160 $17,740 2. Using FIFO, calculate ending inventory and cost of goods sold at October 31.arrow_forwardWhy do companies make adjusting entries? When are adjusting entries made and at what point in the accounting process?arrow_forward
- correct solution i needarrow_forwardPrepare the journal entries to account for the defined benefit pension plan in the books of Flagstaff Ltd for the year ended December 31 2020 and the pension table for the following pic.arrow_forwardAdditional information(a) All contributions received by the plan were paid by Flagstaff Ltd.(b) The interest rate used to measure the present value of the defined benefitobligation was 9% at 31 December 2019 and 31 December 2020.(c) The asset ceiling was nil at 31 December 2019 and 31 December 2020. Calculate the actuarial gain or loss for the defined benefit obligation for 2020 Calculate the return on plan assets, excluding any amount recognized in net interest for2020arrow_forward
- Additional information(a) All contributions received by the plan were paid by Flagstaff Ltd.(b) The interest rate used to measure the present value of the defined benefitobligation was 9% at 31 December 2019 and 31 December 2020.(c) The asset ceiling was nil at 31 December 2019 and 31 December 2020. Questiona) Determine the surplus or deficit of Flagstaff Ltd.’s defined benefit plan at 31 December2020 and determine the net defined benefit asset or liability that should be recognized by FlagstaffLtd at 31 December 2020 b) Calculate the net interest for 2020arrow_forwardRentokil Limited issued a 10-year bond on January 1 2011. It pays interest on January1. The below amortization schedule and interest schedule reflects this. Its year end isDecember 31. a) Indicate whether the bonds were issued at a premium or a discount and explainhow you came to your decision and Compute the stated interest rate and the effective interest rate c) Prepare the journal entries for the following years:I. 2011, 2012 & 2018arrow_forwardOff-set the losses for the appropriate years using the rules as applied in Trinidad and Tobago and those in Jamaica: XYZ Company Limited in year of assessment 2015 makes net income of $8,000,000 and its PYL was $9,000,000. XZY registered in December 2014 for GCT/VAT and declared that its estimated income for the year of assessment 2015 as $2,999,000.arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





