Financial & Managerial Accounting
13th Edition
ISBN: 9781285866307
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Chapter 26, Problem 26.11EX
(a)
To determine
Activity-based costing (ABC) method: The costing method which allocates overheads to the products based on factory overhead rate for each activity or cost object, according to the cost pooled for the cost drivers (allocation base).
Formula to compute activity-based overhead rate:
To compute: The activity-based overhead rate for each of the given activities
(b)
To determine
To compute: The total activity-cost and per unit of each of the two products.
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Activity rates and product costs using activity-based cost
Idris Inc. manufactures entry and dining room lighting fixtures. Five activities are used in manufacturing the fixtures. These activities and their associated budgeted activity costs and activity bases are as follows:
Activity
BudgetedActivity Cost
Activity Base
Casting
$320,620
Machine hours
Assembly
182,750
Direct labor hours
Inspecting
28,420
Number of inspections
Setup
50,690
Number of setups
Materials handling
36,540
Number of loads
Corporate records were obtained to estimate the amount of activity to be used by the two products. The estimated activity-base usage quantities and units produced follow:
Activity Base
Entry
Dining
Total
Machine hours
5,000
4,430
9,430
Direct labor hours
4,300
6,450
10,750
Number of inspections
1,540
490
2,030
Number of setups
300
70
370
Number of loads
690
180
870
Units produced
10,000
5,000
15,000
This information has been collected in the Microsoft Excel…
Activity rates and product costs using activity-based cost
Idris Inc. manufactures entry and dining room lighting fixtures. Five activities are used in
manufacturing the fixtures. These activities and their associated budgeted activity costs and activity
bases are as follows:
Activity
Casting
Assembly
Inspecting
Setup
Materials handling
Activity Base
Machine hours
Budgeted
Activity Cost
Direct labor hours
Number of inspections
Number of setups
Number of loads
Units produced
$304,800
231,600
40,800
46,720
44,100
Corporate records were obtained to estimate the amount of activity to be used by the two products.
The estimated activity-base usage quantities and units produced follow:
Total
Entry
Dining
5,380
4,780
4,630 6,950
1,820
580
260
Activity Base
Machine hours
Direct labor hours
Number of inspections
Number of setups
Number of loads
710
10,800
60
190
5,400
10,160
11,580
2,400
320
900
16,200
Activity rates and product costs using activity-based cost
Idris Inc. manufactures entry and dining room lighting fixtures. Five activities are used in manufacturing the fixtures. These activities and their associated budgeted
activity costs and activity bases are as follows:
Activity
Casting
Assembly
Inspecting
Budgeted
Activity Cost
$214,820
149,100
22,330
42,000
40,500
Activity Base
Machine hours
Direct labor hours
Number of inspections
Number of setups
Number of loads
Units produced
Setup
Materials handling
Corporate records were obtained to estimate the amount of activity to be used by the two products. The estimated activity-base usage quantities and units produced
follow:
Entry
4,950
4,260
1,540
Activity Base
Machine hours
Direct labpr hours
Number of inspections
Number of setups
Number of loads
230
Dining Total
4,390
9,340
6,390
10,650
490
2,030
280
900
50
190
710
9,800
a. Determine the activity rate for each activity. If required, round the rate to the nearest dollar.
4,900…
Chapter 26 Solutions
Financial & Managerial Accounting
Ch. 26 - Why would management be concerned about the...Ch. 26 - Why would a manufacturing company with multiple...Ch. 26 - How do the multiple production department and the...Ch. 26 - Under what two conditions would the multiple...Ch. 26 - Prob. 5DQCh. 26 - Prob. 6DQCh. 26 - Prob. 7DQCh. 26 - Under what circumstances might the activity-based...Ch. 26 - Prob. 9DQCh. 26 - Prob. 10DQ
Ch. 26 - Single plantwide factory overhead rate The total...Ch. 26 - Single plantwide factory overhead rate The total...Ch. 26 - Multiple production department factory overhead...Ch. 26 - Multiple production department factory overhead...Ch. 26 - Activity based costing: factory overhead costs The...Ch. 26 - Activity-based costing: factory overhead costs The...Ch. 26 - Activity-based costing: selling and administrative...Ch. 26 - Activity-based costing: selling and administrative...Ch. 26 - Activity-based costing for a service business...Ch. 26 - Activity-based costing for a service business...Ch. 26 - Single plantwide factory overhead rate Nixon...Ch. 26 - Single plantwide factory overhead rate Matts Music...Ch. 26 - Single plantwide factory overhead rate Sally...Ch. 26 - Prob. 26.4EXCh. 26 - Multiple production department factory overhead...Ch. 26 - Single plantwide and multiple production...Ch. 26 - Single plantwide and multiple production...Ch. 26 - Identifying activity bases in an activity-based...Ch. 26 - Product costs using activity rates Nozama.com Inc....Ch. 26 - Prob. 26.10EXCh. 26 - Prob. 26.11EXCh. 26 - Activity cost pools, activity rates, and product...Ch. 26 - Activity-based costing and product cost distortion...Ch. 26 - Multiple production department factory overhead...Ch. 26 - Activity-based costing and product cost distortion...Ch. 26 - Single plantwide rate and activity-based costing...Ch. 26 - Evaluating selling and administrative cost...Ch. 26 - Prob. 26.18EXCh. 26 - Prob. 26.19EXCh. 26 - Activity-based costing for a service company...Ch. 26 - Activity-based costing for a service company...Ch. 26 - Single plantwide factory overhead rate Orange...Ch. 26 - Multiple production department factory overhead...Ch. 26 - Activity-based and department rate product costing...Ch. 26 - Prob. 26.4APRCh. 26 - Prob. 26.5APRCh. 26 - Product costing and decision analysis for a...Ch. 26 - Single plantwide factory overhead rate Spoiled Cow...Ch. 26 - Multiple production department factory overhead...Ch. 26 - Activity-based department rate product costing and...Ch. 26 - Activity-based product costing Sweet Sugar Company...Ch. 26 - Allocating selling and administrative expenses...Ch. 26 - Product costing and decision analysis for a...Ch. 26 - Prob. 26.1CPCh. 26 - Prob. 26.2CPCh. 26 - Activity-based costing for a service company Wells...Ch. 26 - Using a product profitability report to guide...Ch. 26 - Prob. 26.5CPCh. 26 - Prob. 26.6CP
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- Allocating selling and administrative expenses using activity-based costing Arctic Air Inc. manufactures cooling units for commercial buildings. The price and cost of goods sold for each unit are as follows: In addition, the company incurs selling and administrative expenses of 226,250. The company wishes to assign these costs to its three major customers, Gough Industries, Breen Inc., and The Martin Group. These expenses are related to three major nonmanufacturing activities: customer service, project bidding, and engineering support. The engineering support is in the form of engineering changes that are placed by the customer to change the design of a product. The budgeted activity costs and activity bases associated with these activities are: Activity-base usage and unit volume information for the three customers is as follows: Instructions 1. Determine the activity rates for each of the three nonmanufacturing activity pools. 2. Determine the activity costs allocated to the three customers, using the activity rates in (1). 3. Construct customer profitability reports for the three customers, dated for the year ended December 31, using the activity costs in (2). The reports should disclose the gross profit and operating income associated with each customer. 4. Provide recommendations to management, based on the profitability reports in (3).arrow_forwardActivity cost pools, activity rates, and product costs using activity-based costing Caldwell Home Appliances Inc. is estimating the activity cost associated with producing ovens and refrigerators. The indirect labor can be traced into four separate activity pools, based on time records provided by the employees. The budgeted activity cost and activity-base information are provided as follows: The estimated activity-base usage and unit information for two product lines was determined as follows: A. Determine the activity rate for each activity cost pool. B. Determine the activity-based cost per unit of each product.arrow_forwardA manufacturing company has two service and two production departments. Human Resources and Machine Repair are the service departments. The production departments are Grinding and Polishing. The following data have been estimated for next years operations: The direct charges identified with each of the departments are as follows: The human resources department services all departments of the company, and its costs are allocated using the numbers of employees within each department, while machine repair costs are allocable to Grinding and Polishing on the basis of machine hours. 1. Distribute the service department costs, using the direct method. 2. Distribute the service department costs, using the sequential distribution method, with the department servicing the greatest number of other departments distributed first.arrow_forward
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