Managerial Accounting
15th Edition
ISBN: 9781337912020
Author: Carl Warren, Ph.d. Cma William B. Tayler
Publisher: South-Western College Pub
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Textbook Question
Chapter 4, Problem 15E
Activity-based costing and product cost distortion
The management of Four Finger Appliance Company in Exercise 14 has asked you to use activity-based costing instead of direct labor hours to allocate
Determine the three activity rates (assembly, test and pack, and setup).
Determine the total factory overhead and factory overhead per unit allocated to each product using the activity rates in (A).
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Wellington Company manufactures custom-designed pens. Previously, the company has been using a traditional overhead allocation system based solely on direct labuor-hours. However, the company’s top management thought that the traditional overhead allocation system was distorting costs and selling prices. Hence, it has decided to switch to an activity-based costing system using. The company provides the following information:
Activity cost pool Total cost Total activityLabour related $30,000 10,000 direct labour hoursMachine related $40,000 8,000 machine hoursQuality control $10,000 1,000 inspectionsOthers $32,000 N/AThe company has recently completed a job (Job #24) that required producing 1,000 pens. It incurred $1,200 direct material, 20 hours of direct labour at $50 per hour, 120 machine hours, and 7 inspections to complete the job. Required (show your calculations):a. Prepare a report showing the cost of Job #24 using the activity-based costing system.b. Do you think that the cost…
Activity-Based Costing and Product Cost Distortion
Four Finger Appliance Company manufactures small kitchen
appliances. The product line consists of blenders and
toaster ovens. Four Finger Appliance presently uses the
multiple production department factory overhead rate
method. The factory overhead is as follows:
Assembly Department
Test and Pack Department
Total
The direct labor information for the production of 7,500
units of each product is as follows:
Blender
Toaster oven
Total
$186,000
120,000
$306,000
Four Finger Appliance used direct labor hours to allocate
production department factory overhead to products.
Assembly Activity
Test and Pack Activity
Setup Activity
Assembly Department Test and Pack Department
750 dih
2,250 dlh
750
3,000 dlh
The management of Four Finger Appliance Company has
asked you to use activity-based costing to allocate factory
overhead costs to the two products. You have determined
that $81,000 of factory overhead from each of the
2,250
3,000 dlh
production…
Archie Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products.
Activity Cost Pools
Activity Rate
Setting up batches
$ 81.76
per batch
Processing customer orders
$ 62.40
per customer order
Assembling products
$ 1.76
per assembly hour
Last year, Product X26X required 33 batches, 1 customer order, and 368 assembly hours.
Required:
How much overhead cost would be assigned to Product X26X using the company's activity-based costing system? (Round your intermediate calculations and final answer to 2 decimal places.)
Total overhead cost
Chapter 4 Solutions
Managerial Accounting
Ch. 4 - Why would management be concerned about the...Ch. 4 - Why would a manufacturing company with multiple...Ch. 4 - Prob. 3DQCh. 4 - Prob. 4DQCh. 4 - How does activity-based costing differ from the...Ch. 4 - Prob. 6DQCh. 4 - Prob. 7DQCh. 4 - Under what circumstances might the activity-based...Ch. 4 - Prob. 9DQCh. 4 - Prob. 10DQ
Ch. 4 - Single plantwide factory overhead rate The total...Ch. 4 - Multiple production department factory overhead...Ch. 4 - Activity-based costing: factory overhead costs The...Ch. 4 - Activity-based costing: selling and administrative...Ch. 4 - Activity-based costing for a service business...Ch. 4 - Kennedy Appliance Inc.s Machining Department...Ch. 4 - Bach Instruments Inc. makes three musical...Ch. 4 - Scrumptious Snacks Inc. manufactures three types...Ch. 4 - Isaac Engines Inc. produces three productspistons,...Ch. 4 - Handy Leather, Inc., produces three sizes of...Ch. 4 - Eclipse Motor Company manufactures two types of...Ch. 4 - The management of Nova Industries Inc....Ch. 4 - Comfort Foods Inc. uses activity-based costing to...Ch. 4 - Nozama.com Inc. sells consumer electronics over...Ch. 4 - Hercules Inc. manufactures elliptical exercise...Ch. 4 - Lonsdale Inc. manufactures entry and dining room...Ch. 4 - Activity cost pools, activity rates, and product...Ch. 4 - Handbrain Inc. is considering a change to...Ch. 4 - Prob. 14ECh. 4 - Activity-based costing and product cost distortion...Ch. 4 - Prob. 16ECh. 4 - Evaluating selling and administrative cost...Ch. 4 - Prob. 18ECh. 4 - Prob. 19ECh. 4 - Activity-based costing for a service company...Ch. 4 - Bounce Back Insurance Company carries three major...Ch. 4 - Gwinnett County Chrome Company manufactures three...Ch. 4 - The management of Gwinnett County Chrome Company,...Ch. 4 - Activity-based and department rate product costing...Ch. 4 - Activity-based product costing Mello Manufacturing...Ch. 4 - Allocating selling and administrative expenses...Ch. 4 - Product costing and decision analysis for a...Ch. 4 - Single plantwide factory overhead rate Spotted Cow...Ch. 4 - Multiple production department factory overhead...Ch. 4 - Activity-based department rate product costing and...Ch. 4 - Activity-based product costing Sweet Sugar Company...Ch. 4 - Allocating selling and administrative expenses...Ch. 4 - Product costing and decision analysis for a...Ch. 4 - Life Force Fitness, Inc., assembles and sells...Ch. 4 - Prob. 2MADCh. 4 - Prob. 3MADCh. 4 - Production run size and activity improvement...Ch. 4 - Prob. 5MADCh. 4 - Ethics in Action The controller of Tri Con Global...Ch. 4 - Communication The controller of New Wave Sounds...Ch. 4 - Pelder Products Company manufactures two types of...Ch. 4 - The Chocolate Baker specializes in chocolate baked...Ch. 4 - Young Company is beginning operations and is...Ch. 4 - Cynthia Rogers, the cost accountant for Sanford...
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