5th Edition

ISBN: 9780134128528

Author: Karen W. Braun, Wendy M. Tietz

Publisher: PEARSON

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Textbook Question

Chapter 4, Problem 4.34BE

Compare traditional and ABC cost allocations at a pharmacy (Learning Objective 2)

Gracen Pharmacy, part of a large chain of pharmacies, fills a variety of prescriptions for customers. The complexity of prescriptions filled by Gracen varies widely; pharmacists can spend between five minutes and six hours on a prescription order. Traditionally, the pharmacy has allocated its overhead based on the number of prescriptions.

The pharmacy chain’s controller is exploring whether activity-based costing (ABC) may better allocate the pharmacy overhead costs to pharmacy orders. The controller has gathered the following information:

Chapter 4, Problem 4.34BE, Compare traditional and ABC cost allocations at a pharmacy (Learning Objective 2) Gracen Pharmacy, , example 1

Chapter 4, Problem 4.34BE, Compare traditional and ABC cost allocations at a pharmacy (Learning Objective 2) Gracen Pharmacy, , example 2

The clerk for Gracen Pharmacy has gathered the following information regarding two recent pharmacy orders:

Chapter 4, Problem 4.34BE, Compare traditional and ABC cost allocations at a pharmacy (Learning Objective 2) Gracen Pharmacy, , example 3

Requirements

1. What is the traditional overhead rate based on the number of prescriptions?
2. How much pharmacy overhead would be allocated to customer order number 1102 if traditional overhead allocation based on the number of prescriptions is used?
1. How much pharmacy overhead would be allocated to customer order number 1103 if traditional overhead allocation based on the number of prescriptions is used?
2. What are the following cost pool allocation rates?
1. a. Pharmacy occupancy costs
2. b. Packing supplies
3. c. Professional training and insurance costs
3. How much would be allocated to customer order number 1102 if activity-based costing (ABC) is used to allocate the pharmacy overhead costs?
4. How much would be allocated to customer order number 1103 if activity-based costing (ABC) is used to allocate the pharmacy overhead costs?
5. Which allocation method (traditional or activity-based costing) would produce a more accurate product cost? Explain your answer.

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Chapter 4, Problem 4.33BE

Chapter 4, Problem 4.35BE

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Chapter 4 Solutions

Managerial Accounting (5th Edition)

Ch. 4 - Understanding key terms (Learning Objectives 1, 2,...Ch. 4 - Use departmental overhead rates to allocate...Ch. 4 - Compute departmental overhead rates (Learning...Ch. 4 - Prob. 4.4SE Ch. 4 - Prob. 4.5SE Ch. 4 - Calculate a job cost using ABC (Learning Objective...Ch. 4 - Classifying costs within the cost hierarchy...Ch. 4 - Classifying costs within the cost hierarchy...Ch. 4 - Determine the usefulness of refined costing...Ch. 4 - Prob. 4.10SE Ch. 4 - Identifying costs as value-added or...Ch. 4 - Identify lean production characteristics (Learning...Ch. 4 - Identify the DOWNTIME activities at a manufacturer...Ch. 4 - Prob. 4.14SE Ch. 4 - Classifying costs of quality (Learning Objective...Ch. 4 - Quality initiative decision (Learning Objective 5)...Ch. 4 - Assess the impact of a quality initiative...Ch. 4 - Identify ethical standards violated (Learning...Ch. 4 - Compare traditional and departmental cost...Ch. 4 - Compute activity rates and apply to jobs (Learning...Ch. 4 - Apply activity cost allocation rates (Learning...Ch. 4 - Using ABC to bill clients at a service firm...Ch. 4 - Compare traditional and ABC allocations at a...Ch. 4 - Compare traditional and ABC allocations on a job...Ch. 4 - Use ABC to allocate manufacturing overhead...Ch. 4 - Continuation of E4-25A: Determine product...Ch. 4 - Prob. 4.27AE Ch. 4 - Classify costs and make a quality-initiative...Ch. 4 - Prob. 4.29AE Ch. 4 - Compare traditional and departmental cost...Ch. 4 - Prob. 4.31BE Ch. 4 - Prob. 4.32BE Ch. 4 - Prob. 4.33BE Ch. 4 - Compare traditional and ABC cost allocations at a...Ch. 4 - Prob. 4.35BE Ch. 4 - Prob. 4.36BE Ch. 4 - Prob. 4.37BE Ch. 4 - Prob. 4.38BE Ch. 4 - Classify costs and make a quality-initiative...Ch. 4 - Prob. 4.40BE Ch. 4 - Prob. 4.41AP Ch. 4 - Use ABC to compute full product costs (Learning...Ch. 4 - Prob. 4.43AP Ch. 4 - Prob. 4.44AP Ch. 4 - Prob. 4.45AP Ch. 4 - Prob. 4.46BP Ch. 4 - Prob. 4.47BP Ch. 4 - Comprehensive ABC implementation (Learning...Ch. 4 - Using ABC in conjunction with quality decisions...Ch. 4 - Comprehensive ABC (Learning Objectives 2 3)...Ch. 4 - Prob. 4.51SC Ch. 4 - Discussion Questions 1. Explain why departmental...Ch. 4 - ABC in Real Companies Choose a company in any of...Ch. 4 - Value-Added versus Non-Value-Added at a Restaurant...Ch. 4 - Ethics involved with ABC and hazardous waste costs...

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