Managerial Accounting
15th Edition
ISBN: 9781337912020
Author: Carl Warren, Ph.d. Cma William B. Tayler
Publisher: South-Western College Pub
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Chapter 4, Problem 4MAD
Production run size and activity improvement
Littlejohn, Inc., manufactures machined parts for the automotive industry. The activity cost associated with Part XX-10 is as follows:
Each unit requires 30 minutes of fabrication direct labor. Moreover, Part XX-10 is manufactured in production run sizes of 50 units. Each production run is set up, scheduled (production control), and moved as a batch of 50 units. Management is considering improvements in the setup, production control, and moving activities in order to cut the production run sizes by half. As a result, the number of setups, production runs, and moves will double from 10 to 20. Such improvements are expected to speed the company’s ability to respond to customer orders.
- Setup is reengineered so that it takes 60% of the original cost per setup.
- Production control software will allow production control effort and cost per production run to decline by 60%.
- Moving distance was reduced by 40%, thus reducing the cost per move by the same amount.
- A. Determine the revised activity cost per unit under the proposed changes.
- B. Did these improvements reduce the activity cost per unit?
- C. What cost per unit for setup would be required for the solution in (a) to equal the base solution?
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Atlas Enterprises Inc. manufactures elliptical exercise machines and treadmills. The products are produced in its Fabrication and Assembly production departments. In addition to production activities, several other activities are required to produce the two products. These activities and their associated activity rates are as follows:
Activity
Activity Rate
Fabrication
$27
per machine hour
Assembly
$11
per direct labor hour
Setup
$45
per setup
Inspecting
$23
per inspection
Production scheduling
$12
per production order
Purchasing
$9
per purchase order
The activity-base usage quantities and units produced for each product were as follows:
Activity Base
Elliptical Machines
Treadmill
Machine hours
1,861
1,098
Direct labor hours
413
161
Setups
62
19
Inspections
615
369
Production orders
65
13
Purchase orders
211
129
Units produced
295
198
Use the activity rate and usage information to calculate the total activity cost and…
Hercules Inc. manufactures elliptical exercise machines and treadmills. The products are produced in its Fabrication and Assembly production departments. In addition to production activities, several other activities are required to produce the two products. These activities and their associated activity rates are as follows:
Activity
Activity Rate
Fabrication
$31
per machine hour
Assembly
$17
per direct labor hour
Setup
$58
per setup
Inspecting
$29
per inspection
Production scheduling
$18
per production order
Purchasing
$15
per purchase order
The activity-base usage quantities and units produced for each product were as follows:
Activity Base
Elliptical Machines
Treadmill
Machine hours
1,741
1,027
Direct labor hours
440
172
Setups
54
17
Inspections
719
431
Production orders
69
14
Purchase orders
200
122
Units produced
278
186
Use the activity rate and usage information to determine the total activity cost and activity…
Hercules Inc. manufactures elliptical exercise machines and
treadmills. The products are produced in its Fabrication and
Assembly production departments. In addition to
production activities, several other activities are required to
produce the two products. These activities and their
associated activity rates are as follows:
Activity Rate
Activity
Fabrication
$32 per machine hour
$14 per direct labor hour
Assembly
Setup
$54 per setup
Inspecting
$22 per inspection
Production scheduling
$15 per production order
Purchasing
$12 per purchase order
The activity-base usage quantities and units produced for
each product were as follows:
Treadmill
Activity Base
Elliptical Machines
Machine hours
1,723
1,017
Direct labor
408
159
Setups
42
13
Inspections
614
368
Production orders
77
15
Purchase orders
171
104
Units produced
315
211
Use the activity rate and usage information to determine
the total activity cost and activity cost per unit for each
product. If required, round the per unit answers…
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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