Managerial Accounting for Managers
4th Edition
ISBN: 9781259578540
Author: Eric Noreen, Peter C. Brewer Professor, Ray H Garrison
Publisher: McGraw-Hill Education
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Chapter 4A, Problem 4A.3E
1.
To determine
Introduction:
To compute: The unit products cost for D and S products using the company’s traditional costing system.
2.
To determine
Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead. Absorption costing is used to calculate the cost of product while taking indirect and direct expense into account. Activity based costing assign the cost of all the activity of the organization according to their actual consumption
To compute: The unit products cost for two products using activity based costing system.
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Question 4: Activity Based Costing (ABC)
The Gadget Co produces three products, A, B and C, all made from the same material. Until now, it has used
traditional absorption costing to allocate overheads to its products. The company is now considering an activity based
costing system in the hope that it will improve profitability. Information for the three products for the last year is as
follows:
Production and sales volumes (units)
Selling price per unit
Raw material usage (kg) per unit
Direct labour hours per unit
Machine hours per unit
Number of production runs per annum
Number of purchase orders per annum
Number of deliveries to retailers per annum
A
15,000
B
12,000
C
18,000
$7.50
$12
$13
2
3
4
0-1
0-15
0-2
0-5
0-7
0.9
16
12
8
24
28
42
48
30
62
The price for raw materials remained constant throughout the year at $1.20 per kg. Similarly, the direct labour cost
for the whole workforce was $14.80 per hour. The annual overhead costs were as follows:
Machine set up costs
Machine running…
Chrzan, Incorporated, manufactures and sells two products: Product EO and Product NO. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:
Product E0
Product Ne
Total direct labor-hours
Activity Cost Pools
Labor-related
Production orders
Order size
The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:
Estimated
Overhead
Cost
Multiple Choice
$33.94 per MH
$54.20 per MH
Direct
Expected Labor-Hours
Production
Per Unit
10.1
410
1,550
9.1
$51.98 per MH
$21.40 per MH
Activity
Measures
DLHS
orders
MHs
Total
Direct
Labor-
Hours
$ 301,890
61,087
585,366
$948,343
The activity rate for the Order Size activity cost pool under activity-based costing is closest to:
4,141
14, 105
18,246
Product E
4,141
850
5,550
Expected Activity
Product NO
14, 105
950
5,250
Total
18,246
1,800
10,800
Problem 1 (adapted)Kai Corp. manufactures two models of beds, the standard and the deluxe model.
The following activity and cost information has been compiled:Standard Deluxe OH CostsNo. of setups 9 21 P 90,000No. of components 90 150 210,000No. of DLH 650 150Required:Compute the total amount of overhead costs assigned to each model using:
1. Traditional costing system2. Activity-based costing system3. Discuss the effects of the difference in the computed amounts of overheadcosts.
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