EBK HORNGREN'S COST ACCOUNTING
16th Edition
ISBN: 9780134475950
Author: Datar
Publisher: PEARSON CO
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Chapter 5, Problem 5.19E
ABC, cost hierarchy, service. (CMA, adapted) Vineyard Test Laboratories does heat testing (HT) and stress testing (ST) on materials and operates at capacity. Under its current simple costing system, Vineyard aggregates all operating costs of $1,190,000 into a single
- a. Direct-labor costs, $146,000. These costs can be directly traced to HT, $100,000, and ST, $46,000.
- b. Equipment-related costs (rent, maintenance, energy, and so on), $350,000. These costs are allocated to HT and ST on the basis of test-hours.
- c. Setup costs, $430.000. These costs are allocated to HT and ST on the basis of the number of setup-hours required. HT requires 13,600 setup-hours, and ST requires 3,600 setup-hours.
- d. Costs of designing tests, $264,000. These costs are allocated to HT and ST on the basis of the time required for designing the tests. HT requires 3,000 hours, and ST requires 1,400 hours.
- 1. Classify each activity cost as output unit–level, batch-level, product- or service-sustaining, or facility-sustaining. Explain each answer.
Required
- 2. Calculate the cost per test-hour for HT and ST. Explain briefly the reasons why these numbers differ from the $17 per test-hour that Vineyard calculated using its simple costing system.
- 3. Explain the accuracy of the product costs calculated using the simple costing system and the ABC system. How might Vineyard’s management use the cost hierarchy and ABC information to better manage its business?
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Chapter 5 Solutions
EBK HORNGREN'S COST ACCOUNTING
Ch. 5 - What is broad averaging, and what consequences can...Ch. 5 - Why should managers worry about product...Ch. 5 - What is costing system refinement? Describe three...Ch. 5 - What is an activity-based approach to designing a...Ch. 5 - Describe four levels of a cost hierarchy.Ch. 5 - Why is it important to classify costs into a cost...Ch. 5 - What are the key reasons for product cost...Ch. 5 - Prob. 5.8QCh. 5 - Department indirect-cost rates are never...Ch. 5 - Prob. 5.10Q
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