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Business Accounting Cost Accounting, Student Value Edition (15th Edition)

1. To identify: Cost hierarchy level for each cost category for 2014. Explanation: Activity Based Costing: Activity based costing is stand for the ABC. It is that method in which organization identifies the activities and assign the cost to each resource according to use of them. Cost category Cost hierarchy level Setup costs Batch level cost Shipping Output level cost Design Product sustaining costs Public utilities and administration Facility sustaining costs Table (1) 2. To identify: The cost driver for the each cost category with cost hierarchy level. Explanation: Cost category Cost hierarchy level Cost driver Setup costs Batch level cost Number of batches Shipping Output level cost Number of bags Design Product sustaining costs Number of designs Public utilities and administration Facility sustaining costs Hours of production Table (2) 3. To determine: The budgeted cost per unit of cost driver. Explanation: Cost category Total cost Cost driver Total Quantity of cost driver Budgeted cost per unit of cost driver Setup costs 64,000 Number of batches 200 320 Shipping costs 73,000 Number of bags 9,250 7.8919 Design 169,000 Number of designs 4 42,250 Public utilities and administration 221,000 Hours of production 4,250 52 Table (3) Working Notes: Calculate the budgeted cost per unit of number of batches for setup costs: Budgeted cost per unit = Total cost Total quantity of cost driver = $ 64 , 000 200 units = $ 320 Calculate the budgeted cost per unit of the number of bags for Shipping costs: Budgeted cost per unit = Total cost Total quantity of cost driver = $ 73 , 000 9 , 250 units = $ 7.8919 Calculate the budgeted cost per unit of the number of designs for Design: Budgeted cost per unit = Total cost Total quantity of cost driver = $ 169 , 000 4 units = $ 42 , 250 Calculate the budgeted cost per unit of the number of hours of production: Budgeted cost per unit = Total cost Total quantity of cost driver = $ 221 , 000 4 , 250 units = $ 52 4. To determine: The Budgeted per unit cost and total cots for each product. Given information: 2014, Direct material to the purses is $319,155. Direct material to the backpacks is $454,955. Direct manufacturing labor to purses is $99,000. Direct manufacturing labor to backpacks is $113,000. Setup cost is $64,000. Shipping is $73,000. Design cost is $169,000. Plant utilities and administration cost is $221,000. Number of bags of backpacks are 6,175. Number of bags of purses are 3,075. Hours of production for backpack are 1,665. Hours of production for purses are 2,585. Number of batches for backpacks are 120. Number of batches for purses are 80. Number of designs for the backpacks are 2. Number of designs for the purses are 2. Explanation: Calculation of the total budgeted cost and cost per unit for the each product line: Table (4) Working Notes: Calculate the total indirect cost of Purses and backpacks: Table (5) Conclusion: Hence, the cost per unit of purses and backpack is $223.40 and $133.79 respectively. 5. To determine: The way in which one can use the information in requirement 4 to reduce cost. Answer: The given information can be used to reduce the cost which is required in 4. The cost of the setup, shipping cost, designed cost and public utilities and administration can be reduced if the given information is utilized in the right way. Explanation: The shipping cost of the backpack can be reduced by reducing the size of the backpack. If the size is reduced than the cost of occupying a volume will reduce due to which shipping cost will also reduce. The cost of the backpack can be reduced by redesign the shape of the product in this way so that it can be manufactured easily which will reduce the cost of the product. If the efficiency of the labor is increased then the cost of the product can be reduced. The efficiency can be increased by reducing the number of hours in production alone with the same number of units. Conclusion: Hence, the cost of the product can be reduced by resize the product and design of the product.

1. To identify: Cost hierarchy level for each cost category for 2014. Explanation: Activity Based Costing: Activity based costing is stand for the ABC. It is that method in which organization identifies the activities and assign the cost to each resource according to use of them. Cost category Cost hierarchy level Setup costs Batch level cost Shipping Output level cost Design Product sustaining costs Public utilities and administration Facility sustaining costs Table (1) 2. To identify: The cost driver for the each cost category with cost hierarchy level. Explanation: Cost category Cost hierarchy level Cost driver Setup costs Batch level cost Number of batches Shipping Output level cost Number of bags Design Product sustaining costs Number of designs Public utilities and administration Facility sustaining costs Hours of production Table (2) 3. To determine: The budgeted cost per unit of cost driver. Explanation: Cost category Total cost Cost driver Total Quantity of cost driver Budgeted cost per unit of cost driver Setup costs 64,000 Number of batches 200 320 Shipping costs 73,000 Number of bags 9,250 7.8919 Design 169,000 Number of designs 4 42,250 Public utilities and administration 221,000 Hours of production 4,250 52 Table (3) Working Notes: Calculate the budgeted cost per unit of number of batches for setup costs: Budgeted cost per unit = Total cost Total quantity of cost driver = $ 64 , 000 200 units = $ 320 Calculate the budgeted cost per unit of the number of bags for Shipping costs: Budgeted cost per unit = Total cost Total quantity of cost driver = $ 73 , 000 9 , 250 units = $ 7.8919 Calculate the budgeted cost per unit of the number of designs for Design: Budgeted cost per unit = Total cost Total quantity of cost driver = $ 169 , 000 4 units = $ 42 , 250 Calculate the budgeted cost per unit of the number of hours of production: Budgeted cost per unit = Total cost Total quantity of cost driver = $ 221 , 000 4 , 250 units = $ 52 4. To determine: The Budgeted per unit cost and total cots for each product. Given information: 2014, Direct material to the purses is $319,155. Direct material to the backpacks is $454,955. Direct manufacturing labor to purses is $99,000. Direct manufacturing labor to backpacks is $113,000. Setup cost is $64,000. Shipping is $73,000. Design cost is $169,000. Plant utilities and administration cost is $221,000. Number of bags of backpacks are 6,175. Number of bags of purses are 3,075. Hours of production for backpack are 1,665. Hours of production for purses are 2,585. Number of batches for backpacks are 120. Number of batches for purses are 80. Number of designs for the backpacks are 2. Number of designs for the purses are 2. Explanation: Calculation of the total budgeted cost and cost per unit for the each product line: Table (4) Working Notes: Calculate the total indirect cost of Purses and backpacks: Table (5) Conclusion: Hence, the cost per unit of purses and backpack is $223.40 and $133.79 respectively. 5. To determine: The way in which one can use the information in requirement 4 to reduce cost. Answer: The given information can be used to reduce the cost which is required in 4. The cost of the setup, shipping cost, designed cost and public utilities and administration can be reduced if the given information is utilized in the right way. Explanation: The shipping cost of the backpack can be reduced by reducing the size of the backpack. If the size is reduced than the cost of occupying a volume will reduce due to which shipping cost will also reduce. The cost of the backpack can be reduced by redesign the shape of the product in this way so that it can be manufactured easily which will reduce the cost of the product. If the efficiency of the labor is increased then the cost of the product can be reduced. The efficiency can be increased by reducing the number of hours in production alone with the same number of units. Conclusion: Hence, the cost of the product can be reduced by resize the product and design of the product.

Cost Accounting, Student Value Edition (15th Edition)

Cost Accounting, Student Value Edition (15th Edition)

15th Edition

ISBN: 9780133428858

Author: Charles T. Horngren, Srikant M. Datar, Madhav V. Rajan

Publisher: PEARSON

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Cost Accounting, Student Value Edition (15th Edition)

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. 5.8Q Ch. 5 - Department indirect-cost rates are never...Ch. 5 - Prob. 5.10Q

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