Chapter 5, Problem 5ESB

a

To determine

Allocate the quality-control cost among the products by assuming it is driven by the unit-level activities.

Explanation of Solution

The calculation of allocation rate is as follows:

$\begin{array}{c}\text{Allocation rate}=\frac{\text{Cost to be allocated (Quality control cost)}}{\text{Cost driver (Direct labor hours) }}\\ =\frac{\$225,000}{50,000\text{ hours}}\\ =\$4.50\text{ per direct labor hour}\end{array}$

Hence, the allocation rate per direct labor hour is $4.50.

The calculation of total cost allocated for handy is as follows:

$\begin{array}{c}\text{Allocated cost (handy)}=\text{Labor hours}\times \text{Per direct labor hour}\\ =26,000\text{ hours}\times \$4.50\\ =\$117,000\end{array}$

Hence, the allocated cost for handy is $117,000.

The calculation of total cost allocated for action is as follows:

$\begin{array}{c}\text{Allocated cost (action)}=\text{Labor hours}\times \text{Per direct labor hour}\\ =24,000\text{ hours}\times \$4.50\\ =\$108,000\end{array}$

Hence, the allocated cost for action is $108,000.

b

To determine

Allocate the quality-control cost of the products by assuming it is driven by the batch-level activities.

Explanation of Solution

The calculation of allocation rate is as follows:

$\begin{array}{c}\text{Allocation rate}=\frac{\text{Cost to be allocated (Quality control cost)}}{\text{Cost driver (Number of batches) }}\\ =\frac{\$225,000}{\text{60 batches}}\\ =\$3,750\text{ per batch}\end{array}$

Hence, the allocation rate per batch is $3,750.

The calculation of total cost allocated for handy is as follows:

$\begin{array}{c}\text{Allocated cost (handy)}=\text{Number of batches}\times \text{Per batch}\\ =38\text{ batches}\times \$3,750\\ =\$142,500\end{array}$

Hence, the allocated cost for handy is $142,500.

The calculation of total cost allocated for action is as follows:

$\begin{array}{c}\text{Allocated cost (action)}=\text{Number of batches}\times \text{Per batch}\\ =22\text{ batches}\times \$3,750\\ =\$82,500\end{array}$

Hence, the allocated cost for action is $82,500.

c

To determine

Allocate the quality-control cost among the products by assuming it is driven by the product-level activities.

Explanation of Solution

The calculation of allocation rate is as follows:

$\begin{array}{c}\text{Allocation rate}=\frac{\text{Cost to be allocated (Quality control cost)}}{\text{Cost driver (Number of engineers) }}\\ =\frac{\$225,000}{\text{15 engineers}}\\ =\$15,000\text{ per engineer}\end{array}$

Hence, the allocation rate per engineer is $15,000.

The calculation of total cost allocated for handy is as follows:

$\begin{array}{c}\text{Allocated cost (handy)}=\text{Number of engineers}\times \text{Per engineer cost}\\ =10\text{ engineers}\times \$15,000\\ =\$150,000\end{array}$

Hence, the allocated cost for handy is $150,000.

The calculation of total cost allocated for action is as follows:

$\begin{array}{c}\text{Allocated cost (action)}=\text{Number of engineers}\times \text{Per engineer cost}\\ =5\text{ engineers}\times \$15,000\\ =\$75,000\end{array}$

Hence, the allocated cost for action is $75,000.

d

To determine

Allocate the quality-control cost among the products by assuming it is driven by the facility-level activities.

Explanation of Solution

The calculation of allocation rate is as follows:

$\begin{array}{c}\text{Allocation rate}=\frac{\text{Cost to be allocated (Quality control cost)}}{\text{Cost driver (Number of square feet) }}\\ =\frac{\$225,000}{125,000\text{ square feet}}\\ =\$1.80\text{ per square feet}\end{array}$

Hence, the allocation rate per square feet is $1.80.

The calculation of total cost allocated for handy is as follows:

$\begin{array}{c}\text{Allocated cost (handy)}=\text{Number of square feets}\times \text{Per square feet}\\ =40,000\text{ square feet}\times \$1.80\\ =\$72,000\end{array}$

Hence, the allocated cost for handy is $72,000.

The calculation of total cost allocated for action is as follows:

$\begin{array}{c}\text{Allocated cost (action)}=\text{Number of square feets}\times \text{Per square feet}\\ =85,000\text{ square feet}\times \$1.80\\ =\$153,000\end{array}$

Hence, the allocated cost for action is $153,000.