Fundamental Accounting Principles
Fundamental Accounting Principles
24th Edition
ISBN: 9781260158595
Author: Wild
Publisher: MCG
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Chapter C, Problem 6APSA
To determine

1. Introduction:

Activity Based Costing

  • Activity Based Costing is a method of cost allocation, whereby costs are assigned to activities performed and cost per unit of activity driver is calculated and assigned to units of activities performed.
  • Activity drivers could be cost allocation units such as orders, batches, area occupied etc. Activity based costing favors cost allocation on the actual units of activity carried out as opposed to the standard method of overhead application using a blanket rate.
  •   Cost of Activity = Units of Activity performed x Cost per Activity Driver

Overhead activity rate for each activity

To determine

2. Introduction:

Activity Based Costing

  • Activity Based Costing is a method of cost allocation, whereby costs are assigned to activities performed and cost per unit of activity driver is calculated and assigned to units of activities performed.
  • Activity drivers could be cost allocation units such as orders, batches, area occupied etc. Activity based costing favors cost allocation on the actual units of activity carried out as opposed to the standard method of overhead application using a blanket rate.
  •   Cost of Activity = Units of Activity performed x Cost per Activity Driver

Allocate Costs to General Surgery and Orthopedic Surgery and Calculate cost per patient

To determine

3. Introduction:

Cost allocation of Overheads

  • Cost allocation of Overheads takes place on basis of cost objects identified to enable cost allocation. Overheads refer to costs of operations and comprise of indirect costs in the form of selling and administrative expenses.
  • Examples of Overheads are Salaries of administrative staff, rent of office, advertising expenses etc. The costs of the operations are allocated on basis of cost objects. Cost objects are units of cost allocation identified for overhead allocations and cost estimations.
  • Examples of Cost objects for Overhead allocation are Number of units produced, number of labor hours worked etc.

If costs of general surgery per patient, would be higher or lower if costs were allocated across the number of patients.

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Starlord's Music Shop's cash sales for Year 1 were $783,300, and $939,960 for Year 2. These figures included the 11.9% galatic sales tax. The store gives its customers coupons redeemable for a poster plus a Blue Swede CD. One coupon is issued for each dollar of sales. On the surrender of 100 coupons and $6.00 cash, the poster and CD are given to the customer. It is estimated that 80% of the coupons will be presented for redemption. Coupons redeemed in Year 1 totaled 420,000, and coupons redeemed in Year 2 totaled 750,000. Starlord's Music Shop bought 20,000 posters at $2.50/poster and 20,000 CDs at $7.50/CD. 1. Record the journal entry for sales and sales tax for Year 1 (assume all sales are in cash). Points Value: 10 Redemption Schedule Account Use this schedule to complete the journal entries below. Debit Credit Coupons Coupon Redeemed Redemptions Cash Received Inventory Costs Expense Total Y1 Potential Redemptions 560,000 5,600 33,600 56,000 22,400 Total Redeemed in Y1 420,000 4,200…
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