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Cost driver for material handling

08/01/2021 Client: saad24vbs Deadline: 7 Days

Running Head: SOLUTIONS TO MANAGERIAL ACCOUNTING EXERCISES 1


SOLUTIONS TO MANAGERIAL ACCOUNTING EXERCISES 13


Solutions to Managerial Accounting Exercises


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Chapter 5: Activity-Based Costing and Management:


Exercise 5-26 Page 201


1. Under a costing system that allocates overhead on the basis of direct-labor hours, the material-handling costs allocated to one lens would be what amount?


Material-handling cost per lens:


$50,000 x 200 = $1,000


[(25x200) ÷ (25x200)]A


A Direct-labor hour’s total number


Therefore, material-handling cost per lens is $1,000


2. Answer the same question a in requirement (1), but for mirrors.


Material-handling cost per mirror:


$50,000 x 200 = $1,000


[(25x200) ÷ (25x200)]A


A Direct-labor hour’s total number


Therefore, material-handling cost per mirror is $1,000


3. Under activity-based costing (ABC), the material-handling activity costs allocated to one lens would be what amount? The cost driver for the material-handling activity is the number of material moves.


Material-handling cost per lens:


[($50,000 ÷ (5 + 15)*)] x 5** = $500


25


Where: * Material moves’ total number


** The lens product line material moves’ number


Therefore, the material-handling cost per lens is $500


4. Answer the same question as in requirement (3), but for mirrors


Material-handling cost per mirror:


[($50,000 ÷ (5 + 15)*)] x 15** = $1,500


25


Where: * Material moves’ total number


** The mirror product line material moves’ number


Exercise 5-27 Page 201


1. Calculate the monthly quality-control cost to be assigned to the Satin Sheen product line under each of the following product-costing systems. (Round to the nearest dollar)


a. Traditional system, which assigns overhead on the basis of direct-labor cost


Quality-control costs = 14.5% x Direct-labor Costs


Quality-control costs assigned to Satin Sheen line = 14.5% x $27,500


= $3,988


b. Activity-based costing


Activity:


Pool Rate:


Quantity for Satin Sheen:


Assigned Cost


Incoming material inspection


$11.50 Per Type


12 Types


$138


In-Process Inspection


0.14 Per Unit


17.500 Units


$2,450


Product Certification


77.00 Per Order


25 Orders


$1,925


Total Quality-Control Costs Assigned


$4,513


2. Does the traditional product-costing system overcost or undercost the Satin Sheen product line with respect to quality-control costs? By what amount?


The traditional product-costing system undercosts Satin Sheen product line with respect to quality-control costs, by $525 = $4,513 - $3,988


Exercise 5-28 Page 202


1. Divide these costs into activity cost pools, and identify a cost driver for assigning each pool of costs to products. Calculate the total cost in each activity cost pool.


Cost Pool 1: Unit-Level I


Raw materials and components 2,950,000 Yen


Inspection 30,000 Yen


Total Cost 2,980,000 Yen


Cost driver for assigning pool 1 is raw-material cost


Cost Pool 2: Unit-Level I


Depreciation, Machinery 1,400,000 Yen


Electricity, Machinery 120,000 Yen


Equipment Maintenance, Wages 150,000 Yen


Equipment Maintenance, Parts 30,000 Yen


Total Cost 1,700,000 Yen


Cost driver for assigning pool 2 is number of units produced


Cost Pool 3: Batch-Level I


Setup Wages 40,000 Yen


Total Cost 40,000 Yen


Cost driver for assigning pool 3 is number of production runs.


Cost Pool 4: Product-Sustaining Level


Engineering Design 610,000 Yen


Total Cost 610,000 Yen


Cost driver for assigning pool 4 is product parts number


Cost Pool 5: Facility-Level I


Depreciation, Plant 700,000 Yen


Insurance, Plant 600,000 Yen


Electricity, Light 60,000 Yen


Custodial Wages, Plant 40,000 Yen


Property Taxes 120,000 Yen


Natural Gas, Heating 30,000 Yen


Total Cost 1,550,000 Yen


Cost driver for assigning pool 5 include costs allocated towards supporting departments, costs allocated to products, square footage, and number of nits manufactured.


Exercise 5-33 Page 203


The activities of Finger Lakes Winery can be classified as:


U: Unit-level I


B: Batch-level I


P: Product-sustaining-level


F: Facility-level


Activity:


Classification:


(1)


P


(2)


P


(3)


P


(4)


P


(5)


P


(6)


P


(7)


P


(8)


B


(9)


B


(10)


B


(11)


B


(12)


B


(13)


U


(14)


U


(15)


U


(16)


U


(17)


B


(18)


F


(19)


F


Exercise 5-34 Page 204


Choose two activities or accounts from each of the four classifications and explain why you agree or disagree with the ABC project team’s classification.


Carrier Corporation for each of the activity levels the definitions that include:


· Unit: occurs every time a unit is produced. For example utility cost for production equipment. It more often than not relates directly to production volume


· Batch: performed for each batch acquired as well as produced. For example, moving raw materials between the production line and stock room, besides setting-up a machine for a run.


· Product-sustaining: performed towards maintaining product designs, parts, models, and processes. For example, maintaining materials bill, expediting parts and issuing product changes orders. To support key manufacturing capability besides process, sustaining activities are mandatory.


· Facility: performed towards enabling production. Therefore, at the most basic level they are fundamental towards supporting the business entity. For example cleaning and managing the structure.


Without a doubt, these definitions are consistent with those provided in the chapter. An argument for the ABC project team’s classification would be that the activity was characterized by the activity-level classification definition. An argument against the ABC project team’s classification would be that the specific activity did not satisfy the definition. For instance, conveying materials is a batch-level activity for the reason that a raw material should be shifted to the product location whenever a production batch besides run is commenced. Whereas, a facility-level account includes depreciation since plant and equipment correspond to the production facilities provision cost in which manufacturing can occur.


Exercise 5-35 Page 204:


1. Prepare a schedule showing Redwood Company’s total selling cost for each order size and the per-skein selling cost within each order size.


Redwood Company


Selling Costs Computation by Order Size and Skein within Each Order Size


Order Size


Small


Medium


Large


Total


Sales CommissionsA[Unit Cost: $675,000/225,000 = $3.00 Per Box]


$6,000


$135,000


$534,000


$675,000


CatalogsB [Unit Cost: $295,400/590,800 =$0.50 Per Catalog


127,150


105,650


62,600


295,400


Costs of Catalog SalesC [Unit Cost: $105,000/175,000 = $0.60 Per Skein]


47,400


31,200


26,400


105,000


Credit and CollectionD [Unit Cost: $60,000/6,000 = $10 Per Order


4,850


24,150


31,000


60,000


Total Cost Per Order Size


$185,400


$296,000


$854,000


$1,135,400


Units [Skeins] SoldE


103,000


592,000


2,180,000


Unit Cost Per Order SizeE


$1.80


$0.50


$0.30


A Retail Sales in Boxes x Unit Cost:


Small: 2,000 x $3


Medium: 45,000 x $3


Large: 178,000 x $3


B Catalogs Distributed x Unit Cost


C Catalog Sales x Unit Cost


D Number of Retail Orders x Unit Cost


E Small: [2,000 x 12] + 79,000 = 103,000


Medium: [45,000 x 12] + 52,000 = 592,000


Large: [178,000 x 12] + 44,000 = 2,180,000


Total Cost Per Order Size ÷ Units Sold


2. Explain how the analysis of the selling costs for skeins of knitting yarn is likely to impact future pricing and product decisions at Redwood Company.


Selling costs analysis demonstrates that small orders cost more than large orders; which could influence management towards marketing large orders more insistently as well as offering discounts for them.

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