Quiz Chapter 8 - Solutions

Transcription

1 Quiz Chapter 8 - Solutions 1. Jennifer Company has two products: A and B. The company uses -Based Costing. The estimated total cost and expected activity for each of the company's three activity cost pools are as follows: Estimated Expected Cost Pool Cost Product A Product B Total 1... $23, $18, $34, The activity rate under the -Based Costing system for 3 is closest to: A) $ B) $ C) $ D) $ The correct answer is B. To calculate the activity rate for activity 3, you would divide: Estimated Cost / Estimated Driver $34,600 / 900 $ Reach Consulting Corporation has its headquarters in Chicago and operates from three branch offices in Portland, Dallas, and Miami. Reach's headquarter activities are assigned to two activity cost pools: General Service and Research Service. These costs are then allocated to the three branch offices. Information for next year related to this -Based Costing system is as follows: Cost Pool Measure Estimated Overhead Cost General service... % of time devoted to branch $700,000 Research service... Computer time $140,000 Estimated branch data for next year is as follows: % of time devoted to branch Computer Time Portland 30% 200,000 minutes Dallas 60% 150,000 minutes Miami 10% 50,000 minutes Page 1

2 How much of the headquarters cost allocation should Dallas expect to receive next year? A) $280,000 B) $409,500 C) $472,500 D) $504,000 C is correct. You don t have to do this with this problem, but I like to calculate an activity rate (application rate) for each activity: Portland Dallas Miami Total General Service $700,000 30% 60% 10% 100% Research Service $140, K mins 150K mins 50K mins 400K mins General Service = $7,000 per percentage point ($700,000/100%). Research Service = 35 cents per minute ($140,000/ 400,000). Dallas would receive: Cost Allocated to Dallas General Service $420,000 $7,000 x 60(% points) Research Service 52, x 150,000 Total Cost $472, Matt Company uses -Based Costing. The company has two products: A and B. The annual production and sales of Product A is 8,000 units and of Product B is 6,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows: Estimated Expected Cost Pool Cost Product A Product B Total 1... $20, $37, , $91, ,000 3,800 The cost per unit of Product A under -Based Costing is closest to: A) $2.40. B) $3.90. C) $ D) $6.60. Page 2

3 D is correct. First, calculate an activity rate (application rate) for each activity: A B Total 1 $20, $37, $91, = $40 per driver unit ($20,000/500). 2 = $37 per driver unit ($37,000/1,000). 3 = $24 per driver unit ($91,200/3800). Product A would receive: Cost Allocated to Product A 1 $4,000 $40 x $29,600 $37 x ,200 $24 x 800 Total Cost $52,800 The cost per unit of Product A is $6.60 ($52,800/8,000). Use the following to answer questions 4-7: Adelberg Company has two products: A and B. The annual production and sales of Product A is 500 units and of Product B is 1,000 units. The company has traditionally used Direct Labor Hours as the basis for applying all Manufacturing Overhead to products. Product A requires 0.4 Direct Labor Hours per unit and Product B requires 0.2 Direct Labor Hours per unit. The total estimated overhead for next period is $68,756. The company is considering switching to an -Based Costing system for the purpose of computing unit product costs for external reports. The new -Based Costing system would have three overhead activity cost pools-- 1, 2, and General Factory--with estimated overhead costs and expected activity as follows: Estimated Overhead Expected Cost Pool Costs Product A Product B Total 1... $31,031 1, , $22,249 1, ,900 General Factory... $15, Total... $68,756 (Note: The General Factory activity cost pool's costs are allocated on the basis of Direct Labor Hours.) Page 3

4 4. The Predetermined Overhead Rate under the traditional costing system is closest to: A) $ B) $ C) $ D) $ C is correct. The traditional approach would have a single plant-wide predetermined application rate. The rate is calculated as follows: Estimated Overhead/ Estimated Driver You are told that the estimated overhead is $68,756 and that the driver for General Factory is direct labor hours. $68,756/400 = $ The overhead cost per unit of Product B under the traditional costing system is closest to: A) $2.34. B) $7.74. C) $4.77. D) $ D is correct. You are told that Product B take.2 direct labor hours per unit. So, you would calculate the overhead cost per unit as follows:.2 x $ = $ Page 4

5 6. The Predetermined Overhead Rate (i.e., activity rate) for 2 under the -Based Costing system is closest to: A) $ B) $ C) $ D) $ B is correct. First, calculate an activity rate (application rate) for each activity: A B Total 1 $31, $22, General Factory $15, = $23.87 per driver unit ($31,031/1300). 2 = $11.71 per driver unit ($22,249/1900). General Factory = $38.69 per driver unit ($15,476/400). 7. The overhead cost per unit of Product B under the -Based Costing system is closest to: A) $ B) $7.74. C) $ D) $ D is correct. Product B would receive: Cost Allocated to Product B 1 $7,161 $23.87 x $3,513 $11.71 x ,738 $38.69 x 200 Total Cost $18,412 The cost per unit of Product B is $18.41 ($18,412/1,000). Page 5