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Allissa Larson hired Benson to design her kitchen Benson & Company is an architectural firm specializing in home remodeling for private clients remodeling. A total of 35 professional hours were and new office buildings for corporate clients Benson charges customers at a billing rate equal to job required one of the professionals to travel back 134% of the client's total job cost. A client's total job and forth to her house for a total of 155 miles. The cost is a combination of (1) professional time spentblueprints had to be copied four times because on the client ($60 per hour cost of employing each Larson changed the plans several times. In addition, professional) and (2) operating overhead allocated to 14 hours of secretarial time were used lining up the the client's job. Benson allocates operating overhead subcontractors for the job. to jobs based on professional hours spent on the job Benson estimates its five professionals will incura Read the requirements. total of 10,000 professional hours working on client jobs during the year. (Click the icon to view the operating cost incurred on this job. In addition, Larson's remodeling 1 Data Table All operating costs other than professional salaries (travel reimbursements, copy costs, secretarial salaries, office lease, and so forth) can be assigned to the three activities. Total activity costs, cost drivers, and total usage of those cost drivers are estimated as follows: Total Activity Cost Total Usage by Corporate Clients Total Usage by Private Clients Activity Transporation to Cost Driver Round-trip mileage 13,500 miles Blueprint copying .. Office support .. 35,000 Number of copies 190,000 250 copies 750 copies 2,400 secretarial hours Secretarial time . .. 2,600 secretarial hours Total operating overhead $ 234,000 . . . Print Done iRequirements 1 1. Calculate the current indirect cost allocation rate per professional hour. 2. Calculate the total amount that would be billed to Larson given the current costing 3. Calculate the activity cost allocation rates that could be used to allocate operating 4. Calculate the amount that would be billed to Larson using ABC costing. structure overhead costs to client jobs. Which type of billing system is more fair to clients? Explain. 5. It also expects this program to avoid lost profits from the following: Click the icon to view the information. Awesome Sound manufactures high-quality speakers. Suppose Awesome Sound is considering spending the following amounts on a new quality program: (Click the icon to view the information.) Awesome Sound expects this quality program to save costs as follows 1. Classify each of these costs into one of the four categories of quality costs (prevention, appraisal, internal failure, external failure). 2. Should Awesome Sound implement the quality (Click the icon to view the information.) program? Give your reasons. Data Table Additional 20 minutes of testing for each speaker . .. _ _ . . . .. . . . . . . . .$601,000 Negotiating with and training suppliers to obtain higher-quality materials and on-time delivery Redesigning the speakers to make them easier to manufacture. .. . . . . . . . .. . 300,200 $1,409,000 Print Done Data Table Reduced warranty repair costs . . . . . . . . . . . .. . . Avoid inspection of raw materials .. . . . . _ . . . Rework avoided because of fewer defective units .. . 201,000 $ 409,000 $655,000 Print Done Savings on lost profits from lost sales due to disappointed customers Allissa Larson hired Benson to design her kitchen Benson & Company is an architectural firm specializing in home remodeling for private clients remodeling. A total of 35 professional hours were and new office buildings for corporate clients Benson charges customers at a billing rate equal to job required one of the professionals to travel back 134% of the client's total job cost. A client's total job and forth to her house for a total of 155 miles. The cost is a combination of (1) professional time spentblueprints had to be copied four times because on the client ($60 per hour cost of employing each Larson changed the plans several times. In addition, professional) and (2) operating overhead allocated to 14 hours of secretarial time were used lining up the the client's job. Benson allocates operating overhead subcontractors for the job. to jobs based on professional hours spent on the job Benson estimates its five professionals will incura Read the requirements. total of 10,000 professional hours working on client jobs during the year. (Click the icon to view the operating cost incurred on this job. In addition, Larson's remodeling 1 Data Table All operating costs other than professional salaries (travel reimbursements, copy costs, secretarial salaries, office lease, and so forth) can be assigned to the three activities. Total activity costs, cost drivers, and total usage of those cost drivers are estimated as follows: Total Activity Cost Total Usage by Corporate Clients Total Usage by Private Clients Activity Transporation to Cost Driver Round-trip mileage 13,500 miles Blueprint copying .. Office support .. 35,000 Number of copies 190,000 250 copies 750 copies 2,400 secretarial hours Secretarial time . .. 2,600 secretarial hours Total operating overhead $ 234,000 . . . Print Done iRequirements 1 1. Calculate the current indirect cost allocation rate per professional hour. 2. Calculate the total amount that would be billed to Larson given the current costing 3. Calculate the activity cost allocation rates that could be used to allocate operating 4. Calculate the amount that would be billed to Larson using ABC costing. structure overhead costs to client jobs. Which type of billing system is more fair to clients? Explain. 5. It also expects this program to avoid lost profits from the following: Click the icon to view the information. Awesome Sound manufactures high-quality speakers. Suppose Awesome Sound is considering spending the following amounts on a new quality program: (Click the icon to view the information.) Awesome Sound expects this quality program to save costs as follows 1. Classify each of these costs into one of the four categories of quality costs (prevention, appraisal, internal failure, external failure). 2. Should Awesome Sound implement the quality (Click the icon to view the information.) program? Give your reasons. Data Table Additional 20 minutes of testing for each speaker . .. _ _ . . . .. . . . . . . . .$601,000 Negotiating with and training suppliers to obtain higher-quality materials and on-time delivery Redesigning the speakers to make them easier to manufacture. .. . . . . . . . .. . 300,200 $1,409,000 Print Done Data Table Reduced warranty repair costs . . . . . . . . . . . .. . . Avoid inspection of raw materials .. . . . . _ . . . Rework avoided because of fewer defective units .. . 201,000 $ 409,000 $655,000 Print Done Savings on lost profits from lost sales due to disappointed customers