1.(1)

XYZ Company manufactures and distributes several different products. The company currently uses a plantwide allocation method for allocating overhead at a rate of $10 per direct labor hour. Department 1 produces Products X and Y. Department 1 has $262,000 in traceable overhead. Department 2 manufactures Product Z. Department 2 has $128,000 in traceable overhead. The product costs (per unit) and other information are as follows: Required: a. If XYZ changes its allocation basis to machine hours, what is the total product cost per unit for Product X, Y, and Z? b. If XYZ changes its overhead allocation to departmental rates, what are the product costs per unit for Product X, Y, and Z, assuming Departments 1 and 2 use direct labor hours and machine hours as their respective allocation bases?

2.(1)

XYZ Company manufactures and distributes several different products. The company currently uses a plantwide allocation method for allocating overhead at a rate of $10 per direct labor hour. Department 1 produces Products X and Y. Department 1 has $262,000 in traceable overhead. Department 2 manufactures Product Z. Department 2 has $128,000 in traceable overhead. The product costs (per unit) and other information are as follows: Department 2 has recently purchased and installed new computerized equipment for Product Z. This equipment will increase the overhead costs by $27,000 and decrease labor costs (due to time savings) in Department 2 by $3.00 per case. Machine hours will not change. Required: a. If XYZ uses a plantwide rate based on direct labor hours, what are the revised overhead costs per unit for Product X, Y, and Z? b. If XYZ uses a plantwide rate based on machine hours, what are the revised overhead costs per unit for Product X, Y, and Z? c. XYZ uses departmental rates, allocating Departments 1 on direct labor hours and 2 on machine hours. What are the overhead costs per unit for Product X, Y, and Z?

3.(1)

Platt Sports Products manufactures and distributes three types of golf clubs: beginners, intermediate, and advanced. The materials used in these clubs increases in each level and allows for more precise balancing and longer wear. Production is highly automated for the beginners' clubs, whereas the intermediate and advanced clubs require a varying degree of labor, depending on the intricacy of the balancing process. Platt applies all indirect costs according to a predetermined rate based on direct labor hours. A consultant recently suggested that Platt switch to an activity-based costing (ABC) system, and identified the following cost breakdown for the upcoming year: In addition, management estimates 50,000 direct labor hours will be used in the upcoming year at a rate of $14 per hour. Assume that the following activity took place in the first month of the upcoming year: Required: a. Compute the production costs for each product in the first month of the upcoming year using direct labor hours as the allocation base. b. Compute the production costs for each product in the first month of the upcoming year using machine hours as the allocation base. c. Compute the production costs for each product in the first month of the upcoming year using activity-based costing.

4.(1)

Quartz, Inc., has identified the following overhead costs and cost drivers for next year: The following are details for two of the many jobs completed during the year: The company's normal activity is 40,000 direct labor hours. Required: a. If Quartz, Inc., uses a traditional normal costing approach using direct labor hours to allocate overhead costs, calculate the total cost of Job 400 and Job 402. b. If Quartz, Inc. uses activity-based costing, calculate the total cost of Job 400 and Job 402.

5.(1)

Lombard Company has two major segments with the following information: The business also has overhead costs as follows: NOTE: overhead does not include salesperson salaries. Required: a. Determine the income of each segment if overhead costs are allocated based on sales revenue. b. Determine the income of each segment if overhead costs are allocated using activity-based cost drivers.

6.(1)

Pretty Dog Corporation manufactures two models of grooming stations, a standard and a deluxe model. The following activity and cost information has been compiled: Assume a traditional costing system applies the overhead costs based on direct labor hours. Required: a. What is the total amount of overhead costs assigned to the standard model? b. What is the total amount of overhead costs assigned to the deluxe model? Assume an activity-based costing system is used and that the number of setups and the number of components are identified as the activity-cost drivers for overhead. c. What is the total amount of overhead costs assigned to the standard model? d. What is the total amount of overhead costs assigned to the deluxe model?

7.(1)

Beloit Company manufactures and distributes several different products. The company currently uses a plantwide allocation method for allocating overhead at a rate of $20 per direct labor hour. Department 1 produces Product X. Department 1 has $256,000 in traceable overhead. Department 2 manufactures Products Y and Z. Department 2 has $524,000 in traceable overhead. The product costs (per unit) and other information are as follows: Required: a. If Beloit changes its allocation basis to machine hours, what is the overhead cost per unit for Product X, Y, and Z? b. If Beloit changes its overhead allocation to departmental rates, what are the overhead costs per unit for Product X, Y, and Z, assuming Department 1 uses direct labor hours and Department 2 uses machine hours as their respective allocation bases?

8.(1)

Abbyland, Inc., has identified the following overhead costs and cost drivers for next year: The company's normal activity is 40,000 direct labor hours. Required: a. If Abbyland, Inc., uses a traditional normal costing approach using direct labor hours to allocate overhead costs, calculate the overhead cost of each of the three jobs. b. If Abbyland, Inc., uses activity-based costing, calculate the overhead cost of each of the three jobs.

9.(1)

Bad River Company produces three products with the following production and cost information: Required: Determine the amount of overhead that would be assigned to each unit of all three products using activity-based costing.

10.(1)

Match each of the following activities with the appropriate category:

11.(1)

The Spurling Cleaning Brigade Company provides housecleaning services to its clients. The company uses an activity-based costing system for its overhead costs. The company has provided the following data from its activity-based costing system. The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. One particular client, the Vandal family, requested 32 jobs during the year that required a total of 192 hours of housecleaning. For this service, the client was charged $2,200. Required: a. Using the activity-based costing system, compute the client margin for the Vandal family. Round off all calculations to the nearest whole cent. b. Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to clients on the basis of cleaning hours. Compute the margin for the Vandal family. Round off all calculations to the nearest whole cent.

12.(1)

Schmeider Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products. Data concerning two products appear below: Required: How much overhead cost would be assigned to each of the two products using the company's activity-based costing system?

13.(1)

Kapoor Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products. Data concerning two products appear below: Required: a. How much overhead cost would be assigned to Product J00A using the company's activity-based costing system? Show your work! b. How much overhead cost would be assigned to Product S06U using the company's activity-based costing system? Show your work!

14.(1)

Spadaro Corporation has an activity-based costing system with three activity cost pools-Processing, Setting Up, and Other. Costs in the Processing cost pool are assigned to products based on machine-hours (MHs) and costs in the Setting Up cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. Data concerning the two products and the company's costs and activity-based costing system appear below: Required: a. Calculate activity rates for each activity cost pool using activity-based costing. b. Determine the amount of overhead cost that would be assigned to each product using activity-based costing. c. Determine the product margins for each product using activity-based costing.

15.(1)

Day Corporation has an activity-based costing system with three activity cost pools-Processing, Setting Up, and Other. The company's overhead costs, which consist of factory utilities and indirect labor, are allocated to the cost pools in proportion to the activity cost pools' consumption of resources. Data concerning the company's costs and activity-based costing system appear below: Required: Assign overhead costs to activity cost pools using activity-based costing.

16.(1)

Yentzer Corporation has an activity-based costing system with three activity cost pools-Processing, Setting Up, and Other. The company's overhead costs consist of equipment depreciation and indirect labor and are allocated to the cost pools in proportion to the activity cost pools' consumption of resources. Equipment depreciation totals $72,000 and indirect labor totals $8,000. Data concerning the distribution of resource consumption across activity cost pools appear below: Required: Assign overhead costs to activity cost pools using activity-based costing.

17.(1)

Cosgrove Company manufactures two products, Product K-7 and Product L-15. Product L-15 is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product K-7. Product L-15 is the more complex of the two products, requiring 2.0 hours of direct labor time per unit to manufacture compared to 1.0 hour of direct labor time for Product K-7. Product L-15 is produced on an automated production line. Overhead currently is applied to the products on the basis of direct labor-hours. The company estimated it would incur $510,000 in manufacturing overhead costs and produce 10,000 units of Product L-15 and 40,000 units of Product K- 7 during the current year. Unit costs for materials and labor are: Required: a. Compute the predetermined overhead rate under the current method, and determine the unit product cost of each product for the current year. b. The company is considering the use of activity-based costing as an alternative to its traditional costing method for manufacturing overhead. Data relating to the company's activity cost pools for the current year are given below: Using the data above, determine the unit product cost of each product for the current year. c. What items of overhead cost make Product L-15 so costly to produce according to the activity-based costing system? What influence might the activity-based costing data have on management's opinions regarding the profitability of Product L-15?

18.(1)

Murri Corporation has an activity-based costing system with three activity cost pools-Processing, Setting Up, and Other. The company's overhead costs, which consist of factory utilities and indirect labor, are allocated to the cost pools in proportion to the activity cost pools' consumption of resources. Costs in the Processing cost pool are assigned to products based on machine-hours (MHs) and costs in the Setting Up cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. Data concerning the two products and the company's costs and activity-based costing system appear below: Required: a. Assign overhead costs to activity cost pools using activity-based costing. b. Calculate activity rates for each activity cost pool using activity-based costing. c. Determine the amount of overhead cost that would be assigned to each product using activity-based costing. d. Determine the product margins for each product using activity-based costing.

19.(1)

Bustle Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Z68W and K07E, about which it has provided the following data: The company's estimated total manufacturing overhead for the year is $1,809,600 and the company's estimated total direct labor-hours for the year is 26,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Required: a. Determine the unit product cost of each of the company's two products under the traditional costing system. b. Determine the unit product cost of each of the company's two products under activity-based costing system.

20.(1)

Stoughton Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, M31P and M07T, about which it has provided the following data: The company's estimated total manufacturing overhead for the year is $2,675,460 and the company's estimated total direct labor-hours for the year is 51,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Required: a. Determine the manufacturing overhead cost per unit of each of the company's two products under the traditional costing system. b. Determine the manufacturing overhead cost per unit of each of the company's two products under activity-based costing system.

21.(1)

A project costs $200,000, produces annual cash inflows of $20,000, and has a discount rate of 8%. Explain how you can quickly determine the difference in the NPV of the project if the cash inflows last only 30 years rather than 40 years. Show the calculations needed to determine the amount of the NPV difference.

22.(1)

A new machine will cost $100,000 and generate after-tax cash inflows of $35,000 for 4 years. What is the minimum rate of return the project must earn to be acceptable? Prove that your rate is correct.

23.(1)

The use of NPV as an investment criterion is said to be more reliable than using IRR. Discuss potential problems with the use of IRR.

24.(1)

Spending $40,000 on a new truck would increase delivery revenues by $18,000 annually over the truck's 4-year life. Graph the relationship between NPV and the discount rate for this project. (Hint:Assume for simplicity that the relationship is linear and find two points on the line's graph.) Is this project acceptable at a discount rate of 16%? What is the highest discount rate at which this project is acceptable?

25.(1)

Evaluate the following mutually exclusive projects using IRR as a selection criterion. Assuming a discount rate of 14%, which projectif eitherwould be selected? Project A costs $50,000 and returns $15,000 after-tax annually. Project B costs $35,000 and returns $11,000 after-tax annually. Both projects have a 5-year life.

26.(1)

Why might a firm want to impose soft capital rationing?

27.(1)

ABC Corporation is experiencing hard capital rationing and will not be able to invest more than $1,000,000 this year. Develop a profitability index for the following four projects and indicate which projects will be accepted. All four projects will last 3 years and the firm uses a 10% discount rate.

28.(1)

Calculate the payback period for each of the following mutually exclusive projects, then comment on the advisability of selection based on the payback period criterion: Project A has a cost of $15,000, returns $4,000 after-tax the first year with this amount increasing by $1,000 annually over a 5-year life; Project B costs $15,000 and returns $13,000 after-tax the first year, followed by 4 years of $2,000 per year. The firm uses a 10% discount rate.

29.(1)

Low-energy light bulbs typically cost $3.50, have a life of 9 years, and use about $1.60 of electricity a year. Conventional light bulbs are cheaper to buy, for they cost only $.50. On the other hand, they last only about a year and use about $6.60 of energy. If the real discount rate is 5%, what is the relative cost of the two products?

30.(1)

What is the net present value of an investment, and how do you calculate it?

31.(1)

How is the internal rate of return of a project calculated and what must you look out for when using the internal rate of return rule?

32.(1)

Why doesn't the payback rule always make shareholders better off?

33.(1)

How can the net present value rule be used to analyze three common problems that involve competing projects: when to postpone an investment expenditure; how to choose between projects with unequal lives; and when to replace equipment?

34.(1)

How is the profitability index calculated and how can it be used to choose between projects when funds are limited?

35.(1)

Sometimes, comparing project NPVs properly can be surprisingly tricky. What are three important, but often challenging decisions which managers commonly face?

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