CALCULATOR PRINTER VERSION BACK NEXT Expand Your Critical Thinking 17-02 a-c (Part Level Submission) Waterway Manufacturing Company has supported a research and development (R&D) department that has for many years been the sole contributor to the company's new farm machinery products. The R&D activity is an overhead cost center that performs services only to in-house manufacturing departments (four different product lines), all of which produce agricultural/farm/ranch-related machinery products. The department has never sold its services to outside companies. But, because of its long history of success, larger manufacturers of agricultural products have approached Waterway to hire its R&D department for special projects. Because the costs of operating the R&D department have been spiraling uncontrollably, Waterway's management is considering entertaining these outside approaches to absorb the increasing costs. However, (1) management doesn't have any cost basis for charging R&D services to outsiders, and (2) it needs to gain control of its R&D costs. Management decides to implement an activity-based costing system in order to determine the charges for both outsiders and the in-house users of the department's services. R&D activities fall into four pools with the following annual costs. Market analysis $730,000 Product design 2,282,600 Product development 3,900,000 Prototype testing 1,316,000 Activity analysis determines that the appropriate cost drivers and their usage for the four activities are: Activities Cost Drivers Market analysis Hours of analysis Product design Number of designs Product development Number of products Prototype testing Number of tests Total Estimated Drivers 14,600 hours 2,260 designs 100 products 470 tests (a) Compute the activity-based overhead rate for each activity cost pool. Activity-Based Activities Cost Pools Overhead Rates Market analysis per hour $ Product design per design $ Product development $ per product Prototype testing $ per test Challenge Exercise 17-02 a-d (Part Level Submission) Crane, Inc. manufactures specialty toys. Trendy uses a traditional product costing system to assign overhead costs uniformly to all products. To meet industry safety standards and to assure its customers of safe and durable toys, Trendy assigns its quality-control overhead costs to all products at a rate of 22% of direct labor costs. Its direct labor cost for the month of August for its toddler line of toys is $338,000. In response to repeated requests from its financial vice president, Trendy's management agrees to adopt activity-based costing. Data relating to the toddler line of toys for the month of August are as follows: Activity Cost Pools Materials Inspection pounds Assembly Line Inspection National Toy Association Certification Number of Cost Overhead Drivers Used Cost Drivers Rate per Activity Number of pounds $0.70 per pound 51,000 Number of finished toys $0.16 per toy 213,000 toys Retail orders $2.00 per order 1,100 orders (a) Compute the quality control overhead cost to be assigned to the toddler toy line for the month of August (1) using the traditional product costing system (direct labor is the cost driver), and (2) using activity-based costing. Quality-Control Overhead Cost Traditional costing Activity-based costing II ...... Challenge Exercise 18-01 a-b (Part Level Submission) Joyful Journeys Music School provides private music lessons for elementary students. Its operating costs are as follows: Rent on facilities $2,010 per month Advertising $395 per month Instrument Rent $780 per month Teaching Instruction $43 per student Books $5 per student Other Costs $3 per student Joyful Journeys charges $100 per student per month. (a) Determine the company's break-even point in (1) number of students taught per month and (2) dollars. (1) Break even in number of students taught per month students (2) Break even in dollars Click if you would like to Show Work for this question: Open Show Work