Chapter 7: Applying Excel
Data
Manufacturing overhead	$500,000
Selling and administrative overhead	$300,000
	Assembling Units	Processing Orders	Supporting Customers	Other
Manufacturing overhead	50%	35%	5%	10%
Selling and administrative overhead	10%	45%	25%	20%
Total activity	1,000	250	100
	units	orders	customers
OfficeMart orders:
Customers	1	customer
Orders	4	orders
Number of filing cabinets ordered in total	80	units
Selling price	$595
Direct materials	$180
Direct labor	$50
Enter a formula into each of the cells marked with a ? below
Review Problem: Activity-Based Costing
Perform the first stage allocations
	Assembling Units	Processing Orders	Supporting Customers	Other	Total
Manufacturing overhead	$250,000	$175,000	$25,000	$50,000	$500,000
Selling and administrative overhead	$30,000	$135,000	$75,000	$60,000	$300,000
Total cost	$ 280,000	$310,000	$100,000	$110,000	$800,000
Compute the activity rates
Activity Cost Pools	Total Cost	Total Activity		Activity Rate
Assembling units	$280,000	1,000	units	$280	per unit
Processing orders	$310,000	250	orders	$1,240	per order
Supporting customers	$100,000	100	customers	$1,000	per customer
Compute the overhead cost attributable to the OfficeMart orders
Activity Cost Pools	Activity Rate		Activity		ABC Cost
Assembling units	$280	per unit	80	units	$22,400
Processing orders	$1,240	per order	4	orders	$4,960
Supporting customers	$1,000	per customer	1	customer	$1,000
Determine the customer margin for the OfficeMart orders under Activity-Based Costing
Sales		$ 47,600
Costs:
Direct materials	$ 14,400
Direct labor	4,000
Unit-related overhead	22,400
Order-related overhead	4,960
Customer-related overhead	1,000	46,760
Customer margin		$ 840
Determine the product margin for the OfficeMart orders under a traditional cost system
Manufacturing overhead	$500,000
Total activity	1,000	units
Manufacturing overhead per unit	$500	per unit
Sales		$ 47,600
Costs:
Direct materials	$ 14,400
Direct labor	$4,000
Manufacturing overhead	$40,000	$58,400
Traditional costing product margin		$ (10,800)

Note that the worksheet contains a section at the bottom titled Determine the Product Margin Under a Traditional Cost System that is not in the Review Problem. In this section, it is assumed that the traditional costing system allocates manufacturing overhead on the basis of the number of units produced. When completed, that part of the worksheet should contain the following results:

52	Determine the product margin for the OfficeMart orders under a traditional cost system
53	Manufacturing overhead	$	500,000
54	Total activity		1,000	units
55	Manufacturing overhead per unit	$	500	per unit
56
57	Sales			$	47,600
58	Costs:
59	Direct materials	$	14,400
60	Direct labor		4,000
61	Manufacturing overhead		40,000		58,400
62	Traditional costing product margin			$	(10,800)
63

After entering formulas in all of the cells that contained question marks, verify that the dollar amounts match the numbers in the Review Problem.

Check your worksheet by doubling the units ordered in cell B16 to 160. The customer margin under activity-based costing should now be $7,640 and the traditional costing product margin should be $(21,600). If you do not get these results, find the errors in your worksheet and correct them.

ssume that OfficeMart places orders more frequently, but everything else remains the same. On your worksheet increase the number of orders from 4 to 22. (Prior to completing this requirement, change all worksheet figures back to their original amounts.)

(a)	What is the customer margin under activity-based costing when the number of orders increases to 22? (Enter a loss as a negative amount.)

(b)	What is the product margin under the traditional costing system when the number of orders increases to 22? (Enter a loss as a negative amount.)

(c)

Which of the following statements are true? (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.)

	If a customer orders more frequently, but orders the same total number of units over the course of a year, the customer margin under activity based costing will decrease.
	If a customer orders more frequently, but orders the same total number of units over the course of a year, the product margin under a traditional costing system will decrease.
	If a customer orders more frequently, but orders the same total number of units over the course of a year, the customer margin under activity based costing will be unaffected.
	If a customer orders more frequently, but orders the same total number of units over the course of a year, the product margin under a traditional costing system will be unaffected.

3.

OfficeMart has found an error in its data. The percentage of selling and administrative overhead attributable to processing orders should be changed to 30% from 45% and the percentage attributable to supporting customers should be changed to 40% from 25%.

(a)	Based on new number of orders in Requirement 2, what is the customer margin under activity-based costing when the data are corrected? (Enter a loss as a negative amount.)

(b)	Based on new number of orders in Requirement 2, what is the product margin under the traditional costing system when the data are corrected? (Enter a loss as a negative amount.)

(c)

Which of the following statements are true about what happens when the percentage of selling and administrative overhead attributable to processing orders declines and the percentage of selling and administrative overhead attributable to supporting customers increases by the same amount? (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.)

	When the percentage of selling and administrative overhead attributable to processing orders declines and the percentage of selling and administrative overhead attributable to supporting customers increases by the same amount, costs are shifted from the processing orders cost pool to the supporting customers cost pool.
	When the percentage of selling and administrative overhead attributable to processing orders declines and the percentage of selling and administrative overhead attributable to supporting customers increases by the same amount, costs will be shifted from customers who order more frequently to those who order less frequently.
	When the percentage of selling and administrative overhead attributable to processing orders declines and the percentage of selling and administrative overhead attributable to supporting customers increases by the same amount, the customer margins of those who order more frequently will increase relative to the customer margins of those who order less frequently.