Chapter Ntivity Based Conting E Exercise 4.15 Drivers and Product-Costing Accuracy E 4.3 McCourt Company prodaces two types of leather parses standard and purses use equipment for cutting and stitching. The eqipment aso has the capablit standard designs. The standard purses use only these standard designs. They are at size to accommodate the design features of the equipment. The handerafted purse any size because the designs are created manually. Many of the manually prodaced in response to specific requests of retailers. The equipment must be specially coef accommodate the production of a batch of purses that will reccive a handcrafw McCourt Company assigns overhead using direct labor dellars. Muggs Clark, aks convinced that the purses are mot being costed correctly. Deoro proluces two modeli of dishrwashers with the following expected prime costs and activity To illustrate his point, be docided to focus on the expected annual setup and macka costs, which are as follows The company's nommal activity is 8,000 direct labor houns. Required . Determine the unit cost for each model uwing direct labor hours to apply overhead Setup equigment 0,000* Determine the unit cost for cach model using the four activity drivers The machise has the capability of supplying 250,000 machine hours over its Muggs also collected the expected annual prime costs for each purse, the machine oa ch method produces the mors accurate cost assignment? why? the expected production (which is the normal output for the company). Golding llank is in the process of implementing an activity-bused costing system A copy of an interview with the manager of Golding's Crodit Card Department follows Standard Parse Handcrafted Pare $30,000 QUESTION 1: How many employees are n your department? 7.500 45,000 Units Machine hours Number of setups RESPONSE: There are cight employees, including me. QUESTION 2: What do they do (please deseriber RESONSE: There are four major actrites supenisang employees, procesing credit and ransactions, issuing customer 1,000 hrs. statements, and answering customer questions accuradly alQUESTION & Do customers ourside your department une any equipment KISPONSE: Yes. Automatic bank tellers service customers who require cash advances QUESTION 4 what res un sare u by cach activ ty (equipment materials, energy)? each type of purse? Explain ls be assigned to each prod at mtm wide rate based on direct labor dollars. Machine costs and setup costs are Assunse that these are the only overhead costs. For cach type of purse, cakoulate head per unit that would be assignod using a direct labor dollars overhcad rat De think that these costs are tracod accurately to each punse? Explain RESONSE: We each have our own computer, printer, and desk. Paper and other supplies are scoded to operate the printers. Of ooune, we each have a telephone as well. QUESTION What ae the outputs of each activity? RISPONSE: Well, for sapervising. I manage employees seeds and try to ensure that they carry out their activities efScientlh Processing transactions produces a posting for each transaction in . Now caculate the overhead cost per unit per purse using two ity. In hww Aspart ofyutur coeputer sysem and serves as a source for preparing the monthly statoments The number statements has to be the product for the issaing activity, and 1 suppose that automatic teller activity, although of yout costs, did you use nummber of setups ce setup hours? Why? define transaction and duration drivers. Do setup activity and one for the machining activity, In choosing a driver to assig the nanber of customers served is the outpat for the answering activity. And I gues that the euber of cash advances would measane the moee tranuxctions for other peoducts such as checking and savings So. perhaps the namber of teller transactions is the real output. Deoro Company has identified the following overhead activities, costs, and actnity the coming year Exercise 4.16 Multiple versus Single Overhead Rates, Activity Drivers QUESTION Who oe what sses the activity output 34 RESPONSEWe have three products: classic, gold, and platinum credit cards. Transactions are processed for these three types of cards, and statements are sent to clients holding these cards Smilarly, anwwers to questions are all directed so clients who hold these cards. As far as super- ing 1 spend dime ensuring the proper cocedination and execution of all activities expept for he automatic teller. I really bave no role in managing that particular activity Espected Cost Aerisity Driee ctinity Number of setupe Number of orders 42a (comtinund)