Continuation of 7-4
EXERCISE 7-3 First-Stage Allocation in a Manufacturing Company (LO2) MovieTime Corporation produces furniture and fixtures for home theatre installations. John Jones, the owner of the company, recognized a trend in home theatre installations starting about three years ago and began working with local design firms and home builders to offer affordable yet high-quality furnishings for new construction and renovation markets. The company's most popular product is a leather upholstered recliner with a cup holder and snack tray built into each chair's arms. Last year, John decided to implement an ABC system to better understand the overall cost structure and to ensure he was charging competitive prices that would also allow the form to remain profitable over the longer term. The ABC system is designed to allow direct material and direct labour to be traced directly to each of the company's four main products. The system also includes four activity cost pools for overhead: Quality Control and Inspection, Order Processing. Delivery and Installation, and other. The activity measures are units produced for Quality Control and Inspection, number of orders for Order Processing, and number of deliveries for Delivery and Installation. The Other cost pool has no activity measure. The following costs will be assigned using the ABC system: S 520,000 140,000 Indirect factory salaries Delivery crew wages expense Delivery vehicle operating expenses and depreciation Procurement and order processing salaries expense 95,000 103,000 Office expenses Other administrative expenses 25,000 225.000 Total cost SI.108,000 The distribution of resource consumption across the activity cost pools is as follows: Pare 268 Quality Centre Delivery Order Processing Other Totals Inspection 50% Installation 25% 100% 03 75% 10% 158 100% Indirect factory salaries Delivery crew wages expense Delivery vehicle operating expenses and depreciation Procurement and order processing salaries and expenses 09 30 1048 10% 100% 10% 10% 65% 15% 100% Office expenses 159 155 35% 100 Other administrative expenses 159 35 40% 40 100% Required: Carry out the first stage allocations of costs to activity cost pools as illustrated in Exhibit 7-79. EXERCISE 7-4 Compute Activity Rates and Assign to a Cost Object (LO3) (This exercise is a continuation of Exercise 7-39: it should be assigned only if Exercise 7-3 is also assigned.) The ABC system at Movie Time contains the following activity cost pools and activity rates this year. Total Activity Activity Quality control and inspection Delivery and installation 4,800 units produced 1.200 deliveries 920 orders processed Onder processing Other None Activity data have also been supplied for the leather recliner product line: Activity Quality control and inspection Delivery and installation Order processing Total Activity for the Leather Recliner Product Line 1.200 units produced 300 deliveries 230 orders processed Required: 1. Using the first stage allocation from Exercise 7-36 and the above data, compute the activity rates for the ABC system. (Use Exhibit 7-8 as a guide.) Round to the nearest whole cent 2. Determine the total overhead cost that would be assigned to the leather recliner product line using the ABC system
