Fundamentals of Managerial Accounting v3.0 book

chapter 3 sections 1-4

41. Activity-Based Costing Versus Traditional Approach, Activity-Based Management a. The cost per unit for direct materials is calculated as follows: Answer for Desk Table Desk is: Total direct material costs (a) $1,575,000 $950,000 Correct Units produced (b) 15,000 units 5,000 units Correct Direct material cost per unit (a) + (b) $105 per unit $190 per unit Correct The cost per unit for direct labor is as follows: Desk Table Total direct labor costs (c) $1,200,000 $800,000 Correct Units produced (d) 15,000 units 5,000 units Correct Direct labor cost per unit (1:) + (d) $80 per unit $160 per unit Correct b. (1) The rate is calculated as: f_'\\ Estimated overhead cost $6,000,000 estimated overhead Correct Estimated activity in allocation base $2,000,000 estimated direct labor costs Correct = 300% of direct labor costs Answer for Desk Table Desk is: Direct labor cost per unit calculated above { $80 $160 Correct Overhead rate as % of direct labor cost (f) 3 3 Correct Overhead cost per unit (e) x (D $240 per unit $480 per unit Correct (2) Per unit product costs are calculated as follows: Desk Table Direct materials (from part a) $105 $190 Correct Direct labor (from part a) 80 160 Correct Overhead 240 430 Correct Total product cost per unit $425 per unit $830 per unit Correct Answer for Table is: Correct Correct Correct Correct Correct Correct Answer for Table is: Correct Correct Correct Correct Correct Correct Correct Activity-Based Costing Versus Traditional Approach, Activity-Based Management (continued) c. (1) Predetermined overhead rates are calculated for each activity as follows: (a) (b) (a) + (b) Estimated Estimated Predetermined Overhead Cost Driver Overhead Predetermined Activity Cost Driver Costs Activity Rate over rate is: Purchase orders Number of purchase orders $ 800,000 1,000 orders $800 per order Correct Machine setups Number of setups 1,600,000 500 setups $3,200 per setup Correct Machine maintenance Machine hours 2,400,000 60,000 hours $40 per hour Correct Quality inspections Number of inspections 1,200,000 20,000 inspect. $60 per inspection Correct Total $6,000,000 (2) Overhead costs are allocated below: Overhead Overhead allocated to allocated to Desk is: Table is: Desk Table Predetermined Cost Cost Overhead Driver Overhead Driver Overhead Activity Rate Activity Allocated* Activity Allocated Purchase orders $800 per order 900 $ 720,000 100 $ 80,000 Correct Correct Machine setups $3,200 per setup 240 768,000 260 832,000 Correct Correct Machine maintenance $40 per machine hour 42,000 1,680,000 18,000 720,000 Correct Correct Quality inspections $60 per inspection 15,000 900,000 5,000 300,000 Correct Correct Total overhead costs allocated $4,068,000 $1,932,000 Correct Correct Total companywide overhead costs $6,000,000 Overhead cost per unit for each product (rounded to nearest cent) $271.20 $386.40 Correct Correct41. Activity-Based Costing and Activity-Based Management Versus Traditional App roaeh (continued) e. (3) Per unit product costs (rounded to nearest dollar): Answer for Desk Table Desk is: Direct materials (from part a} Incorrect Direct labor (from part a) Incorrect Overhead [from part c (2}) 386 Incorrect Total product cost per unit Incorrect d. Traditional Costing (Direct labor costs as the allocation base}; rounded to nearest dollar Desk Table Direct materials Incorrect Direct labor Incorrect Overhead 480 Incorrect Total product cost per unit (a) Incorrect Sales price (b) Incorrect Prot = (b) (a) $ 70 Incorrect Activity-Based Costing (Several different allocation bases); rounded to nearest dollar Desk Table Direct materials Incorrect Direct labor Incorrect Overhead Incorrect Total product cost per unit (e) Incorrect Sales price (d) Incorrect Protit (loss) = (d) - (e) F 164 Incorrect Essay answer is not required for part d, but you should recognize the difference in overhead cost per unit when comparing traditional costing with ABC. This leads to a signicant difference in prot [loss] for each product depending on the costing method used. ABC tends to be most accurate. e. The percent calculations are as follows: Desk Table Purchase orders 10% Incorrect Machine setups Incorrect Machine maintenance Incorrect Quality inspections Incorrect Essay answer is not required for part e, but you should review the percentages to see why the allocated overhead shifted from the Table product to the Desk product when making the change to activity-based costing. The traditional costing [plantwideil approach allocated 60 percent of all overhead costs to the Desk product In almost all activites shown above. the ABC approach allocated a higher percentage of overhead to the Desk product than when using the traditional approach. Answer for Table is: Incorrect Incorrect Correct Incorrect Incorrect Incorrect Correct Incorrect Incorrect Correct Incorrect Incorrect Incorrect Incorrect Incorrect Correct Correct Incorrect Incorrect Incorrect