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3/11/2015 1. Assignment Print View award: 10.00 points Mitchell Corporation manufactures a variety of products in a single facility. Consultants hired by the company to do an activitybased costing analysis have identified the following activities carried out in the company on a routine basis: Required: 1. Classify each of the above activities as a unitlevel, batchlevel, productlevel, or facilitylevel activity. 2. For each of the above activities, suggest an activity measure that could be used to allocate its costs to products. Activity Level Possible Activity Measures Number of units processed Machinehours b. A percentage of all completed goods are inspected on a random basis. Unit Number of units inspected Inspection time c. Production orders are issued for jobs. Batch Number of production orders d. The company's grounds crew maintains planted areas surrounding the factory. Facility Arbitrary e. Employees are trained in general procedures. Facility or Product Arbitrary if factorylevel Facility Arbitrary Batch Number of purchase orders Batch or Unit Number of material moves i. The plant controller prepares periodic accounting reports. Facility Arbitrary j. The engineering department makes modifications in the designs of products. Product Engineering time k. Machines are set up between batches of different products. Batch Number of setups Setup time sh is ar stu ed d vi y re aC s ou ou rc rs e eH w er as o. co m a. Milling machines are used to make components for products. Unit f. The human resources department screens and hires new employees. g. Purchase orders are issued for materials required in production. h. Material is received on the receiving dock and moved to the production area. l. The maintenance crew does routine periodic maintenance on Facility generalpurpose equipment. Arbitrary Explanation: Arbitrary: Facilitylevel costs are commonly allocated using an arbitrary allocation base such as direct laborhours. Worksheet 2. award: 10.00 points Learning Objective: 0301 Understand the basic approach in activitybased costing and how it differs from conventional costing. Difficulty: Easy Th Gino's Restaurant is a popular restaurant of Boston, Massachusetts. The owner of the restaurant has been trying to better understand costs at the restaurant and has hired a student intern to conduct an activitybased costing study. The intern, in consultation with the owner, identified the following major activities: Activity Cost Pool Serving a party of diners Serving a diner Serving drinks Activity Measure Number of parties served Number of diners served Number of drinks ordered A group of diners who ask to sit at the same table is counted as a party. Some costs, such as the costs of cleaning linen, are the same whether one person is at a table or the table is full. Other costs, such as washing dishes, depend on the number of diners served. Data concerning these activities are shown below. Total cost Total activity Serving a Party $32,800 8,000 parties Serving a Dinner $211,200 32,000 diners Serving Drinks $69,600 58,000 drinks Total $313,600 Prior to the activitybased costing study, the owner knew very little about the costs of the restaurant. She knew that the total cost for the month was $313,600 and that 32,000 diners had been served. https://www.coursehero.com/file/11709784/Chap-3-HW/ Therefore, the average cost per diner was $9.80 ($313,600 32,000 diners = $9.80per diner). http://ezto.mheducation.com/hm_accounting.tpx 1/6 3/11/2015 Assignment Print View Required: 1. Compute the activity rates for each of the three activities. (Round your answers to 2 decimal places.) Serving a Party Serving a Diner Serving Drinks Cost per unit of activity $ 4.10 per party $ 6.60 per diner $ 1.20 per drink 2. According to the activitybased costing system, what is the total cost of serving each of the following parties of diners? (Do not round intermediate calculations. Round your final answers to 2 decimal places.) a. A party of four diners who order three drinks in total. b. A party of two diners who do not order any drinks. c. A lone diner who orders two drinks. Party of four diners who order three drinks Party of two diners who order no drinks A lone diner who orders two drinks Total $ 34.10 $ 17.30 $ 13.10 sh is ar stu ed d vi y re aC s ou ou rc rs e eH w er as o. co m 3. Convert the total costs you computed in part (1) above to costs per diner. In other words, what is the average cost per diner for serving each of the following parties? (Do not round intermediate calculations. Round your final answers to 2 decimal places.) a. A party of four diners who order three drinks in total. b. A party of two diners who do not order any drinks. c. A lone diner who orders two drinks. Party of four diners who order three drinks Party of two diners who order no drinks Party of one diner who orders two drinks $ $ $ Average cost 8.53 per diner 8.65 per diner 13.10 per diner Explanation: 1. The first step is to determine the activity rates: Total cost (a) Total activity (b) Cost per unit of activity (a) (b) 2. Serving a Party $32,800 8,000 parties $ 4.10 per party Serving a Diner $211,200 32,000 diners per $ 6.60 diner Serving Drinks $69,600 58,000 drinks $ 1.20 per drink According to the ABC system, the cost of serving each of the parties can be computed as follows: Th Cost per unit of activity a. Party of four diners who order three drinks Cost b. Party of two diners who order no drinks Cost c. Party of one diner who orders two drinks Cost 3. Serving a Party Serving a Diner Serving Drinks Total $ 4.10 per party $ 6.60 per diner $1.20 per drink 1 party 4 diners 3 drinks $ 4.10 $ 26.40 $3.60 $34.10 1 party 2 diners 0 drinks $ 4.10 $ 13.20 $0.00 $17.30 1 party 1 diner 2 drinks $ 4.10 $ 6.60 $2.40 $13.10 The average cost per diner for each party can be computed by dividing the total cost of the party by the number of diners in the party as follows: a. $34.10 4 diners = $8.53 per diner b. $17.30 2 diners = $8.65 per diner c. $13.10 1 diner = $13.10 per diner Worksheet Learning Objective: 0302 Compute activity rates for an activitybased costing system. Learning Objective: 0304 Contrast the product costs computed under activitybased costing and conventional costing methods. Difficulty: Hard Learning Objective: 0303 Compute product costs using activitybased costing. https://www.coursehero.com/file/11709784/Chap-3-HW/ http://ezto.mheducation.com/hm_accounting.tpx 2/6 3/11/2015 Assignment Print View [The following information applies to the questions displayed below.] For many years, Thomson Company manufactured a single product called LEC 40. Then three years ago, the company automated a portion of its plant and at the same time introduced a second product called LEC 90 that has become increasingly popular. The LEC 90 is a more complex product, requiring 0.80 hour of direct labor time per unit to manufacture and extensive machining in the automated portion of the plant. The LEC 40 requires only 0.40 hours of direct labor time per unit and only a small amount of machining. Manufacturing overhead costs are currently assigned to products on the basis of direct labor hours. Despite the growing popularity of the company's new LEC 90, profits have been declining steadily. Management is beginning to believe that there may be a problem with the company's costing system. Direct material and direct labor costs per unit are as follows: Direct materials Direct labor (0.40 hours and 0.80 hours @ $15.00 per hour) LEC 40 LEC 90 $30.00 $50.00 $ 6.00 $12.00 Th sh is ar stu ed d vi y re aC s ou ou rc rs e eH w er as o. co m Management estimates that the company will incur $912,000 in manufacturing overhead costs during the current year and 60,000 units of the LEC 40 and 20,000 units of the LEC 90 will be produced and sold. https://www.coursehero.com/file/11709784/Chap-3-HW/ http://ezto.mheducation.com/hm_accounting.tpx 3/6 3/11/2015 3. Assignment Print View award: 10.00 points Required: 1a. Compute the predetermined manufacturing overhead rate assuming that the company continues to apply manufacturing overhead cost on the basis of direct laborhours. (Round your answer to 2 decimal places.) Predetermined manufacturing overhead rate $ 22.80 per DLH 1b. Using this rate and other data from the problem, determine the unit product cost of each product. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) Unit product cost LEC 40 $ 45.12 LEC 90 $ 80.24 Explanation: 1. The company expects to work 40,000 direct laborhours, computed as follows: 24,000 DLHs 16,000 DLHs 40,000 DLHs sh is ar stu ed d vi y re aC s ou ou rc rs e eH w er as o. co m LEC 40: 60,000 units 0.40 DLH per unit LEC 90: 20,000 units 0.80 DLH per unit Total direct laborhours Using direct laborhours as the base, the predetermined manufacturing overhead rate would be: Predetermined overhead rate = Total manufacturing overhead Total direct laborhours = $ 912,000 = $ 22.80 per DLH 40,000 DLHs The unit product cost of each product would be: Direct materials Direct labor Manufacturing overhead: $22.80 per DLH 0.40 DLHs $22.80 per DLH 0.80 DLHs Unit product cost LEC 40 LEC 90 $30.00 $50.00 6.00 12.00 9.12 18.24 $45.12 $80.24 Worksheet Learning Objective: 0303 Compute product costs using activitybased costing. Th Learning Objective: 0304 Contrast the product costs computed under activitybased costing and conventional costing methods. Difficulty: Hard Learning Objective: 0302 Compute activity rates for an activitybased costing system. https://www.coursehero.com/file/11709784/Chap-3-HW/ http://ezto.mheducation.com/hm_accounting.tpx 4/6 3/11/2015 4. Assignment Print View award: 10.00 points 2. Management is considering using activitybased costing to assign manufacturing overhead cost to products. The activitybased costing system would have the following four activity cost pools: Estimated Overhead Cost $225,000 $182,000 $ 45,000 $460,000 Activity Cost Pool Activity Measure Maintaining parts inventory Number of part types Processing purchase orders Number of purchase orders Quality control Number of tests run Machinerelated Machinehours Activity Measure Number of part types Number of purchase orders Number of tests run Machinehours Expected Activity LEC 40 LEC 90 600 900 $912,000 Total 1,500 2,000 800 2,800 500 1,600 1,750 8,400 2,250 10,000 Determine the activity rate (i.e., predetermined overhead rate) for each of the four activity cost pools. Activity Rate 150.00 per part type 65.00 per order 20.00 per test 46.00 per MH sh is ar stu ed d vi y re aC s ou ou rc rs e eH w er as o. co m Activity Cost Pool Maintaining inventory Processing purchase orders Quality control Machinerelated $ $ $ $ Explanation: Activity rates can be computed as follows: Activity Cost Pool Maintaining inventory Processing purchase orders (a) Estimated Overhead Cost $225,000 $182,000 Quality control Machinerelated $ 45,000 $460,000 (b) (a) (b) Expected Activity Activity Rate 1,500 orders $150.00 per part type 2,800 requests $ 65.00 per order 2,250 tests 10,000 MHs $ 20.00 per test $ 46.00 per MH Worksheet Learning Objective: 0303 Compute product costs using activitybased costing. Th Learning Objective: 0304 Contrast the product costs computed under activitybased costing and conventional costing methods. Difficulty: Hard Learning Objective: 0302 Compute activity rates for an activitybased costing system. https://www.coursehero.com/file/11709784/Chap-3-HW/ http://ezto.mheducation.com/hm_accounting.tpx 5/6 3/11/2015 5. Assignment Print View award: 10.00 points 3. Using the activity rates you computed in part (2) above, do the following: a. Determine the total amount of manufacturing overhead cost that would be assigned to each product using the activitybased costing system. After these totals have been computed, determine the amount of manufacturing overhead cost per unit of each product. (Round your answers to 2 decimal places.) Manufacturing overhead per unit of LEC 40 Manufacturing overhead per unit of LEC 90 $ $ 5.06 30.42 b. Compute the unit product cost of each product. (Do not round intermediate calculations. Round your final answers to 2 decimal places) Unit product cost for LEC 40 Unit product cost for LEC 90 $ $ 41.06 92.42 a. sh is ar stu ed d vi y re aC s ou ou rc rs e eH w er as o. co m Explanation: LEC 40 Maintaining parts inventory, at $150.00 per part type Processing purchase orders, at $65.00 per order Quality control, at $20.00 per test Machinerelated, at $46.00 per MH Total manufacturing overhead cost Units produced Manufacturing overhead per unit Expected Activity 600 2,000 500 1,600 Amount $ 90,000 130,000 10,000 73,600 $303,600 60,000 $ 5.06 LEC 90 Expected Activity 900 800 1,750 8,400 Amount $135,000 52,000 35,000 386,400 $608,400 20,000 $ 30.42 b. Using activitybased costing, the unit product costs would be: LEC 40 LEC 90 Direct materials $30.00 $50.00 Direct labor 6.00 12.00 Manufacturing overhead (see above) 5.06 30.42 Unit product cost $41.06 $92.42 Learning Objective: 0302 Compute activity rates for an activitybased costing system. Learning Objective: 0304 Contrast the product costs computed under activitybased costing and conventional costing methods. Difficulty: Hard Learning Objective: 0303 Compute product costs using activitybased costing. Th Worksheet https://www.coursehero.com/file/11709784/Chap-3-HW/ http://ezto.mheducation.com/hm_accounting.tpx Powered by TCPDF (www.tcpdf.org) 6/6