Unit 4 Exercises

Question 4.1(Total: 20 marks)

For its overhead costs, the wholesale distributor Janz Company uses activity-based costing. In terms of the company's annual overhead costs and its activity-based costing system the following data has been provided:

Overhead Costs:

Wages and salaries

$380,000

Non-wage expenses

90,000

Total

$470,000

Distribution of Resource Consumption:

Activity Cost Pools

Filling Orders

Product Support

Other

Total

Wages and salaries

20%

65%

15%

100%

Non-wage expenses

15%

60%

25%

100%

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. Shown below is the amount of activity for the year:

Activity Cost Pool

Annual Activity

Filling orders

3,100 orders

Product support

32 products

Other

Not applicable

Submission Instructions:

Compute the activity rates for the Filling Orders and Product Support activity cost pools.

Question 4.2(Total: 30 marks)

Tuggs Corporation manufactures two products, Racket and Table. Table, having been developed as an attempt to enter a market closely related to that of Racket, has been recently created. Of the two products, Table is the more complex one, thus requiring two and a half hours of direct labour time per unit to manufacture, compared to one hour of direct labour time for Racket. The table is produced on an automated production line.

On the basis of direct labour hours, Overhead is currently assigned to the products. The company

estimated it would incur $364,000 in manufacturing overhead costs and produce 4,900 units of Table and 22,100 units of Racket during the current year. Unit costs for materials and direct labour are as follows:

Racket

Table

Direct materials

$9

$20

Direct labour

$7

$15

Submission Instructions:

1.Compute the predetermined overhead rate under the current method of allocation and determine the unit product cost of each product for the current year.

2.The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below:

Expected Activity

Activity Cost Pool

Estimated Overhead Cost

Racket

Table

Total

Machine setups required

$161,000

800

700

1,500

Purchase orders issued

$32,000

200

150

350

Machine hours required

$81,000

3,900

7,000

10,900

Maintenance requests issued

$90,000

310

510

820

Total

$364,000

Determine the unit product cost of each product for the current year using the data above and an activity-based costing approach.

Question 4.3(Total: 26 marks)

Dundar Mifflin manufactures and sells three products: X, Y, and Z. Annual fixed costs are $515,250 and data about the three products follow for 2017.

X

Y

Z

Sales

$150,000

$480,000

$790,000

Variable cost

80,000

175,000

290,000

Submission Instructions:

1.Determine the breakeven point

2.The management expects sales to increase by 9% in 2018. What is the expected operating income in 2018?

Question 4.4(Total: 24 marks)

Dundar Mifflin makes electronic products for the RCMP. The following data is for the first six months:

Direct Labor Hours

Manufacturing Overhead

January

45,000

$295,000

February

60,000

$320,000

March

57,000

$323,000

April

52,000

$247,250

May

34,000

$178,200

June

25,000

$162,500

Submission Instructions:

1.Use the high-low method to estimate the cost formula

2.Estimate the total overhead cost at an activity level of 48,000 machine hours, using the separate estimates you obtained for its components.