You should proceed to the requirements below only after completing your worksheet. Required: 1. Check your worksheet by doubling the units ordered in cell B16 to 160. The customer margin under activity-based costing should now be $7,640 and the traditional costing product margin should be $(21,600). If you do not get these results, find the errors in your worksheet and correct them. a. Why has the customer margin under activity-based costing more than doubled when the number of units ordered is doubled? b. Why has the traditional costing product margin exactly doubled from a loss of $10,800 to a loss of $21,600? c. Which costing system, activity-based costing or traditional costing, provides a more accurate picture of what happens to profits as the number of units ordered increases? Explain. 2. Let?s assume that OfficeMart places different orders next year, purchasing higher-end filing cabinets more frequently, but in smaller quantities per order. Enter the following data into your worksheet: a. What is the customer margin under activity-based costing? b. What is the product margin under the traditional cost system? c. Explain why the profitability picture looks much different now than it did when OfficeMart was ordering less expensive filing cabinets less frequently, but in larger quantities per order. 3. Using the data you entered in part (2), change the percentage of selling and administrative overhead attributable to processing orders from 45% to 30% and the percentage attributable to supporting customers from 25% to 40%. That portion of the worksheet should look like this: Assembling Units Processing Orders Supporting Customers Other Manufacturing overhead . . . . . . . . . . . . . 50% 35% 5% 10% Selling and administrative overhead . . . . 10% 30% 40% 20% Total activity . . . . . . . . . . . . . . . . . . . . . . . 1,000 250 100 units orders customers a. Relative to the results from part (2), what has happened to the customer margin under activity-based costing? Why? b. Relative to the results from part (2), what has happened to the product margin under the traditional cost system? Why?

qattachments_baff2817b345739d0c90fcea605deed3268cc49d.xls Chapter 7: Applying Excel Data Manufacturing overhead Selling and administrative overhead Manufacturing overhead Selling and administrative overhead Total activity $500,000 $300,000 Assembling Units 50% 10% 1,000 units OfficeMart orders: Customers Orders Number of filing cabinets ordered in total Selling price Direct materials Direct labor Processing Supporting Orders Customers 35% 5% 45% 25% 250 100 orders customers Other 10% 20% 1 customer 4 orders 80 units $595 $180 $50 Enter a formula into each of the cells marked with a ? below Review Problem: Activity-Based Costing Perform the first stage allocations Manufacturing overhead Selling and administrative overhead Total cost Compute the activity rates Activity Cost Pools Assembling units Processing orders Supporting customers Assembling Units ? ? ? Total Cost ? ? ? Processing Orders ? ? ? Supporting Customers ? ? ? Total Activity ? units ? orders ? customers Compute the overhead cost attributable to the OfficeMart orders Activity Cost Pools Activity Rate Assembling units ? per unit Processing orders ? per order Supporting customers ? per customer Determine the product margin for the OfficeMart orders under a traditional cost system Manufacturing overhead ? Total activity ? units Manufacturing overhead per unit ? per unit ? ? ? ? ? ? Total ? ? ? ? ? ? Activity Rate ? per unit ? per order ? per customer Activity ? units ? orders ? customer Determine the customer margin for the OfficeMart orders under Activity-Based Costing Sales ? Costs: Direct materials ? Direct labor ? Unit-related overhead ? Order-related overhead ? Customer-related overhead ? ? Customer margin ? Sales Costs: Direct materials Direct labor Manufacturing overhead Traditional costing product margin Other ABC Cost