Test bank managerial accounting by garrison 13e chapter 08

Chapter Activity-Based Costing: A Tool to Aid Decision Making True/False Questions If a manufacturing company is using activity-based costing for internal purposes only, then organization-sustaining overhead costs should not be allocated to any of the products Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium Batch-level activities are performed each time a batch of goods is handled or processed Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy Organization-sustaining activities are carried out regardless of how many units are made, how many batches are run, or how many different products are made Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy Direct labor-hours or direct labor cost should not be used as a measure of activity in an activity-based costing system Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium Activity-based costing is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore “fixed” costs Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy Activity-based costing is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect only variable costs Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-5 Chapter Activity-Based Costing: A Tool to Aid Decision Making A duration driver provides a measure of the amount of time required to perform an activity Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium In general, transaction drivers are more accurate measures of the consumption of resources than duration drivers Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium The costs of idle capacity should not be assigned to products in activity-based costing Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy 10 In traditional costing systems, all manufacturing costs are assigned to products even manufacturing costs that are not caused by the products Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 11 Activity-based costing involves a two-stage allocation in which overhead costs are first assigned to departments and then to jobs on the basis of direct labor hours Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Medium 12 In activity-based costing, some costs may be broken down and assigned to two activity cost pools For example, part of a supervisor's salary may be classified as a productlevel activity and part of it may be classified as a batch-level activity Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 13 Activity rates in activity-based costing are computed by dividing costs from the firststage allocations by the activity measure for each activity cost pool Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 8-6 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Activity-Based Costing: A Tool to Aid Decision Making 14 In the second-stage allocation in activity-based costing, activity rates are used to apply costs to products, customers, and other cost objects Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 15 When a company shifts from a traditional cost system in which manufacturing overhead is applied based on direct labor-hours to an activity-based costing system in which there are batch-level and product-level costs, the unit product costs of high volume products typically decrease whereas the unit product costs of low volume products typically increase Ans: True AACSB: Analytic AICPA FN: Reporting LO: AICPA BB: Critical Thinking Level: Medium Multiple Choice Questions 16 Which terms would make the following sentence true? Manufacturing companies that benefit the most from activity-based costing are those where overhead costs are a _ percentage of total product cost and where there is _ diversity among the various products that they produce A) low, little B) low, considerable C) high, little D) high, considerable Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 17 Would factory security and assembly activities be best classified at an appliance manufacturing plant as unit-level, batch-level, product-level, or organizationsustaining? Security A) Product B) Batch C) Organization D) Organization Assembl y Unit Batch Unit Product Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-7 Chapter Activity-Based Costing: A Tool to Aid Decision Making 18 Which of the following would be an acceptable measure of activity for a material handling activity cost pool? A) B) C) D) Number of Weight of material moves material moved Yes Yes No Yes Yes No No No Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 19 An activity-based costing system that is designed for internal decision-making generally will not conform to generally accepted accounting principles Which of the following is NOT a reason for this happening? A) Some manufacturing costs (i.e., the costs of idle capacity and organizationsustaining costs) will not be assigned to products B) Some nonmanufacturing costs are assigned to products C) Allocation bases other than direct labor-hours, direct labor cost, and machinehours are used D) First-stage allocations may be based on subjective interview data Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Hard 20 Providing the power required to run production equipment is an example of a: A) Unit-level activity B) Batch-level activity C) Product-level activity D) Organization-sustaining activity Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 21 Parts administration is an example of a: A) Unit-level activity B) Batch-level activity C) Product-level activity D) Organization-sustaining Ans: C 8-8 LO: Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Activity-Based Costing: A Tool to Aid Decision Making 22 If a cost object such as a product or customer has a negative green margin, then: A) its red margin will be positive B) its red margin may be either positive or negative C) its red margin will be negative D) its red margin will be zero Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 8A LO: Level: Medium 23 Tatman Corporation uses an activity-based costing system with the following three activity cost pools: Activity Cost Pool Total Activity Fabrication 10,000 machine-hours Order processing 800 orders Other Not applicable The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs The company has provided the following data concerning its costs: Wages and salaries Depreciation Occupancy Total $320,000 220,000 120,000 $660,000 The distribution of resource consumption across activity cost pools is given below: Activity Cost Pools Order Fabrication Processing Other Wages and salaries 20% 65% 15% Depreciation 15% 35% 50% Occupancy 5% 70% 25% Total 100% 100% 100% The activity rate for the Fabrication activity cost pool is closest to: A) $3.30 per machine-hour B) $13.20 per machine-hour C) $10.30 per machine-hour D) $8.80 per machine-hour Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-9 Chapter Activity-Based Costing: A Tool to Aid Decision Making Solution: Total Fabrication Cost: Wages and salaries: 20% × $320,000 $ 64,000 Depreciation: 15% × $220,000 33,000 Occupancy: 5% × $120,000 6,000 Total $103,000 (a) ÷ (b) Activity Cost Pool Fabrication (a) Total Cost $103,000 (b) Total Activity 10,000 machine-hours Activity Rate $10.30 per machine-hour 24 Leaper Corporation uses an activity-based costing system with the following three activity cost pools: Activity Cost Pool Fabrication Order processing Other Total Activity 40,000 machine-hours 200 orders Not applicable The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs The company has provided the following data concerning its costs: Wages and salaries Depreciation Occupancy Total $360,000 140,000 160,000 $660,000 The distribution of resource consumption across activity cost pools is given below: Wages and salaries Depreciation Occupancy Activity Cost Pools Order Fabrication Processing Other 35% 40% 25% 5% 55% 40% 30% 45% 25% Total 100% 100% 100% The activity rate for the Order Processing activity cost pool is closest to: A) $1,485 per order B) $1,540 per order C) $1,465 per order D) $1,320 per order 8-10 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Activity-Based Costing: A Tool to Aid Decision Making Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium Solution: Total Order Processing Cost: Wages and salaries: 40% × $360,000 $144,000 Depreciation: 55% × $140,000 77,000 Occupancy: 45% × $160,000 72,000 Total $293,000 (a) ÷ (b) Activity Cost Pool Order Processing (a) Total Cost $293,000 (b) Total Activity 200 orders Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Activity Rate $1,465 per order 8-11 Chapter Activity-Based Costing: A Tool to Aid Decision Making 25 Huelskamp Corporation has provided the following data concerning its overhead costs for the coming year: Wages and salaries Depreciation Rent Total $360,000 120,000 180,000 $660,000 The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year: Activity Cost Pool Total Activity Assembly 60,000 labor-hours Order processing 400 orders Other Not applicable The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs The distribution of resource consumption across activity cost pools is given below: Wages and salaries Depreciation Rent Activity Cost Pools Order Assembly Processing Other 25% 65% 10% 15% 45% 40% 35% 40% 25% Total 100% 100% 100% The activity rate for the Assembly activity cost pool is closest to: A) $2.65 per labor-hour B) $3.85 per labor-hour C) $2.85 per labor-hour D) $2.75 per labor-hour Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium 8-12 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Activity-Based Costing: A Tool to Aid Decision Making Solution: Total Assembly Cost: Wages and salaries: 25% × $360,000 $ 90,000 Depreciation: 15% × $120,000 18,000 Rent: 35% × $180,000 63,000 Total $171,000 (a) ÷ (b) Activity Cost Pool Assembly (a) Total Cost $171,000 (b) Total Activity 60,000 labor-hours Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Activity Rate $2.85 per labor-hour 8-13 Chapter Activity-Based Costing: A Tool to Aid Decision Making 26 Bennette Corporation has provided the following data concerning its overhead costs for the coming year: Wages and salaries Depreciation Rent Total $340,000 120,000 140,000 $600,000 The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year: Activity Cost Pool Assembly Order processing Other Total Activity 30,000 labor-hours 500 orders Not applicable The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs The distribution of resource consumption across activity cost pools is given below: Wages and salaries Depreciation Rent Assembly 40% 15% 35% Activity Cost Pools Order Processing Other 35% 25% 45% 40% 30% 35% Total 100% 100% 100% The activity rate for the Order Processing activity cost pool is closest to: A) $430 per order B) $420 per order C) $360 per order D) $440 per order Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium 8-14 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Activity-Based Costing: A Tool to Aid Decision Making b Compute the activity rates (i.e., cost per unit of activity) for the Installing Floors and Job Support activity cost pools by filling in the table below: Installing Floors Job Support Production overhead Office expense Total c Compute the overhead cost, according to the activity-based costing system, of a job that involves installing 3.2 squares Ans: a First-stage allocation Installing Job Floors Support Other Total $66,000 $ 30,000 $24,000 $120,000 28,000 70,000 42,000 140,000 $94,000 $100,000 $66,000 $260,000 Production overhead Office expense Total b Activity rates (costs divided by activity) Activity Production overhead Office expense Total Installing Floors 800 squares Job Support 100 jobs $ 82.50 $ 300.00 35.00 700.00 $117.50 $1,000.00 c Overhead cost of the job Installing Floors Activity 3.2 Production overhead Office expense Total Job Support $264.00 $ 300.00 $ 564.00 112.00 700.00 812.00 $376.00 $1,000.00 $1,376.00 AACSB: Analytic AICPA BB: Critical Thinking Appendix: 8A LO: Level: Medium 8-92 Total AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Activity-Based Costing: A Tool to Aid Decision Making 99 Golden Company, a wholesale distributor, uses activity-based costing for its overhead costs The company has provided the following data concerning its annual overhead costs and its activity based costing system: Overhead costs: Wages and salaries Nonwage expenses Total $680,000 120,000 $800,000 Distribution of resource consumption: Filling Product Activity Cost Pools Orders Support Other Total Wages and salaries 15% 75% 10% 100% Nonwage expenses 25% 55% 20% 100% The “Other” activity cost pool consists of the costs of idle capacity and organizationsustaining costs The amount of activity for the year is as follows: Activity Cost Pool Filling orders Product support Other Annual Activity 4,000 orders 40 products Not applicable Required: Compute the activity rates (i.e., cost per unit of activity) for the Filling Orders and Product Support activity cost pools by filling in the table below: Filling Orders Product Support Other Total Wages and salaries Nonwage expenses Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-93 Chapter Activity-Based Costing: A Tool to Aid Decision Making Ans: First-stage allocation Filling Product Orders Support Other Total Wages and salaries $102,000 $510,000 $68,000 $680,000 Nonwage expenses 30,000 66,000 24,000 120,000 Total $132,000 $576,000 $92,000 $800,000 Activity Filling Orders 4,000 orders Wages and salaries Nonwage expenses Total $25.50 7.50 $33.00 AACSB: Analytic AICPA BB: Critical Thinking Appendix: 8A LO: Level: Medium 8-94 Product Support 40 products $12,750 1,650 $14,400 AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Activity-Based Costing: A Tool to Aid Decision Making 100 Jared Painting paints the interiors and exteriors of homes and commercial buildings The company uses an activity-based costing system for its overhead costs The company has provided the following data concerning its activity-based costing system Activity Cost Pool Painting overhead Job support Other Activity Measure Square meters Jobs None Annual Activity 10,000 square meters 200 jobs Not applicable The “Other” activity cost pool consists of the costs of idle capacity and organizationsustaining costs The company has already finished the first stage of the allocation process in which costs were allocated to the activity cost centers The results are listed below: Painting overhead Office expense Total Job Painting Support Other Total $ 99,000 $ 45,000 $36,000 $180,000 6,000 78,000 36,000 120,000 $105,000 $123,000 $72,000 $300,000 Required: a Compute the activity rates (i.e., cost per unit of activity) for the Painting and Job Support activity cost pools by filling in the table below Round off all calculations to the nearest whole cent Painting Job Support Painting overhead Office expense Total b Prepare an action analysis report in good form of a job that involves painting 71 square meters and has direct materials and direct labor cost of $2,410 The sales revenue from this job is $3,800 For purposes of this action analysis report, direct materials and direct labor should be classified as a Green cost; painting overhead as a Red cost; and office expense as a Yellow cost Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-95 Chapter Activity-Based Costing: A Tool to Aid Decision Making Ans: a Activity rates (costs divided by activity) Painting overhead Office expense Total Painting $ 9.90 0.60 $10.50 Job Support $225.00 390.00 $615.00 b Overhead cost of the job Activity Job Painting Support 71 Painting overhead Office expense Total $702.90 $225.00 $ 927.90 42.60 390.00 432.60 $745.50 $615.00 $1,360.50 Sales Green costs: Direct materials and labor Green margin Yellow costs: Office expense Yellow margin Red costs: Painting overhead Red margin $3,800.00 2,410.00 1,390.00 432.60 957.40 927.90 $ 29.50 AACSB: Analytic AICPA BB: Critical Thinking Appendix: 8A LO: Level: Medium 8-96 Total AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Activity-Based Costing: A Tool to Aid Decision Making 101 Werger Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs) The company has two products, W82R and L48S, about which it has provided the following data: Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production W82R $11.50 $2.00 0.20 45,000 L48S $62.90 $13.00 1.30 10,000 The company’s estimated total manufacturing overhead for the year is $1,521,960 and the company’s estimated total direct labor-hours for the year is 22,000 The company is considering using a variation of activity-based costing to determine its unit product costs for external reports Data for this proposed activity-based costing system appear below: Activities and Activity Measures Supporting direct labor (DLHs) Setting up machines (setups) Parts administration (part types) Total Activities Supporting direct labor Setting up machines Parts administration Estimated Overhead Cost $ 352,000 201,960 968,000 $1,521,960 W82R L48S Total 9,000 13,000 22,000 814 374 1,188 924 1,012 1,936 Required: a Determine the unit product cost of each of the company's two products under the traditional costing system b Determine the unit product cost of each of the company's two products under activity-based costing system Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-97 Chapter Activity-Based Costing: A Tool to Aid Decision Making Ans: a Traditional Unit Product Costs Predetermined overhead rate = $1,521,960 ÷ 22,000 DLHs = $69.18 per DLH Direct materials Direct labor Manufacturing overhead (0.2 DLHs × $69.18 per DLH; 1.3 DLHs × $69.18 per DLH) Unit product cost W82R $11.50 2.00 L48S $ 62.90 13.00 13.84 89.93 $27.34 $165.83 b ABC Unit Product Costs Supporting direct labor Setting up machines Parts administration Estimated Overhead Cost $352,000 $201,960 $968,000 Total Expected Activity 22,000 DLHs 1,188 setups 1,936 part types Activity Rate $16 per DLH $170 per setup $500 per part type Overhead cost for W82R Supporting direct labor Setting up machines Parts administration Total 8-98 Activity Rate $16 per DLH $170 per setup $500 per part type Activity 9,000 DLHs 814 setups 924 part types ABC Cost $144,000 138,380 462,000 $744,380 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Activity-Based Costing: A Tool to Aid Decision Making Overhead cost for L48S Supporting direct labor Setting up machines Parts administration Total Activity Rate $16 per DLH $170 per setup $500 per part type Activity 13,000 DLHs 374 setups 1,012 part types Direct materials Direct labor Manufacturing overhead ($744,400 ÷ 45,000 units; $777,600 ÷ 10,000 units) Unit product cost AACSB: Analytic AICPA BB: Critical Thinking Appendix: 8B LO: Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition W82R $11.50 2.00 ABC Cost $208,000 63,580 506,000 $777,580 L48S $62.90 13.00 16.54 77.76 $30.04 $153.66 AICPA FN: Reporting 8-99 Chapter Activity-Based Costing: A Tool to Aid Decision Making 102 Torri Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs) The company has two products, B40W and C63J, about which it has provided the following data: Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production B40W C63J $34.90 $63.70 $20.80 $62.40 0.80 2.40 35,000 15,000 The company’s estimated total manufacturing overhead for the year is $2,656,000 and the company’s estimated total direct labor-hours for the year is 64,000 The company is considering using a variation of activity-based costing to determine its unit product costs for external reports Data for this proposed activity-based costing system appear below: Activities and Activity Measures Assembling products (DLHs) Preparing batches (batches) Milling (MHs) Total Activities Assembling products Preparing batches Milling Estimated Overhead Cost $1,216,000 480,000 960,000 $2,656,000 B40W C63J Total 28,000 36,000 64,000 2,304 2,496 4,800 1,088 2,112 3,200 Required: a Determine the unit product cost of each of the company's two products under the traditional costing system b Determine the unit product cost of each of the company's two products under activity-based costing system 8-100 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Activity-Based Costing: A Tool to Aid Decision Making Ans: a Traditional Unit Product Costs Predetermined overhead rate = $2,656,000 ÷ 64,000 DLHs = $41.50 per DLH Direct materials Direct labor Manufacturing overhead (0.8 DLHs × $41.50 per DLH; 2.4 DLHs × $41.50 per DLH) Unit product cost B40W $34.90 20.80 C63J $ 63.70 62.40 33.20 99.60 $88.90 $225.70 b ABC Unit Product Costs Assembling products Preparing batches Milling Estimated Overhead Cost $1,216,000 $480,000 $960,000 Total Expected Activity 64,000 DLHs 4,800 batches 3,200 MHs Activity Rate $19 per DLH $100 per setup $300 per MH Overhead cost for B40W Activity Rate Assembling products Preparing batches Milling Total Activity $19 per DLH $100 per setup $300 per MH ABC Cost 28,000 DLHs $ 532,000 2,304 batches 230,400 1,088 MHs 326,400 $1,088,800 Overhead cost for C63J Activity Rate Assembling products Preparing batches Milling Total Activity $19 per DLH $100 per setup $300 per MH ABC Cost 36,000 DLHs $ 684,000 2,496 batches 249,600 2,112 MHs 633,600 $1,567,200 Direct materials Direct labor Manufacturing overhead ($1,088,800 ÷ 35,000 units; $1,567,200 ÷ 15,000 units) Unit product cost AACSB: Analytic AICPA BB: Critical Thinking Appendix: 8B LO: Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition B40W $34.90 20.80 C63J $ 63.70 62.40 31.11 104.48 $86.81 $230.58 AICPA FN: Reporting 8-101 Chapter Activity-Based Costing: A Tool to Aid Decision Making 103 Welk Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs) The company has two products, H16Z and P25P, about which it has provided the following data: Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production H16Z P25P $10.20 $50.50 $8.40 $25.20 0.40 1.20 30,000 10,000 The company’s estimated total manufacturing overhead for the year is $1,464,480 and the company’s estimated total direct labor-hours for the year is 24,000 The company is considering using a variation of activity-based costing to determine its unit product costs for external reports Data for this proposed activity-based costing system appear below: Activities and Activity Measures Supporting direct labor (DLHs) Setting up machines (setups) Parts administration (part types) Total Supporting direct labor Setting up machines Parts administration Estimated Overhead Cost $ 552,000 132,480 780,000 $1,464,480 H16Z P25P Total 12,000 12,000 24,000 864 240 1,104 600 960 1,560 Required: a Determine the manufacturing overhead cost per unit of each of the company's two products under the traditional costing system b Determine the manufacturing overhead cost per unit of each of the company's two products under activity-based costing system 8-102 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Activity-Based Costing: A Tool to Aid Decision Making Ans: a Traditional Manufacturing Overhead Costs Predetermined overhead rate = $1,464,480 ÷ 24,000 DLHs = $61.02 per DLH Direct labor-hours Predetermined overhead rate per DLH Manufacturing overhead cost per unit H16Z P25P 0.40 1.20 $61.02 $61.02 $24.41 $73.22 b ABC Manufacturing Overhead Costs Estimated Overhead Cost Supporting direct labor $552,000 Setting up machines $132,480 Parts administration $780,000 Total Expected Activity 24,000 DLHs 1,104 setups 1,560 part types Activity Rate $23 per DLH $120 per setup $500 per part type Overhead cost for H16Z Supporting direct labor Setting up machines Parts administration Total Annual production Manufacturing overhead cost per unit Activity Rate $23 per DLH $120 per setup $500 per part type Activity 12,000 DLHs 864 setups 600 part types ABC Cost $276,000 103,680 300,000 $679,680 30,000 $22.66 Overhead cost for P25P Supporting direct labor Setting up machines Parts administration Total Annual production Manufacturing overhead cost per unit Activity Rate $23 per DLH $120 per setup $500 per part type AACSB: Analytic AICPA BB: Critical Thinking Appendix: 8B LO: Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Activity 12,000 DLHs 240 setups 960 part types ABC Cost $276,000 28,800 480,000 $784,800 10,000 $78.48 AICPA FN: Reporting 8-103 Chapter Activity-Based Costing: A Tool to Aid Decision Making 104 Bullie Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs) The company has two products, D31X and U75X, about which it has provided the following data: Direct materials per unit Direct labor per unit Direct labor-hours per unit Annual production D31X U75X $29.20 $47.40 $1.10 $23.10 0.10 2.10 35,000 15,000 The company’s estimated total manufacturing overhead for the year is $1,147,650 and the company’s estimated total direct labor-hours for the year is 35,000 The company is considering using a variation of activity-based costing to determine its unit product costs for external reports Data for this proposed activity-based costing system appear below: Activities and Activity Measures Assembling products (DLHs) Preparing batches (batches) Axial milling (MHs) Total Assembling products Preparing batches Axial milling Estimated Overhead Cost $ 140,000 241,150 766,500 $1,147,650 D31X U75X Total 3,500 31,500 35,000 560 1,295 1,855 1,540 1,015 2,555 Required: a Determine the manufacturing overhead cost per unit of each of the company's two products under the traditional costing system b Determine the manufacturing overhead cost per unit of each of the company's two products under activity-based costing system 8-104 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Activity-Based Costing: A Tool to Aid Decision Making Ans: a Traditional Manufacturing Overhead Costs Predetermined overhead rate = $1,147,650 ÷ 35,000 DLHs = $32.79 per DLH Direct labor-hours Predetermined overhead rate per DLH Manufacturing overhead cost per unit D31X U75X 0.10 2.10 $32.79 $32.79 $3.28 $68.86 b ABC Manufacturing Overhead Costs Assembling products Preparing batches Axial milling Estimated Overhead Cost $140,000 $241,150 $766,500 Total Expected Activity 35,000 DLHs 1,855 batches 2,555 MHs Activity Rate $4 per DLH $130 per batch $300 per MH Overhead cost for D31X Assembling products Preparing batches Axial milling Total Annual production Manufacturing overhead cost per unit Activity Rate $4 per DLH $130 per batch $300 per MH Activity 3,500 DLHs 560 batches 1,540 MHs ABC Cost $ 14,000 72,800 462,000 $548,800 35,000 $15.68 Overhead cost for U75X Assembling products Preparing batches Axial milling Total Annual production Manufacturing overhead cost per unit Activity Rate $4 per DLH $130 per batch $300 per MH AACSB: Analytic AICPA BB: Critical Thinking Appendix: 8B LO: Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Activity 31,500 DLHs 1,295 batches 1,015 MHs ABC Cost $126,000 168,350 304,500 $598,850 15,000 $39.92 AICPA FN: Reporting 8-105 Chapter Activity-Based Costing: A Tool to Aid Decision Making 8-106 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition ... BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 8-6 Garrison/ Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Activity-Based Costing: A Tool to Aid Decision Making 14... AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium Garrison/ Noreen/Brewer, Managerial Accounting, Twelfth Edition 8-7 Chapter Activity-Based Costing: A Tool to Aid Decision Making... activity D) Organization-sustaining Ans: C 8-8 LO: Level: Medium Garrison/ Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Activity-Based Costing: A Tool to Aid Decision Making 22