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Solutions Chap 4

# Solutions Chap 4 - EXERCISE 4-2(a Traditional costing...

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EXERCISE 4-2 (a) Traditional costing system Product 540X Product 137Y Product 249S Sales \$200,000 \$160,000 \$80,000 Costs 55,000 50,000 15,000 Operating income \$145,000 \$110,000 \$65,000 (b) Activity-based costing system Product 540X Product 137Y Product 249S Sales \$200,000 \$160,000 \$80,000 Costs 50,000 35,000 35,000 Operating income \$150,000 \$125,000 \$45,000 (c) Product 540X: (\$150,000 – \$145,000) ÷ \$145,000 = 3.45% Product 137Y (\$125,000 – \$110,000) ÷ \$110,000 = 13.64% Product 249S (\$45,000 – \$65,000) ÷ \$65,000 = (30.77%) (d) These costs are similar probably because the cost drivers are essentially the same; that is, they are based on a unit volume concept. EXERCISE 4-3

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(a) Activity cost pools Cost drivers Estimated overhead Cutting Machine hours \$300,000 Design Number of setups 600,000 Activity-based overhead rates Cutting Design \$300,000 = \$1.50 per machine hour \$600,000 = \$400 per setup 200,000 1,500 Wool Cotton Activity-based costing Cutting 100,000 X \$1.50 \$150,000 100,000 X \$1.50 \$150,000 Design 1,000 X \$400 400,000 500 X \$400 200,000 Total cost allocated \$550,000 \$350,000 (b) Estimated overhead = \$900,000 = \$2 per direct labor hour Direct labors hours 450,000 Wool Cotton Traditional costing 225,000 X \$2 \$450,000 225,000 X \$2 \$450,000 The wool product line is allocated \$100,000 (\$550,000 – \$450,000) more overhead cost when an activity-based costing system is used. As a result, the cotton product line is allocated \$100,000 (\$450,000 – \$350,000) less.
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