Ch. 5 solutions - Management Accounting I Solutions to Ch.5...

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Management Accounting I Solutions to Ch.5 Tutorial Discussion Questions E5-24 Req. 1 Operating overhead Total professional hours Current operating overhead allocation rate $234,000 ÷ 10,000 = $23.40 per professional hour Req. 2 Billing Calculations for the Amy Lee Kitchen Remodeling Job Based on current allocation system Professional time (24 hours × $65 per hour) $1,560.00 Operating overhead (24 hours × $23.40 per hour) + 561 .60 Total cost of job $2,121.60 Markup on cost × 135 % Bill to client $2,864 .16 Req. 3 Activity Cost Total activity allocation base Activity allocation rate Transportation to clients $ 9,000 ÷ 15,000 a miles driven = $0.60 per mile Blueprint copying 35,000 ÷ 1,000 b copies = $35 per copy Office support 190,000 ÷ 5,000 c secretarial hours = $38 per secretarial hour To calculate the activity cost allocation rates, you must use the total activity for the year: a 3,000 + 12,000 = 15,000 b 300 + 700 = 1,000 c 2,200 + 2,800 = 5,000
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Req. 4 Billing Calculations for the Amy Lee Kitchen Remodeling Job Based on ABC information Professional time (24 hours × $65 per hour) $1,560.00 Operating overhead: 125 miles × $0.60 per mile = $75 4 blueprints × $35 per copy = $140 18 secretarial hours × $38 per secretarial hour = $684 + 899.00 Total cost of job $2,459.00 Markup on cost × 135 % Bill to client $3,319.65 Req. 5 The billing system based on ABC costs should be fairer to clients because they are charged according to the resources they used. For example, copying blueprints is very expensive. Under ABC, clients are charged according to how many or how few blueprint copies their job required. The ABC system better recognized the extent to which
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