Mang ACC 4

Mang ACC 4 - SOLUTIONS TO EXERCISES EXERCISE 4-1 (a)...

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Unformatted text preview: SOLUTIONS TO EXERCISES EXERCISE 4-1 (a) Estimated overhead = Predetermined overhead rate Direct labor costs $300,000 = 200% of direct labor cost $50,000 + $100,000 (b) Activity cost pools Cost drivers Estimated overhead Machining Machine hours $200,000 Machine setup Set up hours 100,000 Activity-based overhead rates Machining: Machine setup: $200,000 = $100 per machine hour $100,000 = $200 per setup hour 1,000 + 1,000 500 (c) Traditional costing Standard Custom $50,000 X 200% $100,000 $100,000 X 200% $200,000 $100,000 $200,000 Activity-based costing Machining: 1,000 X $100 $100,000 1,000 X $100 $100,000 Machine setup: 100 X $200 20,000 400 X $200 80,000 $120,000 $180,000 4-1 EXERCISE 4-2 (a) Traditional costing system Product 540X Product 137Y Product 249S Sales $200,000 $160,0 00 $80,00 Costs 55,000 50,0 00 15,00 Operating income $145,000 $110,0 00 $65,00 (b) Activity-based costing system Product 540X Product 137Y Product 249S Sales $200,000 $160,0 00 $80,00 Costs 50,000 35,0 00 35,00 Operating income $150,000 $125,0 00 $45,00 (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. 4-2 EXERCISE 4-3 (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 $450,00 225,000 X $2 $450,0 00 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. 4-3 EXERCISE 4-4 (a) Direct labor hours for car wheels (40,000 X 1) = 40,000 Direct labor hours for truck wheels (10,000 X 3) = 30,000 Total direct labor hours 70,000 $700,000 ( total estimated overhead) = $10 per direct labor hour. 70,000 (total direct labor hours) Overhead assigned Car wheels (40,000 X $10) = $400,000 Truck wheels (30,000 X $10) = 300,000 Total overhead $700,000 (b) Activity Cost Pool Estimated Overhead Expected Use of Cost Drivers ABC Overhead Rate Setting up machines $180,000 1,000 $180 Assembling 280,000 70,000 $4 Inspection 240,000 1,200 $200 (c) Car Wheels Activity Cost Pools Expected Use of Cost Driver per Product Activity-Based Overhead Rates Cost Assigned Setting up machines 200 $180 $ 36,000 Assembling 40,000 $ 4 $160,000 Inspection 100 $200 $ 20,000 Total cost assigned $216,000 4-4 EXERCISE 4-4 (Continued)...
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Mang ACC 4 - SOLUTIONS TO EXERCISES EXERCISE 4-1 (a)...

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