Tutorial 3 sol ACFI 2003 5th ed.docx - Tutorial 3 1 Lanen...

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Tutorial 3 1. Lanen et al., (2017): Review Q. 9-3, p. 353. False. Department allocation is a two-stage process, so the first-stage assignment of costs and the choice of cost drivers affects the allocation of costs to products. The total product costs are the same under either approach, but the individual product costs differ. This can affect the decisions managers make regarding individual products. 2. Lanen et al., (2017): Review Q. 9-6, p. 353. 1. Identify activities that consume resources. 2. Identify the cost driver associated with each activity. 3. Compute a cost rate per activity unit (e.g., rate per setup, rate per part, rate per machine-hour). 4. Allocate costs to products by multiplying the activity rate times the volume of activity consumed by the product. 3. Lanen et al., (2017): Exercises 9-32, p. 355. Plantwide versus Department Allocation: Main Street Ice Cream Company. Strawberry Vanilla Chocolate a. Direct Labor (per 1,000 gallons) .......................... $750 $825 $1,125 Raw Materials (per 1,000 gallons) ...................... 800 500 600 Overhead ............................................................. 150 a 165 b 225 c Total cost (per 1,000 gallons) .............................. $1,700 $1,490 $1,950 a $150 = 50 labor-hours x $3 per hour. b $165 = 55 labor-hours x $3 per hour. c $225 = 75 labor-hours x $3 per hour. b. Department SV has an overhead allocation rate of $4.20 per machine-hour ($105,840 ÷ 25,200 machine hours). Department C has an overhead allocation rate of $1.32 per labor-hour ($23,760 ÷ 18,000 labor-hours). c. Strawberry Vanilla Chocolate Direct Labor (per 1,000 gallons) .......................... $750 $825 $1,125 Raw Materials (per 1,000 gallons) ...................... 800 500 600 Overhead ............................................................. 210 a 231 b 99 c Total cost (per 1,000 gallons) .............................. $1,760 $1,556 $1,824
a $210 = 50 machine-hours x $4.20 per machine-hour. b $231 = 55 machine-hours x $4.20 per machine-hour. c $99 = 75 labor-hours x $1.32 per labor-hour.

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