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

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Tutorial 31. Lanen et al., (2017): Review Q. 9-3, p. 353.False. Department allocation is a two-stage process, so the first-stage assignment ofcosts and the choice of cost drivers affects the allocation of costs to products. Thetotal product costs are the same under either approach, but the individual productcosts differ. This can affect the decisions managers make regarding individualproducts.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, rateper machine-hour).4.Allocate costs to products by multiplying the activity rate times the volume ofactivity consumed by the product.3. Lanen et al., (2017): Exercises 9-32, p. 355.Plantwide versus Department Allocation: Main Street Ice CreamCompany.StrawberryVanillaChocolatea.Direct Labor (per 1,000 gallons)..........................$750$825$1,125Raw Materials (per 1,000 gallons)......................800500600Overhead.............................................................150a165b225cTotal cost (per 1,000 gallons)..............................$1,700$1,490$1,950a$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 allocationrate of $1.32 per labor-hour ($23,760 ÷ 18,000 labor-hours).c.StrawberryVanillaChocolateDirect Labor (per 1,000 gallons)..........................$750$825$1,125Raw Materials (per 1,000 gallons)......................800500600Overhead.............................................................210a231b99cTotal 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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