ch04 - SOLUTIONS TO EXERCISESSET B EXERCISE 4-1B (a)...

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SOLUTIONS TO EXERCISES—SET B EXERCISE 4-1B (a) Estimated overhead = Predetermined overhead rate Direct labor costs $270,000 = 180% of direct labor cost $50,000 + $100,000 (b) Activity cost pools Cost drivers Estimated overhead Machining Machine hours $170,000 Machine setup Set up hours 100,000 Activity-based overhead rates Machining: Machine setup: $170,000 = $85 per machine hour $100,000 = $200 per setup hour 1,000 + 1,000 500 (c) Traditional costing Standard Custom $50,000 X 180% $90,000 $100,000 X 180% $180,000 $90,000 $180,000 Activity-based costing Machining: 1,000 X $85 $85,000 1,000 X $85 $85,000 Machine setup: 100 X $200 20,000 400 X $200 80,000 $105,000 $165,000 © 2008 For Instructor Use Only 4-1
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EXERCISE 4-2B (a) Traditional costing system Product 440X Product 137Y Product 249S Sales $200,000 $160,000 $80,000 Costs 60,000 50,000 15,000 Operating income $140,000 $110,000 $65,000 (b) Activity-based costing system Product 440X Product 137Y Product 249S Sales $200,000 $160,000 $80,000 Costs 50,000 35,000 40,000 Operating income $150,000 $125,000 $40,000 (c) Product 440X: ($150,000 – $140,000) ÷ $140,000 = 7.14% Product 137Y ($125,000 – $110,000) ÷ $110,000 = 13.64% Product 249S ($40,000 – $65,000) ÷ $65,000 = (38.46%) (d) These costs are similar probably because the cost drivers are essentially the same; that is, they are based on a unit volume concept. © 2008 For Instructor Use Only 4-2
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EXERCISE 4-3B (a) Activity cost pools Cost drivers Estimated overhead Cutting Machine hours $360,000 Design Number of setups 540,000 Activity-based overhead rates Cutting Design $360,000 = $1.80 per machine hour $540,000 = $360 per setup 200,000 1,500 Wool Cotton Activity-based costing Cutting 100,000 X $1.80 $180,000 100,000 X $1.80 $180,000 Design 1,000 X $360 360,000 500 X $360 180,000 Total cost allocated $540,000 $360,000 (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 $90,000 ($540,000 – $450,000) more overhead cost when an activity-based costing system is used. As a result, the cotton product line is allocated $90,000 ($450,000 – $360,000) less. © 2008 For Instructor Use Only 4-3
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(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 $840,000 (total estimated overhead) = $12 per direct labor hour. 70,000 (total direct labor hours) Overhead assigned Car wheels (40,000 X $12) = $480,000 Truck wheels (30,000 X $12) = 360,000 Total overhead $840,000 (b) Activity Cost Pool Estimated Overhead ÷ Expected Use of Cost Drivers = ABC Overhead Rate Setting up machines $260,000 1,000 $260 Assembling 280,000 70,000 $4 Inspection 300,000 1,200 $250 (c) Car Wheels Activity Cost Pools Expected Use of Cost Driver per Product X Activity-Based Overhead Rates = Cost Assigned Setting up machines 200
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This note was uploaded on 12/12/2009 for the course ACCT 2102 taught by Professor Constable,d during the Fall '08 term at Georgia Perimeter.

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ch04 - SOLUTIONS TO EXERCISESSET B EXERCISE 4-1B (a)...

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