4 - EXERCISE 8-10 First—Stage Allocations [L02] The...

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Unformatted text preview: EXERCISE 8-10 First—Stage Allocations [L02] The operations vice president of Security Home Bank has been interested in investigating the efficiency of the bank’s operations. She has been particularly concerned about the costs of handling routine trans— actions at the bank and would like to compare these costs at the bank’s various branches. If the branches with the most efficient Operations can be identified. their methods can be studied and then replicated elsewhere. While the bank maintains meticulous records of wages and other costs, there has been no attempt thus far to show how those costs are related to the various services provided by the bank. The operations vice president has asked your help in conducting an activity—based costing study of bank operations. In particular, she would like to know the cost of opening an account, the cost of processing deposits and withdrawals, and the cost of processing other customer transactions. The Westfield branch of Security Home Bank has submitted the following cost data for last year: Teller wages . . . . . . . . . . . . . . . . . . . . . . . $160,000 Assistant branch manager salary . . . . . . . 75,000 Branch manager salary . . . . . . . . . . . . . . 80,000 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $315,000 Virtually all of the other costs of the branch—rent, depreciation, utilities, and so on—are organization— sustaining costs that cannot be meaningfully assigned to individual customer transactions such as depositing checks. In addition to the cost data above, the employees of the Westfield branch have been interviewed concerning how their time was distributed last year across the activities included in the activity—based costing study. The results of those interviews appear below: Teller wages . . . . . . . . . . . . . 5% 65% 20% 10% 100% Assistant branch manager salary . . . . . . . . . 15% 5% _30% 50% 100% Branch manager salary . . . . 5% 0% 10% 85% 100% Required: Prepare the first-stage allocation for the activity-based costing study. (See Exhibit 8—5 for an example of a first-stage allocation.) EXERCISE 8-11 Computing and Interpreting Activity Rates [L03] (This exercise is a continuation of Exercise 8—10; it should be assigned only if Exercise 8-10 is also assigned.) The manager of the Westfield branch of Security Home Bank has provided the following data concerning the transactions of the branch during the past year: Opening accounts . . . . . . . . . . . . . . . . . . . . . . . . 500 new accounts opened Processing deposits and withdrawals . . . . . . . . . . 100,000 deposits and withdrawals processed Processing other customer transactions . . . . . . . . 5,000 other customer transactions processed The lowest costs reported by other branches for these activities are displayed below: Opening accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . $26.75 per new account Processing deposits and withdrawals . . . . . . . . . . . . $1.24 per deposit or withdrawal Processing other customer transactions . . . . . . . . . . $11.86 per other customer transaction Required: 1- Using the first-stage allocation from Exercise 8-10 and the above data, compute the activity rates for the activity-based costing system. (Use Exhibit 8-6 as a guide.) Round all computations to the nearest whole cent. 2 What do these results suggest to you concerning operations at the Westfield branch? EXERCISE 8-18 Comprehensive Activity-Based Costing Exercise [L02, L03, L04, L05] Advanced Products Corporation has supplied the following data from its activity—based costing system: Overhead Costs Wages and salaries . . . . . . . . . $300,000 Other overhead costs . . . . . . . . 100,000 Total overhead costs . . . . . . . 1 $400,000 3% we Volume related . . . . Number of direct labor-hours 20,000 DLHs Order related . . . . . . . . . . . Number of orders 400 orders Customer support . . . . . . . . Number of customers 200 customers Other . . . . . . . . . . . . . . . . . These costs are not allocated to Not applicable products or customers Wages and salaries . . . . . . . . . 40% 30% 20% 10% 100% Other overhead costs . . . . . . . . 30% 10% 20% 40% 100% During the year, Advanced Products completed one order for a new customer, Shenzhen Enterprises. This customer did not order any other products during the year. Data concerning that order follow: Data concerning the Shenzhen Enterprises Order Units ordered . . . . . . . . . . . 10 units Direct labor-hours . . . . . . . . 2 DLHs per unit Selling price . . . . . . . . . . . . $300 per unit Direct materials . . . . . . . . . $180 per unit Direct labor . . . . . . . . . . . . . $50 per unit Required: 1. Prepare a report showing the first-stage allocations of overhead costs to the activity cost pools. (Use Exhibit 8—5 as a guide.) 2. Compute the activity rates for the activity cost pools. (Use Exhibit 8—6 as a guide.) 3. Prepare a report showing the overhead costs for the order from Shenzhen Enterprises, including customer support costs. 4. Prepare a report showing the customer margin for Shenzhen Enterprises. (Use Exhibit 8—11 as a guide.) PROBLEM 8-28 Activity-Based Costing as an Alternative to Traditional Product Costing [L07] For many years, Zapro Company manufactured a single product called a mono—relay. Then three years ago, the company automated a portion of its plant and at the same time introduced a second product called a bi—relay which has become increasingly popular. The bi—relay is a more complex product, requiring one hour of direct labor time per unit to manufacture and extensive machining in the auto- mated portion of the plant. The mono—relay requires only 0.75 hour of direct labor time per unit and only a small amount of machining. Manufacturing overhead costs are currently assigned to products on the basis of direct labor-hours. Despite the growing popularity of the company’s new bi—relay, profits have been declining steadily. Management is beginning to believe that there may be a problem with the company’s costing system. Material and labor costs per unit are as follows: Direct materials . . . . . . . . . . . . . . . . . . . . . . . $35 $48 Direct labor (0.75 hour and 1.0 hour @ $12 per hour) . . . . . . . . . . . . . . . . . . . .. $9 $12 Management estimates that the company will incur $1,000,000 in manufacturing overhead costs during the current year and 40,000 units of the mono—relay and 10,000 units of the bi-relay will be produced and sold. Required: 1. Compute the predetermined manufacturing overhead rate assuming that the company continues to apply manufacturing overhead cost on the basis of direct labor—hours. Using this rate and other data from the problem, determine the unit product cost of each product. 2. Management is considering using activity—based costing to apply manufacturing overhead cost to products for external financial reports. Some preliminary work has been done and the data that have been collected are displayed below in the form of an Excel spreadsheet. Eile Edit VLiew lnsert Fgrmat Idols _D_ata window ijelp :Eumfrneaan 5133‘“ is e " Eélirfiaiéicf Overhead Mono- Bi- . Costs Total Reiay Relay 7W3? Maintaining pans inventory (number ofpan types) $ 180,000 225 75 150 at iProcessing purchase orders (number oforders) 90,000 1,000 800 200 5 iQualitycontrol(number0ftests) 230.000 5.750 2.500 3,250 ’6 lMachine-related(machine-hours) 50000010000 4.000 6,000 otal overhead cost m marl“..- ' ,..~.___..,_ ._w_ “Lam. N < r N\SheauAfiheazfliheetif i._1l._,. Ready Determine the predetermined overhead rate (i.e., activity rate) for each of the four activity cost pools. 3. Using the predetermined manufacturing overhead rates you computed in part (2) above, do the following: a. Determine the total amount of manufacturing overhead cost that would be applied to each product using the activity-based costing system. After these totals have been computed, de- termine the amount of manufacturing overhead cost per unit of each product. b. Compute the unit product cost of each product. 4. Look at the data you have computed in parts (1) through (3) above. In terms of manufacturing overhead costs, what factors make the bi—relay more costly to produce than the mono—relay? Is the bi—relay as profitable as management believes? Explain. ...
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This note was uploaded on 01/16/2010 for the course AF AF 3112 taught by Professor Woo-jonglee during the Spring '08 term at Polytechnic University of Puerto Rico.

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4 - EXERCISE 8-10 First—Stage Allocations [L02] The...

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