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Management Accounting , 5 th edition by Anthony Atkinson, Robert Kaplan, Ella Mae Matsumura, and S. Mark Young. 3-23 Job order costing, consulting Mackenzie Consulting computes the cost of each consulting  engagement by adding a portion of firmwide support costs to the labor cost of the consultants  on the engagement. The support costs are assigned to each consulting engagement using a  cost driver rate based on consultant labor costs. Mackenzie Consulting’s support costs are $5  million per year, and total consultant labor cost is estimated at $2.5 million per year. a. What is Mackenzie Consulting’s support cost driver rate? b. If the consultant labor cost on an engagement is $25,000, what costs will Mackenzie  Consulting compute as the total cost of the consulting engagement? 3-25 Single rate versus departmental rates  Western Wood Products has two production  departments: cutting and assembly. The company has been using a single predetermined cost  driver rate based on plantwide direct labor hours. That is, the plantwide cost driver rate is  computed by dividing plantwide costs by total plantwide direct labor hours. The estimates for  support costs and quantities of cost drives for 2006 follow: Cutting Assembly Total Manufacturing support $25,000 $35,000 $60,000 Direct labor hours 1,000  3,000   4,000 Machine hours 4,000 2,000   6,000 a. What was the single plantwide cost driver rate for 2006? b. Determine departmental cost driver rates based on direct labor hours for assembl and  machine hours for cutting. c. Provide reasons why Western Wood might use the method in (a) or in (b).
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3-26 Fluctuating cost driver rates, effect on markup pricing  Morrison Company carefully records  its costs because it bases prices on the cost of the goods it manufactures. Morrison also  carefully records its machine usage and other operational information. Manufacturing costs  are computed monthly, and prices for the next month are determined by adding a 20%  markup to each product’s manufacturing costs. The support activity cost driver rate is based  on machine hours, shown below: Month Actual Machine Hours January 1,350 February 1,400 March 1,500 April 1,450 May 1,450 June 1,400 July 1,400 August 1,400 September 1,500 October 1,600 November 1,600 December 1,600 Profits have been acceptable until the past year, but Morrison has recently faced increased  competition. The marketing manager reported that Morrison’s sales force finds the  company’s pricing puzzling. When demand is high, the company’s prices are low, and when  demand is low, the company’s prices are high. Practical capacity is exceeded in some  months by operating the machines overtime beyond regular shift hours. Monthly machine- related costs, all fixed, are $70,000 per month.
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