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Solution to topic 3 tutorial

# Solution to topic 3 tutorial - SOLUTION TO TOPIC 3 TUTORIAL...

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SOLUTION TO TOPIC 3 TUTORIAL TOPIC: New Costing Methods 5-3 An activity-based costing system is a two-stage process of assigning costs to products. In stage one, activity-cost pools are established. In stage two a cost driver is identified for each activity-cost pool. Then the costs in each pool are assigned to each product line in proportion to the amount of the cost driver consumed by each product line. 5-7 Product-costing systems based on a single, volume-based cost driver tend to overcost high-volume products, because all overhead costs are combined into one pool and distributed across all products on the basis of only one cost driver. This simple averaging process fails to recognize the fact that a disproportionate amount of costs often is associated with low- volume or complex products. The result is that low-volume products are assigned less than their share of manufacturing costs, and high-volume products are assigned more than their share of the costs. 5-20 Activity analysis is the detailed identification and description of the activities conducted in an enterprise. Activity analysis entails the identification not only of activities, but also of their root causes, of the events that trigger them, and of the linkages among them. Three criteria for determining whether an activity adds value are as follows: (a) Is the activity necessary? (b) Is the activity efficiently performed? (c)Is the activity sometimes value-added and sometimes non- value-added? 5-29 1 . a. Quality-control costs assigned to the enamel paint line under the traditional system: Quality-control costs = 16% × direct-labor cost

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Quality-control costs assigned to enamel paint line = 16% × \$98,000 = \$15,680
b. Quality-control costs assigned to the enamel paint line under activity-based costing: Quantity for Assigne d Activity Pool Rate Enamel Paint Cost Incoming material

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Solution to topic 3 tutorial - SOLUTION TO TOPIC 3 TUTORIAL...

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