Ch_7_Solutions_to_Assigned_Homework

# Ch_7_Solutions_to_Assigned_Homework - CHAPTER 7...

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CHAPTER 7 ACTIVITY-BASED COSTING AND MANAGEMENT EXERCISES Exercise 7–37 1. Scented Cards Regular Cards Inspection hours 0.20 a 0.80 a Setup hours 0.50 b 0.50 b Machine hours 0.25 c 0.75 c Number of moves 0.75 d 0.25 d a 200 40 ; 200 160 b 100 50 ; 100 50 c 800 200 ; 800 600 d 300 225 ; 300 75 2. The consumption ratios vary significantly from driver to driver. Using, for example, only machine hours to assign the overhead may create accuracy problems. Both setup hours and number of moves have markedly different consumption ratios (when compared to the consumption ratios for machine hours). 3. Rates: Inspecting products: 200 \$3,000 = \$15 per inspection hour Setting up equipment: 100 \$3,750 = \$37.50 per setup hour Machining: 800 \$6,000 = \$7.50 per machine hour Moving materials: 300 \$1,350 = \$4.50 per move Note: The denominator is the total driver amount (sum of the demand of the two products). 4. Rate = Hours Cost Inspection hours = Rate Cost = \$20 \$3,000 = 150 inspection hours

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Exercise 7–39 1 a. Activity rate = hours setup Total costs Setup = 1,000 \$36,000 = \$36 per setup hour b. Activity rate = hours oven Total costs overhead Other = 1,200 \$120,000 = \$100 per oven hour 2. Total overhead costs assigned to Fudge (ABC rates): = (Setup rate × Fudge setup hours) + (Oven hour rate × Fudge oven hours) = (\$36 × 800) + (\$100 × 200) = \$48,800 3. Unit overhead assigned to Fudge: = units Fudge of Number Fudge to assigned overhead Total = 1,000 \$48,000 = \$48.80 4. Plantwide overhead rate based on oven hours: = hours oven Total costs overhead Total = 1,200 \$156,000 = \$130 per oven hour 5. Total overhead costs assigned to Fudge (plantwide rate): = Plantwide rate × Number of oven hours used by Fudge = \$130 × 200 = \$26,000
Exercise 7–39 (Concluded) 6. The difference in overhead assignment to Fudge between the two systems is due to their different treatment of setup costs (i.e., both systems use oven hours to assign “other overhead” costs). The total overhead assigned to Fudge under the ABC system is much higher (\$48,800) than under the non- ABC system (\$26,000) because the ABC system recognizes that Fudge consumes 80 percent of the setup hours (800/1,000) and, therefore, assigns 80 percent of the setup costs to Fudge. The non-ABC system assigns all overhead costs (including setup costs) using oven hours, which results in Fudge being assigned only 16.67 percent (200/1,200 oven hours) of the setup costs, rather than 80 percent (800/1,000 setup hours). This difference—80 percent versus 16.67 percent—results in the \$22,800 (\$48,800 –26,000) difference in setup costs assigned to Fudge under the two cost systems as shown in the following breakdown: 80% – 16.67% = 63.33% × Total setup costs of \$36,000 = \$22,800 Exercise 7–40 1. Normal Intensive Treating patients: \$8.00 × 4,000. ................................................... \$ 32,000 \$8.00 × 20,000. ................................................. \$160,000 Providing hygienic care: \$10.00 × 3,000.

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## Ch_7_Solutions_to_Assigned_Homework - CHAPTER 7...

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