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Chapter 7A - Solution Manual

# Chapter 7A - Solution Manual - Chapter 07A ABC Action...

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Chapter 07A ABC Action Analysis Appendix 07A ABC Action Analysis Exercise 7A-1  (20 minutes) Sales (80 clubs  ×  \$48 per club) ............................... \$3,840.00 Green costs: Direct materials (80 clubs  ×  \$25.40 per club) ........ \$2,032.00   2,032.00     Green margin .......................................................... 1,808.00 Yellow costs: Direct labor (80 clubs  ×  0.3 hour per club  ×   \$21.50 per hour) ................................................. 516.00 Indirect labor ......................................................... 90.00 Marketing expenses ..............................................         540.20       1,146.20     Yellow margin .......................................................... 661.80 Red costs: Factory equipment depreciation ............................ 106.40 Factory administration ........................................... 262.40 Selling and administrative wages and salaries ..... 436.00 Selling and administrative depreciation .................             30.00             834.80     Red margin .............................................................. \$      (173.00 ) While not required in the problem, the conventional ABC analysis would be: Sales (80 clubs  ×  \$48 per club) ............................... \$3,840.00 Costs: Direct materials .................................................... \$2,032.00 Direct labor ........................................................... 516.00 Volume related overhead ..................................... 283.20 Batch processing overhead .................................. 53.00 Order processing overhead .................................. 118.80 Customer service overhead ..................................   1,010.00       4,013.00     Customer margin ..................................................... \$      (173.00 ) 7A-1

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Chapter 07A ABC Action Analysis Exercise 7A-2  (30 minutes) 1. Order Size Customer  Orders Product  Testing Selling Total Total activity for the order .......... 150 1 18 3 direct labor- hours customer  order product  testing hours sales calls Manufacturing overhead: Indirect labor ........................... R 1,440 R 231 R    648 R      0 R 2,319 Factory depreciation ............... 1,050 0 324 0 1,374 Factory utilities ........................ 30 0 18 0 48 Factory administration ............ 0 46 432 36 514 Selling and administrative: Wages and salaries ................ 120 72 0 2,895 3,087 Depreciation ........................... 0 11 0 108 119 Taxes and insurance .............. 0 0 0 147 147 Selling expenses ....................                   0                  0                      0          1,296           1,296     Total overhead cost ................... R       2,640     R       360     R       1,422     R       4,482     R       8,904     Example: R 9.60 per direct labor-hour  ×  150 direct labor-hours = R 1,440 According to these calculations, the overhead cost of the order was R 8,904. This agrees with the  computations in Exercise 7-6. 7A-2
Chapter 07A ABC Action Analysis Exercise 7A-2  (continued) 2. The table prepared in part (1) above allows two different perspectives on  the overhead cost of the order. The column totals that appear in the last  row of the table tell us the cost of the order in terms of the activities it  required. The row totals that appear in the last column of the table tell us  how much the order cost in terms of the overhead accounts in the  underlying accounting system. Another way of saying this is that the  column totals tell us what the costs were incurred  for . The row totals tell  us what the costs were incurred  on . For example, you may spend  money  on  a chocolate bar to satisfy your craving  for  chocolate. Both  perspectives are important. To control costs, it is necessary both to  know what the costs were incurred for and what actual costs would have  to be adjusted (i.e., what the costs were incurred on).

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Chapter 7A - Solution Manual - Chapter 07A ABC Action...

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