222 CH 4 HW Solutions 5th edition

222 CH 4 HW Solutions 5th edition - CHAPTER 4...

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CHAPTER 4 Activity-Based Costing Homework Solutions ANSWERS TO QUESTIONS (2, 13, 14, 15, 17) 2. The amount of direct labor in many industries has greatly decreased, due to advances in computerized systems, technological innovation, global competition and automation. Total overhead costs resulting from depreciation on expensive equipment and machinery, utilities, repairs, and maintenance have significantly increased. Many companies now use machine hours as the basis on which to allocate overhead in an automated manufacturing environment. 13. The primary benefit of ABC is more accurate product costing. This results from using more cost pools and enhanced control over overhead costs, and leads to better management decisions. 14. The limitations of ABC are: (a) increased costs that accompany multiple-activity cost pools and cost drivers and (b) the necessity still to allocate some costs arbitrarily. 15. ABC is the superior costing system when: (1) product lines differ greatly in volume and manufacturing complexity; (2) product lines are numerous, diverse, and require differing degrees of support services; (3) overhead costs constitute a significant portion of total costs; (4) the manufacturing process or the number of products has changed significantly; and (5) data from the existing system is being ignored. 17. Identifying non-value-added activities highlights for managers the activities that should be reduced or eliminated because they add no value to the product. SOLUTIONS TO BRIEF EXERCISES (1, 5, 6, 7) BRIEF EXERCISE 4-1 (a) Estimated annual overhead costs = Predetermined overhead rate
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Expected annual operating activity $1,000,000 = $10 per direct labor hour 100,000 (b) 90,000 direct labor hours X $10 = $900,000 overhead applied
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This note was uploaded on 03/17/2012 for the course ACT 222 taught by Professor Pike during the Fall '10 term at Saint Louis.

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222 CH 4 HW Solutions 5th edition - CHAPTER 4...

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