Chapter 9 Solutions.docx - Chapter 9 Solutions 9.33...

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Chapter 9 Solutions 9.33 Plantwide versus Department Allocation: Munoz Sporting Equipment. Baseball Bats Tennis rackets a. Sales revenue ............. $2,700,000 $1,800,000 Direct Labor ................. 500,000 250,000 Direct Materials ........... 1,100,000 550,000 Overhead ..................... 1,000,000 a 500,000 b Profit ............................ $100,000 $ 500,000 a $1,000,000 = $500,000 direct labor × 200%. b $500,000 = $250,000 direct labor × 200%. b. Maria was wrong; Baseball bats were more profitable. Baseball Bats Tennis rackets Sales revenue ............. $2,700,000 $1,800,000 Direct Labor ................. 500,000 250,000 Direct Materials ........... 1,100,000 550,000 Overhead ..................... 750,000 a 750,000 b Profit ............................ $350,000 $ 250,000 a $750,000 = $500,000 direct labor × 150%. b $750,000 = $250,000 direct labor × 300%. c. The plantwide allocation method allocates overhead at 200% of direct labor for both types of equipment. While this is the simplest method, it is usually not very accurate. It assumes that overhead in both departments has the same rate. When overhead costs are broken down into department cost pools, we see that Department B is allocated a smaller share of the overhead. Each department should try to assess what causes its overhead, and use that as its allocation base. 9.37 Activity-Based Costing: IVC, Inc. a. Sport Pro Direct material ............................................................... $1,500,000 $2,400,000 Direct labor
Assembly .................................................................. $ 750,000 $ 600,000 Packaging ................................................................. 990,000 360,000 Total direct labor ................................................... $1,740,000 $960,000 Direct costs .................................................................... $3,240,000 $3,360,000 Overhead Assembly building Assembling (@ $30/mh) ........................................... $ 180,000 $ 900,000 Setting up machine (@$900/setup-hour) a ............... 27,000 270,000 Handling material (@$3,000/run) ............................. 24,000 120,000 Packaging building Inspecting and Packaging (@$5/direct labor-hour). 300,000 114,000 Shipping (@$1,320/shipment) .................................. 132,000 264,000 Total ABC O/H ....................................................... $ 663,000 $1,668,000 Total ABC cost ............................................................... $3,903,000 $5,028,000 Number of units ............................................................. 100,000 40,000 Unit cost ......................................................................... $39.03 $125.70 a 75% of the amounts in Exhibit 9.16. ($27,000 = .75 $36,000; $270,000 = .75 $360,000). b. Tom could have made the reductions he planned, but the effect on the product costs would have been different. The $99,000 reduction in setup costs (25% of $396,000), would have been spread between the two products based on labor or machine- hours. ABC provides more detailed measures of costs than do plantwide or department allocation methods. In this case, ABC shows the costs of machining, setting up equipment, handling materials, inspecting, packaging products, and shipping. The

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