bambersm_ch05

# bambersm_ch05 - Chapter 5 Activity-Based Costing and Other...

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Unformatted text preview: Chapter 5 Activity-Based Costing and Other Cost Management Tools Τ Quick Check Answers: 1. c 3. a 5. d 7. d 9. a 2. a 4. b 6. c 8. c 10. c Explanations: 2. a. Kitting Boxing Estimated indirect cost of activity \$ 5 million \$ 10 million ÷ Estimated quantity of cost allocation base ÷ 800 million parts ÷ 20 million cubic feet Cost allocation rate for activity \$0.00625 / part \$0.50 / cubic foot 3. a. Kitting Boxing Number of parts; number of cubic feet 100 parts 5 cubic feet × Cost allocation rate × \$0.00625 / part × \$0.50 cubic feet Activity cost per desktop \$0.625 \$2.50 Chapter 5 Activity-Based Costing and Other Cost Management Tools 23 4. b. Revised kitting cost allocation rate: Estimated indirect cost of kitting (\$5 1.5 million) − \$ 3.5 million ÷ Estimated number of parts ÷ 400 million Revised cost allocation rate \$0.00875 / part Server: 80 parts × \$0.00875 / part = \$0.70 Managerial Accounting Class-Test Edition 24 Τ Short Exercises (5-10 min.) S 5-1 Req. 1 Plant-wide = Estimated total indirect costs allocation rate Estimated total quantity of cost allocation base = \$1,000,000 12,500* direct labor hours = \$80 per direct labor hour *When calculating plant-wide overhead rates, all direct labor hours incurred in the plant are used. Req. 2 Departmental cost = Estimated total indirect costs of department allocation rate Estimated total quantity of cost allocation base used in department Machining = \$600,000 4,000 machine hours = \$150 per machine hour Assembly = \$400,000 10,000** direct labor hours = \$40 per direct labor hour **When calculating the assembly departmental rate, only the direct labor hours incurred in the assembly department are used. Chapter 5 Activity-Based Costing and Other Cost Management Tools 25 (continues S 5-1) (10 min.) S 5-2 Req. 1 Job #501 uses more of the company’s resources than Job #500. While both jobs use the same number of direct labor hours in both production departments, Job #501 uses twice as many machine hours (6 MH) as Job #500 (3 MH). Running the machines requires resources, such as utilities, depreciation and repairs and maintenance. The accounting system should show that Job #501 actually “costs” the company more resources to make than Job #500. Req. 2 Overhead allocation based on single, plant-wide rate: Job #500 Job #501 Total direct labor hours 14 DL hours 14 DL hours × Plant-wide allocation rate × \$80 / DL hour × \$80 / DL hour Overhead allocation \$1,120 \$1,120 Managerial Accounting Class-Test Edition 26 (continues) S 5-2 Req. 3 Overhead allocation based on departmental rates: Job #500 Job #501 Machining Department : Departmental allocation rate \$150/ MH \$150/ MH × Machine hours used by Job × 3 MH × 6 MH Overhead allocation \$450 \$900 Assembly Department: Departmental allocation rate \$40/ DL hr \$40/ DL hr × DL hours used by Job × 12 DL hrs × 12 DL hrs Overhead allocation \$480 \$480 Total overhead allocation \$930 \$1,380 (from both departments) Req. 4 The single plant-wide overhead rate assigned the same amount...
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bambersm_ch05 - Chapter 5 Activity-Based Costing and Other...

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