ICQs - Chapter 7 Questions.docx

# Overhead is caused by purchase orders costing 120000

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Overhead is caused by purchase orders costing \$120,000, inspections costing \$270,000, and materials handling costing \$210,000. The company estimates the following activity information: Zig Zag Total # of Purchase Orders 1,000 500 1,500 # of Inspections 1,000 500 1,500 # of Times Materials is handled 1,500 500 2,000 Required: A. Compute the amount of overhead assigned to each product using direct labour hours as the base. B. Compute the amount of overhead assigned to each product using ABC. C. What insight does ABC Provide?

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ICQ #7 CompuTrain Learning Centre delivers 2 services, IT training and Office training, in the same location. Last month, the Centre experienced the following costs and results: IT Training Office Training Total Direct Materials (books & courseware) \$ 21,600 \$9,500 \$31,100 Direct Labour (instructors) 11,900 6,100 18,000 Overhead (300% of labour) 35,700 18,300 54,000 Total Cost \$69,200 \$33,900 \$103,100 # of Students Registered 141 105 Average Cost per Student \$ 491 \$ 323 Several of the managers have approached the cost accounting department for help in understanding activity-based costing. Their specific request is that ABC be applied to see whether the average cost per student is significantly changed. The following additional information is extracted from the accounting records for the month: The overhead cost for registration was \$2,160. The cost driver is number of students registered. The overhead cost for computer amortization was \$28,840. The cost driver is hours of use. The computers were used 700 hours for IT Training and 300 hours for Office Training. The overhead cost for rent was \$23,000. The cost driver for this cost is classroom utilization. 9 classrooms were for IT Training and 3 classrooms were for Office Training. Required: A. Assign the overhead cost to each training using ABC. B. Determine the average cost per student of the two trainings using direct materials, direct labour, and overhead allocated under ABC. C. Compare and explain the average cost per student under ABC to the average cost per student found in the data section of this problem.
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