Dolan Tires manufactures tires for dune buggies and has two different products, nubby tires and smooth tires. The company produces 5,000 nubby tires and 10,000 smooth tires each year and incurs $167,000 of overhead costs. The following information is available: Activity Total Cost Cost Driver Materials handling $60,000 Number of requisitions Machine setups 50,000 Number of setups Quality inspections 57,000 Number of inspections FOR INSTRUCTOR USE ONLY 17 - 37
Test Bank for Accounting, Tools for Business Decision Making Fifth Edition BE 167 (Cont.) For the nubby tires, the company has 400 requisitions, 200 setups, and 200 inspections. Thesmooth tires require 600 requisitions, 300 setups, and 400 inspections.InstructionsDetermine the overhead rate for each activity. Ans: N/A, LO: 4, Bloom: AP, Difficulty: Easy, Min: 5-10, AACSB: Analytic, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt Solution 167 (5 – 10 min.) The overhead rates are:Expected UseActivityOverheadof Cost DriversOverhead RateMaterials handling$60,0001,000$ 60/req.Machine setups50,000500$100/setupQuality inspections57,000600$ 95/insp.BE 168The legal firm of West, Green, and Ink uses ABC to allocate its overhead costs. The firm has identified the following activity cost pools: A.Direct labor fringe benefits.B.Printing and photocopying.C.Secretarial support.D.Client support.E.Recruiting and training.F.Computer support.G.Liability insurance Instructions Match these cost pools with the appropriate cost driver listed below. ______ 1. Revenue billed. ______ 2. CPU minutes. ______ 3. Number of pages. ______ 4. Direct labor cost. ______ 5. Number of clients. ______ 6. Number of recruits. ______ 7. Direct professional hours. Ans: N/A, LO: 4, Bloom: K, Difficulty: Easy, Min: 3, AACSB: Reflective, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt Solution 168 (3 min.) 1. G 5. D 2. F 6. E 3. B 7. C 4. A FOR INSTUCTOR USE ONLY 17 - 38
Activity-Based Costing BE 169 Rhode Company provides architectural services for mall development companies. The following data are available for 2013Expected Use ofActivity Cost PoolEstimated OverheadCost Driver per ActivitySecretarial support$ 220,00027,500 professional hoursDirect labor fringe benefits200,000$500,000 direct labor costPrinting and copying30,00020,000 pagesComputer support250,00062,500 minutesLiability insurance140,000$2,800,000 billed revenueInstructionsCompute the activity-based overhead rates. Ans: N/A, LO: 4, Bloom: AP, Difficulty: Easy, Min: 4, AACSB: Analytic, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Mgmt Solution 169 (4 min.) Estimated Expected Use of Activity-Based Activity Cost Pool Overhead ÷ Cost Driver per Activity = Overhead Rates Secretarial support $ 220,000 27,500 professional hours $8/prof. hour Direct labor fringe benefits 200,000 $500,000 direct labor cost $.40/DL Dollar Printing and copying 30,000 20,000 pages $1.50/page Computer support 250,000 62,500 minutes $4/minute Liability insurance 140,000 $2,800,000 billed revenue $.05/Rev. $ Billed BE 170
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