Put another way who is the person whcan tell us the

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Who is the best informed? Put another way, ―Who is the person who can tell us the most about the specific item, regardless of ability to exert personal control?‖
6-21 6-33 (30 min.)Activity-based budgeting. 1. a. Machining Indirect materials [$0 + ($10/hour × 10,000 hours)] $100,000 Indirect labor [$20,000 + ($15/hour × 10,000 hours)] 170,000 Utilities [$0 + ($5/hour × 10,000 hours)] 50,000$320,000Cost driver rate = $320,000 10,000 machine hours = $32 per machine hour b. Setups and quality assurance Indirect materials [$0 + $1,000/run × 40 runs] 40,000 Indirect labor [$0 + $1,200/run × 40 runs] 48,000 Inspection [ $80,000 + ($2,000/run × 40 runs)] 160,000$248,000Cost driver rate = $248,000 40 production runs = $6,200 per production run c. Procurement Indirect materials [$0 + ($4/order × 15,000 orders)] $ 60,000 Indirect labor [$45,000 + $0] 45,000$105,000Cost driver rate = $105,000 15,000 purchase orders = $7 per purchase order d. Design Engineering hours [$75,000 + ($50/hour × 100 hours)] $ 80,000Cost driver rate = $80,000 100 engg. hours = $800 per engineering hour e. Materials handling Indirect materials [$0 + ($2/sq. ft.× 100,000 sq. ft.)] $200,000 Indirect labor ($30,000 + $0) 30,000$230,000Cost driver rate = $230,000 100,000 sq. ft. = $2.30 per sq. ft. 2. Quantity of Cost Driver Used By Cost Driver Budgeted Activity Cost Activity (Cost Driver) SV2 CL9 Rate SV2 CL9 a Machining (machine hours) 6,500 3,500 $ 32 $208,000 $112,000 b. Setups and quality assurance (production runs) 20 20 6,200 124,000 124,000 c. Procurement (purchase orders) 8,000 7,000 7 56,000 49,000 d. Design (engineering hours) 25 75 800 20,000 60,000 e. Materials handling (square feet) 60,000 40,000 2.30 138,000 92,000 Budgeted indirect costs allocated $546,000 $437,000 Divided by number of units produced 300,000 100,000 Budgeted indirect costs allocated per unit $ 1.82 $ 4.37
6-22 3. Since the simple and the complex valve consume the five indirect resources in very different proportions, any single allocation base like COGS will result in the miscosting of both products. For example, SV2 consumes 25% of the total design resources of $80,000 or $20,000 300,000 = $0.066 per unit, and CL9 consumes 75% of the total design resources of $80,000 or $60,000100,000 = $0.60 per unit; on the other hand, each unit of SV2 consumes $138,000300,000 = $0.46 of materials handling resources, and each unit of CL9 consumes $92,000100,000 = $0.92 per unit. In the case of design, CL9 consumes about 10 times per unit than SV2; in the case of materials handling, CL9 consumes 2 times per unit than SV2. Using their COGS proportion (a single factor) to allocate both those costs would lead to miscosting. Marketing and operational decisions based on those mis-estimated costs would be misleading for Anderson. Moreover, the activity-based information is helpful in managing costs by reducing the quantity and rate of each activity. 6-34 (60 min.) Comprehensive operating budget, budgeted balance sheet. 1. Schedule 1: Revenues Budget for the Year Ended December 31, 2007 Units Selling Price Total RevenuesSnowboards 1,000 $450 $450,000 2. Schedule 2: Production Budget (in Units) for the Year Ended December 31, 2007 SnowboardsBudgeted unit sales (Schedule 1) 1,000 Add target ending finished goods inventory 200Total requirements 1,200 Deduct beginning finished goods inventory 100Units to be produced 1,1003. Schedule 3A: Direct Materials Usage Budget for the Year Ended December 31, 2007 Wood Fiberglass TotalPhysical Units Budget Wood: 1,100 × 5.00 b.f. 5,500 Fiberglass: 1,100 × 6.00 yards 6,600To be used in production 5,5006,600Cost Budget Available from beginning inventory Wood: 2,000 b.f. × $28.00 $ 56,000 Fiberglass: 1,000 b.f. × $4.80 $ 4,800

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