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Question 1: Speed Racer, Inc., makes jet skis and other personal watercrafts for sale through specialty sporting goods stores. The company has a...

Question 1:

Speed Racer, Inc., makes jet skis and other personal watercrafts for sale through specialty sporting goods stores. The company has a standard jet ski model, but also makes custom-designed models. Management has designed an activity-based costing system with the following activity cost pools and activity rates:

Activity Cost Pool

Activity Rates

Supporting manufacturing

$22 per direct labour-hours

Order processing

$212 per order

Customer design processing

$243 per custom design

Customer service

$307 per customer

Management would like an analysis of the profitability of a particular customer, WaveRider, which has ordered the following products over the last 12 months:


Standard Model

Custom Design

Number of jet skis



Number of orders



Number of custom designs



Direct labour-hours per jet ski



Selling price per jet ski



Direct materials cost per jet ski




The company’s direct labour rate is $24 per hour.


  1. Using the company’s activity-based costing system, compute the customer margin of WaveRider.


Question 2:

Brookfield Property Management is a property management service company for small shopping malls and uses activity-based costing to estimate costs for pricing and other purposes. The proprietor of the company believes that costs are driven primarily by the area of outdoor maintenance (parking lots, sidewalks, and gardens), the area of indoor tenant space in the shopping mall, the distance to travel to the shopping mall, and the number of shopping malls managed. In addition, the costs of managing the indoor tenant space depend on whether the tenants are located on the main level or other levels of the mall. Accordingly, the company uses the five activity cost pools listed below:

Activity Cost Pool

Activity Measure

Management of outdoor areas

Square meters of outdoor areas

Management of indoor mall space – main level

Square meters of main level mall space

Management of indoor mall space – other levels

Square meters of non-main level mall space

Travel to jobs


Customer billing and service

Number of shopping malls


The company has already carried out its first-stage allocations of costs. The company’s annual costs and activities are summarized as follows:

Activity Cost Pool

Estimated Overhead Cost

Expected Activity

Management of outdoor areas


127,000 square meters of outdoor areas

Management of indoor mall space – main level


104,000 square meters of main level mall space

Management of indoor mall space – other levels


246,000 square meters of non-main level mall space

Travel to jobs


22,000 kilometers

Customer billing and service


8 shopping malls



  1. Compute the activity rate for each of the activity cost pools.


Question 3:

Go Pro Corporation makes golf carts that it sells directly to golf courses throughout the world.

Several basic models are available, which are modified to suit the needs of each particular golf course. A golf course located in British Columbia, for example, would typically specify that its golf carts come equipped with retractable rain-proof covers. In addition, each customer (i.e., golf course) customizes its golf carts with its own colour scheme and logo. The company typically makes all of the golf carts for a customer before starting work on the next customer’s golf carts.

Below are listed a number of activities and costs at Go Pro Corporation:



1)      The purchasing department orders the specific colour of paint specified by the customer from the company’s supplier.


2)      A steering wheel is installed in a golf cart.


3)      The company’s paint shop makes a stencil for a customer’s logo.


4)      Completed golf carts are individually tested on the company’s test track.


5)      The accounts receivable department prepares the bill for a completed order.


6)      An outside lawyer draws up a new generic sales contract for the company, limiting Go Pro’s liability in case of accidents that involve its golf carts.


7)      Electricity is used to heat and light the factory and the administrative offices.


8)      A golf cart is painted.


9)      A sales representative visits a previous customer to check on how the company’s golf carts are working out and to try to make a new sale.


10)  A new model golf cart is shipped to the leading golfing trade magazine to be evaluated for the magazine’s annual rating of golf carts.


11)  The company’s engineer modifies the design of a model to eliminate a potential safety problem.


12)  The marketing department has a catalogue printed and then mails copies to golf course managers.




  1. Classify each of the costs or activities above as unit-level, batch-level, product-level, customer-level, or organization-sustaining. In this case, customers are golf courses, products are the various models of the golf cart, a batch is a specific order from a customer, and units are individual golf carts.


Question 4:

Wild Wild West Co. manufactures two products, Stirrups and Saddles. The company estimated it would incur $160,790 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labour hours. Data concerning the current period's operations appear below:




Estimated volume

3,400 units

4,800 units

Direct labour hours per unit

1.40 hour

1.90 hours

Direct materials cost per unit



Direct labour cost per unit





  1. Compute the predetermined overhead rate under the current method, and determine the unit product cost of each product for the current year.
  2. The company is considering using an activity-based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labour hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below:

    Activity Cost Pool

    Estimated Overhead Costs

    Expected Activity: Stirrups

    Expected Activity: Saddles


    Machine setups





    Purchase orders





    General factory










    Determine the unit product cost of each product for the current period using the activity-based costing approach.
Question 1: Speed Racer, Inc., makes jet skis and other personal watercrafts for sale through specialty  sporting goods stores. The company has a standard jet ski model, but also makes custom- designed models. Management has designed an activity-based costing system with the following activity cost pools and activity rates: Activity Cost Pool Activity Rates Supporting manufacturing $22 per direct labour-hours Order processing $212 per order Customer design processing $243 per custom design Customer service $307 per customer   Management would like an analysis of the profitability of a particular customer, WaveRider, which has ordered the following products over the last 12 months:   Standard Model Custom Design Number of jet skis 16 3 Number of orders 2 3 Number of custom designs 0 3 Direct labour-hours per jet ski 24.5 28.0 Selling price per jet ski $10,600 $13,200 Direct materials cost per jet ski $7,950 $9,240   The company’s direct labour rate is $24 per hour. Required: 1. Using the company’s activity-based costing system, compute the customer margin of  WaveRider.   Question 2: Brookfield Property Management is a property management service company for small shopping  malls and uses activity-based costing to estimate costs for pricing and other purposes. The  proprietor of the company believes that costs are driven primarily by the area of outdoor  maintenance (parking lots, sidewalks, and gardens), the area of indoor tenant space in the  shopping mall, the distance to travel to the shopping mall, and the number of shopping malls 
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managed. In addition, the costs of managing the indoor tenant space depend on whether the  tenants are located on the main level or other levels of the mall. Accordingly, the company uses  the five activity cost pools listed below: Activity Cost Pool Activity Measure Management of outdoor areas Square meters of outdoor areas Management of indoor mall space – main level Square meters of main level mall space Management of indoor mall space – other levels Square meters of non-main level mall space Travel to jobs Kilometers Customer billing and service Number of shopping malls   The company has already carried out its first-stage allocations of costs. The company’s annual  costs and activities are summarized as follows: Activity Cost Pool Estimated Overhead Cost Expected Activity Management of outdoor areas $69,850127,000 square meters of  outdoor areas Management of indoor mall space – main level $114,400104,000 square meters of main  level mall space Management of indoor mall space – other levels $307,500246,000 square meters of non- main level mall space Travel to jobs $6,60022,000 kilometers Customer billing and service $13,8008 shopping malls   Required: 1. Compute the activity rate for each of the activity cost pools.   Question 3: Go Pro Corporation makes golf carts that it sells directly to golf courses throughout the world. Several basic models are available, which are modified to suit the needs of each particular golf  course. A golf course located in British Columbia, for example, would typically specify that its golf carts come equipped with retractable rain-proof covers. In addition, each customer (i.e., golf  course) customizes its golf carts with its own colour scheme and logo. The company typically  makes all of the golf carts for a customer before starting work on the next customer’s golf carts.
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Question 1
Activity Cost Pool
Supporting manufacturing
Order processing
Customer design processing
Customer service
Direct labor Activity Rates
24.00 per

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