Managerial Accounting: Tools for Business Decision Making Exercises

$13.00

Description









E4-11 (a,b)




Sorce Instrument, Inc. manufactures two products: missile range
instruments and space pressure gauges. During April, 50 range instruments and
300 pressure gauges were produced, and overhead costs of $89,500 were
estimated. An analysis of estimated overhead costs reveals the following
activities.



























Activity



Cost Driver



Total Cost




1. Materials handling



Number of requisitions



$35,000





2. Machine setups



Number of setups



27,500





3. Quality inspections



Number of inspections




27,000









$89,500




The cost driver volume for each product was as follows.




























Cost Driver



Instruments



Gauges



Total




Number of requisitions



400




600




1,000





Number of setups



200




300




500





Number of inspections



200




400




600



a)
Determine the overhead rate for each activity.

b)
Assign the manufacturing overhead costs for April to the two
products using activity-based costing.









P4-3A (a,c)




Skaros Stairs Co. of Moore designs and builds factory-made premium
wooden stairs for homes. The manufactured stair components (spindles, risers,
hangers, hand rails) permit installation of stairs of varying lengths and
widths. All are of white oak wood. Budgeted manufacturing overhead costs for
the year 2011 are as follows.








































Overhead Cost Pools



Amount




Purchasing



$ 57,000





Handling materials



82,000





Production (cutting, milling, finishing)



210,000





Setting up machines



85,000





Inspecting



90,000





Inventory control (raw materials and finished goods)



126,000





Utilities




180,000






Total budget overhead costs




$830,000




For the last 4 years, Skaros Stairs Co. has been charging overhead
to products on the basis of machine hours. For the year 2011, 100,000 machine
hours are budgeted.
Anthony Morse, owner-manager of Skaros Stairs Co., recently directed his
accountant, Neal Seagren, to implement the activity-based costing system that
he has repeatedly proposed. At Anthony Morse’s request, Neal and the production
foreman identify the following cost drivers and their usage for the previously
budgeted overhead cost pools.












































Activity Cost Pools





Cost
Drivers





Expected
Use of
Cost Drivers




Purchasing




Number of orders



600




Handling materials




Number of moves



8,000




Production (cutting, milling, finishing)




Direct labor hours



100,000




Setting up machines




Number of setups



1,250




Inspecting




Number of inspections



6,000




Inventory control (raw materials and finished goods)




Number of components



168,000




Utilities




Square feet occupied



90,000



David Hannon, sales manager, has received an order for 280 stairs
from Community Builders, Inc., a large housing development contractor. At
David’s request, Neal prepares cost estimates for producing components for 280
stairs so David can submit a contract price per stair to Community Builders. He
accumulates the following data for the production of 280 stairways.












































Direct materials



$103,600




Direct labor



$112,000




Machine hours



14,500




Direct labor hours



5,000




Number of purchase orders



60




Number of material moves



800




Number of machine setups



100




Number of inspections



450




Number of components



16,000




Number of square feet occupied



8,000


Compute the predetermined overhead rate using traditional costing
with machine hours as the basis.(Enter answer to 2 decimal
places, e.g. 10.50.)

What is the manufacturing cost per stairway under traditional
costing?(Use rounded amount from part (a). Round answer to 2 decimal places,
e.g. 10.50.)









P4-4A (a-d)




Polzin Corporation produces two grades of wine from grapes that it
buys from California growers. It produces and sells roughly 3,000,000 liters
per year of a low-cost, high-volume product called CoolDay. It sells this in
600,000 5-liter jugs. Polzin also produces and sells roughly 300,000 liters per
year of a low-volume, high-cost product called LiteMist. LiteMist is sold in
1-liter bottles. Based on recent data, the CoolDay product has not been as
profitable as LiteMist. Management is considering dropping the inexpensive
CoolDay line so it can focus more attention on the LiteMist product. The
LiteMist product already demands considerably more attention than the CoolDay
line.
Greg Kagen, president and founder of Polzin, is skeptical about this idea. He
points out that for many decades the company produced only the CoolDay line,
and that it was always quite profitable. It wasn’t until the company started
producing the more complicated LiteMist wine that the profitability of CoolDay
declined. Prior to the introduction of LiteMist, the company had simple
equipment, simple growing and production procedures, and virtually no need for
quality control. Because LiteMist is bottled in 1-liter bottles, it requires
considerably more time and effort, both to bottle and to label and box than
does CoolDay. The company must bottle and handle 5 times as many bottles of
LiteMist to sell the same quantity as CoolDay. CoolDay requires 1 month of
aging; LiteMist requires 1 year. CoolDay requires cleaning and inspection of
equipment every 10,000 liters; LiteMist requires such maintenance every 600
liters.
Greg has asked the Accounting department to prepare an analysis of the cost per
liter using the traditional costing approach and using activity-based costing.
The following information was collected.





























CoolDay



LiteMist




Direct materials per liter



$0.40




$1.20





Direct labor cost per liter



$0.25




$0.50





Direct labor hours per liter



0.05




0.09





Total direct labor hours



150,000




27,000





































































Activity Cost Pool





Cost Driver





Estimated
Overhead





Expected
Use of
Cost Drivers





Expected
Use of
Cost Drivers per Product





Activity Cost Pool





Cost Driver





Estimated
Overhead





Expected
Use of
Cost Drivers





Expected
Use of
Cost Drivers per Product





CoolDay





LiteMist




Grape processing




Cart of grapes



$145,860




6,600




6,000




600




Aging




Total months



396,000




6,600,000




3,000,000




3,600,000




Bottling and corking




Number of bottles



270,000




900,000




600,000




300,000




Labeling and boxing




Number of bottles



189,000




900,000




600,000




300,000




Maintain and inspect equipment




Number of inspections




240,800





800




350




450








$1,241,660


























Under traditional product costing using direct labor hours,
compute the total manufacturing cost per liter of both products.(Round
computations and final answers to 3 decimal places, e.g. 2.250.)

Under ABC, prepare a schedule showing the computation of the
activity-based overhead rates (per cost driver).(Enter
overhead rate to 2 decimal places, e.g. 10.50.)

Prepare a schedule assigning each activity’s overhead cost pool to
each product, based on the use of cost drivers. What is the overhead cost per
liter?(Enter overhead rate to 2 decimal places, e.g. 10.50 and round
overhead cost per liter to 3 decimal places, e.g. 2.250.)

Compute the total manufacturing cost per liter for both products
under ABC.(Round answers to 3 decimal places, e.g. 2.250.)

Reviews

There are no reviews yet.

Be the first to review “Managerial Accounting: Tools for Business Decision Making Exercises”

Your email address will not be published. Required fields are marked *