Chapter 17: Q4DQ (page 787)
What are the advantages of using a single plantwide overhead rate?
The plant overhead rate is easy to compute because the company must allocate and use only one rate.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
A manufacturer uses activity-based costing to assign overhead costs to products. In the coming year it expects to incur $825,000 of costs to dispose of 3,300 tons of hazardous waste.
Refer to the information in Exercise 17-1. Compute the activity rate for each activity, assuming the company uses activity-based costing.
Activity | Expected Costs | Expected Activity |
Handling materials | $625,000 | 100,000 parts |
Inspecting product | 900,000 | 1,500 batches |
Processing purchase orders | 105,000 | 700 orders |
Paying suppliers | 175,000 | 500 invoices |
Insuring the factory | 300,000 | 40,000 square feet |
Designing packaging | 75,000 | 2 models |
Surgery Center is an outpatient surgical clinic that was profitable for many years, but Medicare has cut its reimbursements by as much as 40%. As a result, the clinic wants to better understand its costs. It decides to prepare an activity-based cost analysis, including an estimate of the average cost of both general surgery and orthopedic surgery. The clinic’s three activity cost pools and their cost drivers follow.
Activity Cost Pool Cost Cost Driver Driver Quantity
Professional salaries $1,600,000 Professional hours 10,000
Patient services and supplies 27,000 Number of patients 600
Building cost 150,000 Square feet 1,500
The two main surgical units and their related data follow.
Service Hours Square Feet* Patients
General surgery 2,500 600 400
Orthopedic surgery 7,500 900 200
Required
1. Compute the cost per cost driver for each of the three activity cost pools.
2. Use the results from part 1 to allocate costs to both the general surgery and the orthopedic surgery units. Compute total cost and average cost per patient for both the general surgery and the orthopaedic surgery units.
Refer to the information in Exercise 17-1. Assume that the following information is available for the company’s two products for the first quarter of 2017.
Deluxe Model | Basic Model | |
Production volume | 10,000 units | 30,000 units |
Parts required | 20,000 parts | 30,000 parts |
Parts required | 250 batches | 100 batches |
Purchase orders | 50 orders | 20 orders |
Invoices | 50 invoices | 10 invoices |
Space occupied | 10,000 square feet | 7,000 square feet |
Models | 1 model | 1 model |
Required Compute activity rates for each activity and assign overhead costs to each product model using activity-based costing (ABC). What is the overhead cost per unit of each model?
Mathwerks produces two electronic, handheld educational games: Fun with Fractions and Count Calculus. Data on these products follow.
Fun with Fractions Count Calculus
Production volume ………… 150,000 units 10,000 units
Components ………………… 450,000 parts 100,000 parts
Direct labor hours ………….. 15,000 DLH 2,000 DLH
Packaging materials ……….. 150,000 boxes 10,000 boxes
Shipping cartons …………… 100 units per carton 25 units per carton
Machine setups …………….. 52 setups 52 setups
Machine hours ……………… 5,000 MH 2,000 MH
Additional data from its two production departments follow.
Department Driver Cost
Assembly department
Component cost …………………….. Parts \(495,000
Assembly labor ……………………… Direct labor hours 244,800
Maintenance ………………………….. Machine hours 100,800
Wrapping department
Packaging materials ………………… Boxes \)460,800
Shipping ………………………………. Cartons 27,360
Machine setup ……………………….. Setups 187,200
Required
1. Using ABC, determine the cost of each product line.
2. What is the cost per unit ofFun with Fractions? What is the cost per unit ofCount Calculus?
3. IfCount Calculussells for $59.95 per unit, how much profit does the company earn per unit ofCount Calculussold?
4. What is the minimum price that the company should set per unit of Fun with Fractions? Explain.
What do you think about this solution?
We value your feedback to improve our textbook solutions.
