Chapter 17: Q6DQ (page 787)
What is a cost object?
Cost object contain details about a particular product or department.
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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?
Cardiff and Delp is an architectural firm that provides services for residential construction projects. The following data pertain to a recent reporting period.
Activities Costs
Design department
Client consultation ……………………….. 1,500 contact hours \( 270,000
Drawings …………………………………… 2,000 design hours 115,000
Modeling …………………………………… 40,000 square feet 30,000
Project management department
Supervision ………………………………… 600 days \)120,000
Billing ……………………………………….. 8 jobs 10,000
Collections ………………………………… 8 jobs 12,000
Required
1. Using ABC, compute the firm’s activity overhead rates. Form activity cost pools where appropriate.
2. Assign costs to a 9,200-square-foot job that requires 450 contact hours, 340 design hours, and 200 days to complete.
What is the first step in applying activity-based costing?
Consider the following data for two products of Gitano Manufacturing.
Overhead Cost Product A Product B
Number of units produced 10,000 units 2,000 units
Direct labor cost 0.20 DLH per unit 0.25 DLH per unit
(@ \(24 per DLH)
Direct materials cost \)2 per unit \(3 per unit
Activity
Machine setup \)121,000
Materials handling 48,000
Quality control inspections 80,000
\(249,000
Required
1. Using direct labor hours as the basis for assigning overhead costs, determine the total production cost per unit for each product line.
2. If the market price for Product A is \)20 and the market price for Product B is $60, determine the profit or loss per unit for each product. Comment on the results.
3. Consider the following additional information about these two product lines. If ABC is used for assigning overhead costs to products, what is the cost per unit for Product A and for Product B?
Product A Product B
Number of setups required for production 10 setups 12 setups
Number of parts required 1 part/unit 3 parts/unit
Inspection hours required 40 hours 210 hours
4. Determine the profit or loss per unit for each product. Should this information influence company strategy? Explain.
Why are overhead costs allocated to products and not traced to products as direct materials and direct labor are?
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