Chapter 17: Q6QS (page 788)
List the three main advantages of the plantwide and departmental overhead rate methods.
Both plantwide and departmental overhead rate methods are beneficial for cost estimation and analysis.
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Refer to the information in Exercise 17-7 to answer the following requirements.
Required
1. Determine departmental overhead rates and compute the overhead cost per unit for each product line. Base your overhead assignment for the components department on machine hours. Use welding hours to assign overhead costs to the finishing department. Assign costs to the support department based on number of purchase orders.
2. Determine the total cost per unit for each product line if the direct labor and direct materials costs per unit are \(250 for Model 145 and \)180 for Model 212.
3. If the market price for Model 145 is \(820 and the market price for Model 212 is \)480, determine the profit or loss per unit for each model. Comment on the results.
Question: Compare Apple’s and Google’s income statements and answer the following.
Required
1. Which company has a higher ratio of costs, defined as cost of goods sold plus total operating expenses, to revenues? Use the two most recent years’ income statements from Appendix A. Show your analysis.
2. How might the use of activity-based costing help the less competitive company becomemorecompetitive?
3. Assume Apple is considering opening a new retail store. What are the activities associated with opening a new retail store?
What are the advantages of using a single plantwide overhead rate?
Wade Company makes two distinct products, with the following information available for each.
Standard Deluxe
Direct materials . . . . . . . . . . . . . . . . . . \( 4 per unit \) 8 per unit
Direct labor hours …………………….. 4 DLH per unit 5 DLH per unit
Machine hours …………………………. 3 MH per unit 3 MH per unit
Batches ………………………………….. 175 batches 75 batches
Volume …………………………………... 40,000 units 10,000 units
Engineering modifications …………... 50 modifications 25 modifications
Number of customers ………………… 1,000 customers 1,000 customers
Market price …………………………….. \(92 per unit \)125 per unit
The company’s direct labor rate is \(20 per direct labor hour (DLH). Additional information follows.
Costs Driver
Indirect manufacturing
Engineering support …………………….. \) 56,250 Engineering modifications
Electricity ………………………………….. 112,500 Machine hours
Setup costs ……………………………….. 41,250 Batches
Nonmanufacturing
Customer service ……………………….. 250,000 Number of customers
Required
1. Compute the manufacturing cost per unit using the plantwide overhead rate based on machine hours. What is the gross profit per unit?
2. How much gross profit is generated by each customer of the standard product using the plantwide overhead rate? How much gross profit is generated by each customer of the deluxe product using the plantwide overhead rate? What is the cost of providing customer service to each customer? What information is provided by this comparison?
3. Determine the manufacturing cost per unit of each product line using ABC. What is the gross profit per unit?
4. How much gross profit is generated by each customer of the standard product using ABC? How much gross profit is generated by each customer of the deluxe product using ABC? Is the gross profit per customer adequate?
5. Which method of product costing gives better information to managers of this company? Explain.
The chief executive officer (CEO) of your company recently returned from a luncheon meeting
where activity-based costing was presented and discussed. Though her background is not in accounting, she has worked for the company for 15 years and is thoroughly familiar with its operations. Her impression of the presentation about ABC was that it was just another way of dividing up total overhead cost and that the total would still be the same “no matter how you sliced it.”
Required
Write a memorandum to the CEO, no more than one page, explaining how ABC is different from traditional volume-based costing methods. Also, identify its advantages and disadvantages vis-à-vis traditional methods. Be sure it is written to be understandable to someone who is not an accountant.
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