Chapter 19: Q10RQ (page 1063)
Question: List two ways managers can use ABM to make decisions.
Answer
Pricing and management decision.
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The Alexander Manufacturing Company in Rochester, Minnesota, assembles and tests electronic components used in smartphones. Consider the following data regarding component T24 (amounts are per unit):
Direct materials cost \( 81.00
Direct labor cost 21.00
Activity-based costs allocated ?
Total manufacturing product cost ?
The activities required to build the component follow:
Activity | Allocation Base | Cost Allocated to Each Unit |
Start Station | Number of raw component chassis | 3 X \)1.50 = \(4.50 |
Dip Insertion | Number of dip insertions | ? X 0.50 = 14.50 |
Manual Insertion | Number of manual insertions | 13 X 0.40 = ? |
Wave solder | Number of components solders | 3 X 1.50 = 4.50 |
Backload | Number of backload insertions | 7 X ? = 2.80 |
Test | Number of testing hours | 0.39 60.0 = ? |
Defect analysis | Number of defect analysis hours | 0.10 X ? = 4.00 |
Total activity-based costs | \) ? |
Requirements
2. Why might managers favor this ABC system instead of Alexander’s older system, which allocated all manufacturing overhead costs on the basis of direct labor hours?
Eason Company manufactures wheel rims. The controller expects the following ABC allocation rates for 2018:
Activity Allocation Base Predetermined Overhead
Allocation Rate
Materials handling Number of parts $ 4.00 per part
Machine setup Number of setups 400.00 per setup
Insertion of parts Number of parts 26.00 per part
Finishing Number of finishing hours 90.00 per hour
Eason produces two wheel rim models: standard and deluxe. Expected data for 2018 are as follows:
Standard Deluxe
Parts per rim 4.0 7.0
Setups per 500 rims 18.0 18.0
Finishing hours per rim 1.0 5.5
Total direct hours per rim 5.0 6.0
The company expects to produce 500 units of each model during the year.
Requirements
3. Compute the estimated ABC indirect manufacturing cost per unit of each model for 2018. Carry each cost to the nearest cent.
Question:Lally, Inc. produces universal remote controls. Lally uses a JIT costing system. One of the company’s products has a standard direct materials cost of \(9 per unit and a standardconversion cost of \)35 per unit. During January 2018, Lally produced 500 unitsand sold 495 units on account at \(45 each. It purchased \)4,800 of direct materials onaccount and incurred actual conversion costs totaling \(14,000.
Requirements
1. Prepare summary journal entries for January.
2. The January 1, 2018, balance of the Raw and In-Process Inventory account was\)70. Use a T-account to find the January 31 balance.
3. Use a T-account to determine whether conversion costs are overallocated orunderallocated for the month. By how much? Prepare the journal entry to adjustthe Conversion Costs account.
Question:Low Range produces fleece jackets. The company uses JIT costing for its JIT production system.
Low Range has two inventory accounts: Raw and In-Process Inventory and
Finished Goods Inventory. On March 1, 2018, the account balances were Raw and In-Process Inventory, \(9,000; Finished Goods Inventory, \)1,700.
The standard cost of a jacket is \(40, composed of \)12 direct materials plus \(28 conversion costs. Data for March’s activities follow:
Number of jackets completed 15,000
Number of jackets sold (on account, for \)50 each) 14,600
Direct materials purchased (on account) \( 177,500
Conversion costs incurred \) 521,000
Requirements
3. Use a T-account to determine the March 31, 2018, balance of Raw and In-Process Inventory.
Haworth Company is a management consulting firm. The company expects to incur \(167,500 of indirect costs this year. Indirect costs are allocated based on the following activities:
Activity | Estimated cost | Allocation Base | Estimated quantity of allocation base | Predetermined Overhead allocation rate |
Site visits | \) 45,000 | Number of visits | 900 visits | \( 50 per visit |
Documentation Preparation | 122,500 | Number of pages | 3,500 Pages | \) 35 per page |
Total Indirect costs | \( 167,500 |
Haworth bills clients at 120% of the direct labor costs. The company has estimated direct labor costs at \)240 per hour. Last month, Haworth completed a consulting job for Client 76 and used the following resources:
Allocation Base Client 76
Direct labor hours 60
Visits 5
Pages 50
Determine the total cost of the consulting job and the operating income earned.
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