ABC Company produces two products, Nifty and So-So, and uses a costing system in which all overhead is accumulated in a single cost pool and allocated based on machine hours. Blaine's management has decided to implement ABC because a cost study has revealed significant amounts of overhead cost related to setup activity and design activity. The number of setups and the number of design hours will be the activity drivers for the two new cost pools, and machine hours will continue as the base for allocating the remaining overhead. Selected information follows for ABC Company's most recent year of operations: A ТОTAL UNITS PRODUCED 500 15,500 16,000 DIRECT MATERIAL COST PER UNIT $ 200.00 $ 20.00 TOTAL 100,000.00 310,000.00 $ 410,000.00 MACHINE HOURS 3,000 47,000 50,000 DIRECT LABOR COST 2$ 50,000 $ 350,000 $ 400,000 SETUP 120 80 200 DESIGN HOURS 6,000 4,000 10,000 OVERHEAD SETUP RELATED $ 250,000 DESIGN RELATED 350,000 OTHERS 900,000 Calculate the total and per unit reported cost for the two products by using ABC costing system.

ABC Company produces two products, Nifty and So-So, and uses a costing system in which all overhead is accumulated in a single cost pool and allocated based on machine hours. Blaine's management has decided to implement ABC because a cost study has revealed significant amounts of overhead cost related to setup activity and design activity. The number of setups and the number of design hours will be the activity drivers for the two new cost pools, and machine hours will continue as the base for allocating the remaining overhead. Selected information follows for ABC Company's most recent year of operations: A ТОTAL UNITS PRODUCED 500 15,500 16,000 DIRECT MATERIAL COST PER UNIT $ 200.00 $ 20.00 TOTAL 100,000.00 310,000.00 $ 410,000.00 MACHINE HOURS 3,000 47,000 50,000 DIRECT LABOR COST 2$ 50,000 $ 350,000 $ 400,000 SETUP 120 80 200 DESIGN HOURS 6,000 4,000 10,000 OVERHEAD SETUP RELATED $ 250,000 DESIGN RELATED 350,000 OTHERS 900,000 Calculate the total and per unit reported cost for the two products by using ABC costing system.

Name: ABC Company produces two products, Nifty and So-So, anduses a costing
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Description: ABC Company produces two products, Nifty and So-So, anduses a costing system in which all overhead is accumulated in asingle cost pool and allocated based on machine hours. Blaine'smanagement has decided to implement ABC because a coststudy has reve

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter4: Activity-based Costing

Section: Chapter Questions

Problem 8CE: Electan Company produces two types of printers. The company uses ABC, and all activity drivers are...

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Electan Company produces two types of printers. The company uses ABC, and all activity drivers are duration drivers. Electan Company is considering using DBC and has gathered the following data to help with its decision. A. Activities with duration drivers: B. Activities with consumption ratios and costs: C. Products with cycle time and practical capacity: Required: 1. Using cycle time and practical capacity for each product, calculate the total time for all primary activities. Comment on the relationship to ABC. 2. Calculate the overhead rate that DBC uses to assign costs. Comment on the relationship to a unit-based plantwide overhead rate. 3. Use the overhead rate calculated in Requirement 2 to calculate (a) the overhead cost per unit for each product, and (b) the total overhead assigned to each product. How does this compare to the ABC assignments shown in Part B of the Information set? 4. What if the units actually produced were 10,000 for Printer A and 18,000 for Printer B. Using DBC, calculate the cost of unused capacity.
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The management of Wheeler Company has decided to develop cost formulas for its major overhead activities. Wheeler uses a highly automated manufacturing process, and power costs are a significant manufacturing cost. Cost analysts have decided that power costs are mixed; thus, they must be broken into their fixed and variable elements so that the cost behavior of the power usage activity can be properly described. Machine hours have been selected as the activity driver for power costs. The following data for the past eight quarters have been collected: Required: 1. Prepare a scattergraph by plotting power costs against machine hours. Does the scatter-graph show a linear relationship between machine hours and power cost? 2. Using the high and low points, compute a power cost formula. 3. Use the method of least squares to compute a power cost formula. Evaluate the coefficient of determination. 4. Rerun the regression and drop the point (20,000; 26,000) as an outlier. Compare the results from this regression to those for the regression in Requirement 3. Which is better?
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QWERTY Company produces two products Product X and Product Y and uses a costing system that accumulates all overhead in a single cost pool and allocates it based on direct labor cost. The company has decided to implement ABC having just finished a study that revealed significant amount of overhead cost are related to setup activity and design activity. The number of setups and the number of design hours were selected as the activity drivers for the two new cost pools and direct labor cost will continue as the base for allocating the remaining overhead. Information concerning GHI Company’s most recent year of operation is as follows: Product X Product Y Units produced 73,500 125 Direct material cost Per unit P 12 P 100 Direct labot cost P 2,190,000 P 90,000 Setups 30 30 Design hours 12,000 3,000 Overhead: Setup related P 300,000 Design related P 900,000 Other P 3,300,000 Required: Calculate the total and per unit costs reported…
GHI Company produces two products Product X and Product Y and uses a costing system that accumulates all overhead in a single cost pool and allocates it based on direct labor cost. The company has decided to implement ABC having just finished a study that revealed significant amount of overhead cost are related to setup activity and design activity. The number of setups and the number of design hours were selected as the activity drivers for the two new cost pools and direct labor cost will continue as the base for allocating the remaining overhead. Information concerning GHI Company’s most recent year of operation is as follows: Product X Product Y Units produced 73,500 125 Direct Material cost Per unit P 12 P 100…
Pinnacle Inc. has decided to switch from a traditional overhead allocation system to an ABC system. So far, the firm’s managers have decided that Pinnacle needs six different activity cost pools, including one for assembling products. When selecting a driver for this cost pool, Pinnacle’s managers should be sure to select _______ A. the activity that appears to play the greatest role in determining the firm’s product assembly costs. B. the activity that appears to play the greatest role in determining how many units the firm assembles in a given period. C. the product that appears to account for the majority of the costs in the product assembly pool. D. the product that has the highest per-unit assembly cost.
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Data Master is a computer software consulting company. Its three major functional areas are computer programming, information systems consulting, and software training. Cynthia Moore, a pricing analyst in the Accounting Department, has been asked to develop total costs for the functional areas. These costs will be used as a guide in pricing a new contract. In computing these costs, Moore is considering three different methods of allocating overhead costs: the direct method, the step method, and the reciprocal method. Moore assembled the following data on overhead from its two service departments, the Information Systems Department and the Facilities Department. Service Departments User Departments Info Systems Facilities Computer Program Consulting $ 50,000 $110,000 600 $25,000 400 $75,000 1,100 400,000 200,000 600,000 information systems are allocated on the basis of hours of computer usage; facilities are allocated on the basis of floor space. Required: Allocate the service…
Data Master is a computer software consulting company. Its three major functional areas are computer programming, information systems consulting, and software training. Cynthia Moore, a pricing analyst in the Accounting Department, has been asked to develop total costs for the functional areas. These costs will be used as a guide in pricing a new contract. In computing these costs, Moore is considering three different methods of allocating overhead costs-the direct method, the step method, and the reciprocal method. Moore assembled the following data on overhead from its two service departments, the Information Systems Department and the Facilities Department. Service Departments User Departments Info Systems Facilities Computer Program Consult Training Total Budgeted Overhead $ 50,000 $ 25,000 $ 75,000 $ 110,000 $ 85,000 $ 345,000 Info Systems (hrs.) 400 1,100 600 900 3,000 Facilities (Square feet) 200,000…
Pinnacle Inc. has decided to switch from a traditional overhead allocation system to an ABC system. So far, the firm’s managers have decided that Pinnacle needs six different activity cost pools, including one for assembling products. When selecting a driver for this cost pool, Pinnacle’s managers should be sure to select -the product that appears to account for the majority of the costs in the product assembly pool. - the product that has the highest per-unit assembly cost. - the activity that appears to play the greatest role in determining the firm’s product assembly costs. - the activity that appears to play the greatest role in determining how many units the firm assembles in a given period.