QUESTION #1 Health-Tex produces an impressive line of safety masks. The company has established the following selling and distribution support activity-cost pools and corresponding activity drivers: Activity Marketing Customer service Order execution Warehousing Cost $30,000 10,000 5,000 5,000 Cost driver $500,000 of sales 5,000 customer 100 orders 50 product lines Required: 1. Determine the activity-cost-driver rate for each of the four selling and distribution activities. 2. If you were the accountant, how would you select the cost drivers for activity-based costing? 3. Explain how activity-based costing systems may provide more accurate product costs than traditional cost systems.

QUESTION #1 Health-Tex produces an impressive line of safety masks. The company has established the following selling and distribution support activity-cost pools and corresponding activity drivers: Activity Marketing Customer service Order execution Warehousing Cost $30,000 10,000 5,000 5,000 Cost driver $500,000 of sales 5,000 customer 100 orders 50 product lines Required: 1. Determine the activity-cost-driver rate for each of the four selling and distribution activities. 2. If you were the accountant, how would you select the cost drivers for activity-based costing? 3. Explain how activity-based costing systems may provide more accurate product costs than traditional cost systems.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter11: Strategic Cost Management

Section: Chapter Questions

Problem 11E: Assign the customer-related activity costs to each customer type using activity rates. Now calculate...

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Consumption Ratios; Activity RatesSaludable Company produces two types of get-well cards: scented andregular. Drivers for the four activities are as follows: ScentedCards RegularCards Inspection hoursSetup hoursMachine hoursNumber of moves 1,0804209602.880 7201802,880720 The following activity data have been collected: Inspecting productsSetting up equipmentMachiningMoving materials $45,00028,50030,72016,200 Required:1. Calculate the consumption ratios for the four drivers (round totwo decimal places).2. CONCEPTUAL CONNECTION Is there evidence of productdiversity? Explain the significance of product diversity for decisionmaking if the company chooses to use machine hours to assign all overhead.3. Calculate the activity rates that would be used to assign costs toeach product (round to two decimal places).4. Suppose that the activity rate for inspecting products is $20 perinspection hour. How many hours of inspection are expected forthe coming year?
UESTION 1Trinity product Limited makes and sells three types of electronic security systems for which the following information is available Standard cost and selling price per unitDay Scan Night scanOmni scanGH¢GH¢GH¢Material70110155Manufacturing labour405570Installation labour243244Variable overheads162028Selling price250320460 Fixed cost for the period are GH¢450,000 and installation labour, which is highly skilled is available for 25,000 hours only in a period and is paid GH¢8 per hour. Both manufacturing and installation labour are variable cost. The maximum demand for the period is: Day scan 2,000 units; Night scan 3,000 units; Omni scan 1,800 units.Requireda) Calculate the shortfall (if any) in hours of installation labour.b) Determine the best production plan assuming the company wishes to maximize profit. c) calculate the maximum profit that could be achieved from the plan in part (b) aboved) Having carried out an investigation of the availability of installation labour, the…
Assign the customer-related activity costs to each customer type using activity rates. Now calculate the profitability of each customer category. As a manager, how would you use this information? Emery Company sells small machine parts to heavy equipment manufacturers for an average price of 1.05 per part. There are two types of customers: those who place small, frequent orders and those who place larger, less frequent orders. Each time an order is placed and processed, a setup is required. Scheduling is also needed to coordinate the many different orders that come in and place demands on the plants manufacturing resources. Emery also inspects a sample of the products each time a batch is produced to ensure that the customers specifications have been met Inspection takes essentially the same time regardless of the type of part being produced. Emerys Cost Accounting Department has provided the following budgeted data for customer-related activities and costs (the amounts expected for the coming year): Required: 1. Assign the customer-related activity costs to each category of customers in proportion to the sales revenue earned by each customer type. Calculate the profitability of each customer type. Discuss the problems with this measure of customer profitability.
Problems 5.1-5.3 relate to Goods and Services Selection the life cycle, identify a reasonable operations strategy for each: ... 5.1 ing products, and given the position in its life cycle, identify the issues likely to confront the operations manager and his or her possible actions. Product Alpha has annual sales of 1,000 units and a contribution of $2,500; it is in the introductory stage. Prepare a product-by-value analysis for the follow- COMPANY CONTRIBUTION (%: TOTAL ANNUAL CONTRIBUTION PRODUCT CONTRIBUTION (% OF SELLING PRICE) DIVIDED BY TOTAL ANNUAL SALES) POSITION IN LIFE CYCLE Product Bravo has annual sales of 1,500 units and a contribu- PRODUCT tion of $3,0003; it is in the growth stage. Product Charlie has annual sales of 3,500 units and a contribution of $1,750; it is in the decline stage. Smart watch 30 40 Introduction Tablet 30 50 Growth Hand calculator • 5.2 Given the contribution made on each of the 50 10 Decline three products in the following table and their position in
model for the most recent iPhone as well as a deluxe model. Management has designed an ABC system with the following activity cost pools and activity rates for these models: Check my wark Activity Cost Pool Supporting manufacturing Order processing Activity Rates $ 2 per direct labour-hour $20 per order $61 per custoner Customer service Management would like an analysis of the profitability of a particular customer, Cell City, which has ordered the following products over the last 12 months: Standard Deluxe Model Model 200 Number of cases Number of orders Direct labour-hours per case Selling price per case Direct materials cost per case 6e 2 e. 25 $440 0.40 60 $417 $ 20 The company's direct labour rate is $20 per hour. Required: Using the company's ABC system, compute the customer margin of Cell City.
Activity-Based Costing and Customer Profitability Schneider Electric manufactures power distribution equipment for commercial customers, such as hospitals and manufacturers. Activity-based costing was used to determine customer profitability. Customer service activities were assigned to individual customers, using the following assumed customer service activities, activity base, and activity rate: Customer Service Activity Activity Base Activity Rate Bid preparation Number of bid requests $400 per request Shipment Number of shipments $ 80 per shipment Support standard items Number of standard items ordered $ 25 per std. item Support nonstandard items Number of nonstandard items ordered $150 per nonstd. item Assume that the company had the following gross profit information for three representative customers: Customer 1 Customer 2 Customer 3 Revenues $120,000 $200,000 $160,000 Cost of goods sold 76,800 110,000 83,200 Gross profit…
Activity-Based Costing and Customer Profitability Schneider Electric manufactures power distribution equipment for commercial customers, such as hospitals and manufacturers. Activity-based costing was used to determine customer profitability. Customer service activities were assigned to individual customers, using the following assumed customer service activities, activity base, and activity rate: Customer Service Activity Activity Base Activity Rate Bid preparation Number of bid requests $400 per request Shipment Number of shipments $ 80 per shipment Support standard items Number of standard items ordered $ 25 per std. item Support nonstandard items Number of nonstandard items ordered $150 per nonstd. item Assume that the company had the following gross profit information for three representative customers: Customer 1 Customer 2 Customer 3 Revenues $120,000 $200,000 $160,000 Cost of goods sold 76,800 110,000 83,200 Gross profit…
Question Content Area Wiley Manufacturing has two classes of distributors: JIT distributors and non-JIT distributors. The JIT distributor places small, frequent orders, and the non-JIT distributor tends to place larger, less frequent orders. Both types of distributors purchase the same product. The customer-related activities and costs for the previous quarter are as follows: Activity Sales orders Sales calls Service calls Average order size Manufacturing cost/unit JIT Distributors Non-JIT Distributors 500 30 200 90 $50 Line Item Description Amount Processing sales orders $160,000 155,000 195,000 Selling goods Servicing goods 30 30 90 1,400 $50 Calculate the activity rate for processing sales orders. (Round answer to two decimal places.) a. $301.89 per sales order b. $275.76 per sales order c. $525.33 per sales order d. $330.09 per sales order
Data 1-2-3 is a top-selling electronic spreadsheet product. is about to release version 5.0. It divides its customers into two groups: new customers and upgrades customers (those who previously purchased Data 1-2-3, 4.0, or earlier versions). Although the same physical product is provided to each customer group, sizable differences exist in selling prices and variable marketing costs: New Customers Upgrade Customers Selling price $225 $125 Variable costs Manufacturing $30 $30 Marketing 65 95 15 45 Contribution margin $130 $80 The fixed costs of Data 1-2-3 5.0 are $16,500,000. The planned sales mix in units is 60% new customers and 40% upgrade customers.…
1. You have been provided with the following data regarding shipments and costs for Brighton Boutiques: Number of Shipments Received Cost per Receiving Report $202 185 120 105 70 80 87 115 100 $300 $200 $100 $- 0 142 154 20 162 Required: Plot the data points on a scatter graph, and then using the high-low method, determine the cost function of the line that will connect the high and low points on the graph. Does the cost function appear to be linear in nature? 200 175 Graph Template 40 80 60 Number of Shipments 100 120 140
Assume a company's activity-based costing system includes three activities with the following activity rates: Activity Cost Pool Activity Rate Travel $ 2 per mile driven Deliveries $ 50 per delivery Customer service $ 22 per phone call Two of the company's many customers include Customer A and Customer B. These two customers consumed the company's activities as follows: Total Expected Activity Customer A Customer B Travel (number of miles driven) 300 250 Deliveries (number of deliveries) 15 5 Customer service (number of phone calls) 20 12 If the company earned $1,130 in revenue serving Customer B, then what is the customer margin for this customer? Multiple Choice $96 $156 $116 $136
Colby Company makes cases for cell phones of all sizes and types for sale through specialty retailers. The company makes a standard model for the most recent iPhone as well as a deluxe model. Management has designed an ABC system with the following activity cost pools and activity rates for these models: Activity Cost Pool Supporting manufacturing Order processing Customer service Activity Rates 2 per direct labour-hour 21 per order 75 per customer Management would like an analysis of the profitability of a particular customer, Cell City, which has ordered the following products over the last 12 months: Standard Model Deluxe Model Number of cases 160 35 Number of orders Direct labour-hours per case Selling price per case Direct materials cost per case 2 0.25 0.40 40 65 12 $ 15 The company's direct labour rate is $24 per hour. Required: Using the company's ABC system, compute the customer margin of Cell City.