Gen Combo Loose Leaf Financial Accounting; Connect Access Card
Gen Combo Loose Leaf Financial Accounting; Connect Access Card
18th Edition
ISBN: 9781264094295
Author: williams
Publisher: MCG
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Chapter 17, Problem 7AP

a.

To determine

Calculate the amount of Maintenance Department costs that would be allocated to each robot model (on a per-unit basis) using machine-hours as a single activity base.

a.

Expert Solution
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Explanation of Solution

Calculate the amount of Maintenance Department costs that would be allocated to each robot model (on a per-unit basis) using machine-hours as a single activity base.

Robot model

Machine hours per unit

(A)

Per machine  hours in $

(B)

Amount  in  $

(A×B)

A3B43.2(3)2.50 (2)8.00
BC113.0(3)2.50(2)7.50
C3PO2.0(3)2.50(2)5.00

 (Table 1)

Working Notes:

Calculate total machine hours:

Total machine hours at normal  production levels} =[(Machine hours of Robot A3B4)+(Machine hours of Robot BC11)+(Machine hours of Robot C3PO)]=(20,000Machine hours) +(15,000Machine hours)+(5,000Machine hours)=40,000 Machine hours  (1)

Calculate the overhead application rate per machine hours:

Overhead application rate per machine hours}=Total costTotal machine  hours at normal productive levels=$100,00040,000(1)=$2.50 per machine hour (2)

Calculate the machine hours on per-unit basis:

Robot model

Machine hours

(A)

Units of  production

 (B)

Machine hours per  -unit

(AB)

A3B420,0006,2503.2
BC1115,0005,0003.0
C3PO5,0002,5002.0

(Table 2)

(3)

b.

To determine

Calculate the amount of Maintenance Department costs that would be allocated to each robot model (on a per-unit basis) using the proposed ABC method.

b.

Expert Solution
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Explanation of Solution

Activity-based costing:

It is a method that helps in finding the activities performed by a company and it tracks the indirect costs to the activities of the company that consumes resources.

Calculate the amount of Maintenance Department costs that would be allocated to each robot model (on a per-unit basis) using the proposed ABC method.

ParticularsRobot model
Total costs allocatedA3B4 in $BC11 in $C3PO in $Total in $
 Repairs cost pool (9)2,5007,50010,00020,000
 Add: Janitorial cost pool (11)10,00020,00050,00080,000
Total costs allocated (A)12,50027,50060,000100,000
Units produced (B)6,2505,0002,500
Maintenance cost per unit (A÷B)2624

(Table 3)

Working notes:

Calculate the percent of work orders used for repairs activities:

Percent of work orders of repairs activity} = Work orders of repairs activities Total work orders×100=4002,000×100=20% (4)

Calculate the percent of machine hours used for janitorial activities:

Percent of work orders of janitorial activity} = Work orders of janitorial activities Total work orders×100=1,6002,000×100=80% (5)

Calculate percent of work orders used in each activity pools:

ParticularsWork ordersPercent to total
Repairs activities40020% (4)
Janitorial activities1,60080% (5)
Total  work orders issued2,000100%

(Table 4)

(6)

Product lines

Total amount in $

(A)

Percentage of  Allocation

(B)

Cost Allocated

(A×B)

Repairs activities100,00020% (6)20,000
Janitorial activities100,00080% (6)80,000
Total80,000

(Table 5)

(7)

Calculate the percent of repairs cost pool to the allocated to each product line using the number of production runs as an activity base.

Particulars Number of production  runsPercent of total
Production runs for A3B4                     5012.5%
Production runs for BC11                   15037.5%
Production runs for C3PO                   20050.0%
Total production runs                   400100.0%

(Table 6)

(8)

Allocate the repairs cost pool to each of the product line based on the percentage.

ParticularsAmount in $
Costs allocated to A3B4 ($20,000 × 12.5%)2,500
Costs allocated to BC11 ($20,000 × 37.5%)7,500
Costs allocated to C3PO ($20,000 × 50.0%)10,000
Total order costs allocated to products20,000

(Table 7)

(9)

Calculate the percent of janitorial pool to the allocated to each product line using the number of production runs as an activity base.

ParticularsPercent of total
Production runs for A3B45,00012.5%
Production runs for BC1110,00025.0%
Production runs for C3PO25,00062.5%
Total square feet occupied                   40,000100.0%

(Table 8)

(10)

Allocate the janitorial cost pool to each of the product line based on the percentage.

ParticularsAmount in $
Costs allocated to A3B4 ($80,000 × 12.5%)10,000
Costs allocated to BC11 ($80,000 × 25.0%)20,000
Costs allocated to C3PO ($80,000 × 62.5%)50,000
Total order costs allocated to products80,000

(Table 9)

(11)

c.

To determine

Explain whether cost allocations distorted using machine-hours as a single activity base

c.

Expert Solution
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Explanation of Solution

Using machine hours as a single activity base will result in cost distortions for Company D. The largest distortion, related to robot model C3PO are due to two reasons:

  • The machine hours taken for producing robot model C3PO is comparatively less and  the company needs more number of production runs to produce robots.
  • The robot C3PO denotes a relatively small portion of total production on a per-unit basis and it requires relatively large proportion of square footage to produce.
  • The company considers production run and square footage as primary cost drivers. Therefore, the amount allocated for producing robot C3PO is understated on a per-unit basis, and they are shown below:
ParticularsRobot model A3B4Robot model BC11Robot model C3PO
Maintenance cost per unit (Using activity based  costing ) $ 2.00$ 5.50$ 24.00
Maintenance cost per unit (Using machine  hours) $ 8.00$ 7.50 $ 5.00

(Table 10)

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Chapter 17 Solutions

Gen Combo Loose Leaf Financial Accounting; Connect Access Card

Ch. 17 - 4. What is meant by the term overhead application...Ch. 17 - 5. What is meant by the term overhead cost driver?...Ch. 17 - Prob. 6DQCh. 17 - Prob. 7DQCh. 17 - 8. Taylor & Malone is a law firm. Would the...Ch. 17 - 9. Define the term activity base. Ch. 17 - 10. Define the term cost driver. Ch. 17 - 11. Why is the use of a single activity base...Ch. 17 - 12. Describe how activity-based costing can...Ch. 17 - Prob. 13DQCh. 17 - 14. Why is the use of direct labor hours as an...Ch. 17 - 15. Discuss the potential benefits associated with...Ch. 17 - BRIEF EXERCISE 17.1 Accounting for Overhead Taylor...Ch. 17 - BRIEF EXERCISE 17.2 Transferring Costs in a Job...Ch. 17 - BRIEF EXERCISE 17.3 Overhead Application...Ch. 17 - BRIEF EXERCISE 17.4 Actual Overhead versus Applied...Ch. 17 - BRIEF EXERCISE 17.5 Types of Cost Accounting...Ch. 17 - BRIEF EXERCISE 17.6 Applying Direct Labor...Ch. 17 - BRIEF EXERCISE 17.7 Applying Direct Materials...Ch. 17 - Prob. 8BECh. 17 - BRIEF EXERCISE 17.9 Selecting Activity...Ch. 17 - Prob. 10BECh. 17 - EXERCISE 17.1 Accounting Terminology Listed are...Ch. 17 - EXERCISE 17.2 Flow of Costs in Job Order...Ch. 17 - EXERCISE 17.3 Journal Entries in Job Order...Ch. 17 - EXERCISE 17.4 Overhead Cost Drivers; Determination...Ch. 17 - EXERCISE 17.5 Cost Classifications Identify...Ch. 17 - Prob. 6ECh. 17 - EXERCISE 17.7 Journal Entries, Cost Flows, and...Ch. 17 - EXERCISE 17.8 Journal Entries, Cost Flows, and...Ch. 17 - EXERCISE 17.9 Journal Entries, Cost Flows, and...Ch. 17 - Prob. 10ECh. 17 - EXERCISE 17.11 Solving for Missing Amounts in a...Ch. 17 - EXERCISE 17.12 Solving for Missing Amounts in a...Ch. 17 - EXERCISE 17.13 Determining Balance Sheet Amounts...Ch. 17 - EXERCISE 17.14 Allocating Activity Cost...Ch. 17 - EXERCISE 17.15 Using ABC to Determine a Bid...Ch. 17 - PROBLEM 17.1A Job Order Costing: Computations and...Ch. 17 - PROBLEM 17.2A Job Order Costing: Journal Entries...Ch. 17 - PROBLEM 17.3A Job Order Costing: A Comprehensive...Ch. 17 - Prob. 4APCh. 17 - PROBLEM 17.5A Poor Drivers Are Cost Drivers Ye...Ch. 17 - PROBLEM 17.6A Applying Overhead Costs Using...Ch. 17 - Prob. 7APCh. 17 - PROBLEM 17.8A ABC versus Use of a Single Activity...Ch. 17 - PROBLEM 17.1B Job Order Costing: Computations and...Ch. 17 - PROBLEM 17.2B Job Order Costing: Journal Entries...Ch. 17 - PROBLEM 17.3B Job Order Costing: A Comprehensive...Ch. 17 - Prob. 4BPCh. 17 - PROBLEM 17.5B Drivers for Drivers Big Boomers...Ch. 17 - PROBLEM 17.6B Applying Overhead Costs Using...Ch. 17 - Prob. 7BPCh. 17 - PROBLEM 17.8B ABC versus Use of a Single Activity...Ch. 17 - CASE 17.1 Classic Cabinets has one factory in...Ch. 17 - CASE 17.2 Implementing ABC Dave Miller is the...Ch. 17 - CASE 17.3 The Bidding Wars Kendahl Plastics...
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