Managerial Accounting
16th Edition
ISBN: 9781259995484
Author: Ray Garrison
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Textbook Question
Chapter 2.A, Problem 2E
EXERCISE 2A-2 Activity-Based Absorption Costing as an Alternative to Traditional Product Costing LO2-5 
Harrison Company makes two products and uses a traditional costing system in which a single plantwide predetermined overhead rate is computed based on direct labor-hours. Data for the two products for the upcoming year follow:
These products are customized to some degree for specific customers.
Required:
- The company's
manufacturing overhead costs for the year are expected to be $576,000. Using the company's traditional costing system, compute the unit product costs for the two products. - Management is considering an activity-based absorption costing system in which half of the overhead would continue to be allocated based on direct labor-hours and half would be allocated based on engineering design time. This time is expected to be distributed as follows during the upcoming year. Engineering design time (in hours)
Rascon-3,000 Parcel-3,000 Total-6000
Compute the unit product costs for the two products using the proposed activity-based absorption costing system.
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Kunkel Company makes two products and uses a conventional costing system in which a single plantwide
predetermined overhead rate is computed based on direct labor-hours. Data for the two products for the
upcoming year follow:
Mercon
$ 10.00
Direct materials cost per unit
Direct labor cost per unit
Direct labor-hours per unit
Number of units produced
$ 3.00
0.20
10,000
These products are customized to some degree for specific customers.
Wurcon
$ 8.00
$ 3.75
0.25
40,000
Required:
1. The company's manufacturing overhead costs for the year are expected to be $336,000. Using the company's
conventional costing system, compute the unit product costs for the two products.
2. Management is considering an activity-based costing system in which half of the overhead would continue to
be allocated on the basis of direct labor-hours and half would be allocated on the basis of engineering design
time. This time is expected to be distributed as follows during the upcoming year:
1.…
Question No.5
Ivory Corporation manufactures two products (A and B). The overhead costs have been divided into four cost pools that use the following activity drivers:
Product
Number of Orders
Number of Set-ups
Number of Labor Transactions
Labor Hours
A
B
Cost per pool
20
5
Rs.15,000
35
70
Rs.8,400
1,000
1,500
Rs.120,000
75
125
Rs.40,000
Required:
Compute the allocation rates for each of the activity drivers listed.
Allocate the overhead cost to Product A and B using activity-based-costing.
Compute the overhead rate using machine hours under the functional based costing system.
Allocate the overhead cost to Product A and B using the functional-based costing system overhead rate calculated in part C.
Question 4: Activity Based Costing (ABC)
The Gadget Co produces three products, A, B and C, all made from the same material. Until now, it has used
traditional absorption costing to allocate overheads to its products. The company is now considering an activity based
costing system in the hope that it will improve profitability. Information for the three products for the last year is as
follows:
Production and sales volumes (units)
Selling price per unit
Raw material usage (kg) per unit
Direct labour hours per unit
Machine hours per unit
Number of production runs per annum
Number of purchase orders per annum
Number of deliveries to retailers per annum
A
15,000
B
12,000
C
18,000
$7.50
$12
$13
2
3
4
0-1
0-15
0-2
0-5
0-7
0.9
16
12
8
24
28
42
48
30
62
The price for raw materials remained constant throughout the year at $1.20 per kg. Similarly, the direct labour cost
for the whole workforce was $14.80 per hour. The annual overhead costs were as follows:
Machine set up costs
Machine running…
Chapter 2 Solutions
Managerial Accounting
Ch. 2.A - EXERCISE 2A-1 Activity-Based Absorption Costing...Ch. 2.A - EXERCISE 2A-2 Activity-Based Absorption Costing as...Ch. 2.A - EXERCISE 2A-3 Activity-Based Absorption Costing as...Ch. 2.A - PROBLEM 2A-4 Activity-Based Absorption Costing as...Ch. 2.A - Prob. 5PCh. 2.A -
CASE 2A-6 Activity-Based Absorption Costing and...Ch. 2.B - EXERCISE 2B-1 Overhead Rate Based on Capacity...Ch. 2.B - EXERCISE 2B-2 Overhead Rates and Capacity Issues...Ch. 2.B - Prob. 3PCh. 2.B - Prob. 4C
Ch. 2 - Prob. 1QCh. 2 - What is absorption costing?Ch. 2 - What is normal costing?Ch. 2 - How is the unit product cost of a job calculated?
Ch. 2 - Explain the four-step process used to compute a...Ch. 2 - What is the purpose of the job cost sheet in a...Ch. 2 - Explain why some production costs must be assigned...Ch. 2 - Why do companies use predetermined overhead rates...Ch. 2 - What factors should be considered in selecting an...Ch. 2 - If a company fully allocates all of its overhead...Ch. 2 - Would you expect the amount of applied overhead...Ch. 2 - Prob. 12QCh. 2 - What is a plantwide overhead rate? Whyare multiple...Ch. 2 - This Excel worksheet relates to the Dickson...Ch. 2 - This Excel worksheet relates to the Dickson...Ch. 2 - Prob. 3AECh. 2 - This Excel worksheet relates to the Dickson...Ch. 2 - Prob. 1F15Ch. 2 - Prob. 2F15Ch. 2 - Prob. 3F15Ch. 2 - Prob. 4F15Ch. 2 - Prob. 5F15Ch. 2 - Prob. 6F15Ch. 2 - Prob. 7F15Ch. 2 - Prob. 8F15Ch. 2 - Prob. 9F15Ch. 2 - Prob. 10F15Ch. 2 - Prob. 11F15Ch. 2 - Sweeten Company had no jobs in progress at the...Ch. 2 - Prob. 13F15Ch. 2 - Prob. 14F15Ch. 2 - Prob. 15F15Ch. 2 - EXERCISE 2-1 Compute a Predetermined Overhead Rate...Ch. 2 - Prob. 2ECh. 2 - EXERCISE 2–3 Computing Total Job Costs and Unit...Ch. 2 - EXERCISE 24 Computing Total Job Costs and Unit...Ch. 2 - EXERCISE 2-5 Computing Total Job Costs and Unit...Ch. 2 - Prob. 6ECh. 2 - EXERCISE 2-7 Job-Order Costing; Working Backwards...Ch. 2 - EXERCISE 2-8 Applying Overhead Cost; Computing...Ch. 2 - EXERCISE 2–9 Job-Order Costing and Decision Making...Ch. 2 - Prob. 10ECh. 2 - Prob. 11ECh. 2 - Prob. 12ECh. 2 - EXERCISE 2—13 Departmental Predetermined Overhead...Ch. 2 - EXERCISE 214 Job-Orders Costing for a Service...Ch. 2 - Prob. 15ECh. 2 - PROBLEM 2—16 Plantwide Predetermined Overhead...Ch. 2 - PROBLEM 217 Plantwide and Departmental...Ch. 2 - Prob. 18PCh. 2 - Prob. 19PCh. 2 - Prob. 20PCh. 2 - PROBLEM 2-21 Plant wide Versus Multiple...Ch. 2 - CASE 2-22 Plantwide versus Departmental Overhead...
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