Managerial Accounting
17th Edition
ISBN: 9781260247787
Author: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
Publisher: RENT MCG
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Textbook Question
Chapter 2.A, Problem 3E
EXERCISE 2A-3 Activity-Based Absorption Costing as an Alternative to Traditional Product Costing LO2-S
Stillicum Corporation makes ultralightweight backpacking tents. Data concerning the company’s two product lines appear below:
The company has a traditional costing system in which manufacturing
Required:
- Determine the unit product costs of the Deluxe and Standard products under the company’s traditional costing system.
- The company is considering replacing its traditional costing system with an activity-based absorption costing system that would have the following three activity cost pools:
| Expected Activity | ||||
| Activity Cost Pools (and Activity Measures) | Estimated Overhead Cost | Deluxe | Standard | Total |
| Supporting direct labor (direct labor-hours).... | $200,000 | 10,000 | 40,000 | 50,000 |
| Batch setups (setups) ………………………. | 75,000 | 200 | 100 | 300 |
| Safety testing (tests) ………………………… | 50,000 | 30 | 70 | 100 |
| Total |
$325,000 | |||
Determine the unit product costs of the Deluxe and Standard products under the activity-based absorption costing system.
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Students have asked these similar questions
Problem 1 (adapted)Kai Corp. manufactures two models of beds, the standard and the deluxe model.
The following activity and cost information has been compiled:Standard Deluxe OH CostsNo. of setups 9 21 P 90,000No. of components 90 150 210,000No. of DLH 650 150Required:Compute the total amount of overhead costs assigned to each model using:
1. Traditional costing system2. Activity-based costing system3. Discuss the effects of the difference in the computed amounts of overheadcosts.
Answer the question
Question 3
Company A uses a traditional system in costing its products. Using this system, the
company allocates all indirect production costs to products in proportion to their direct
labour costs. However, recently the company has been contemplating in switching to an
Activity-Based Costing (ABC) system.
www
Three products are produced: X, Y and Z. Direct costs, indirect costs and cost-driver
activity for each product for a recent month are as follows:
Y
Z
Direct-materials cost
RM20,000
RM 4.000
50,000
RM45,000 RM120,000
RM 1,000 RM 3,000
150,000
Direct-labour cost
Vo ww
Kilowatt hours
200,000
Number of inspections
13
5
Cost Driver
Activity
Materials handling
Quality inspection
Electricity energy
Total indirect production costs
Indirect production cost
RM10,000
RM20,000
RM20,000
RM50,000
Direct-materials cost
Number of inspections
Kilowatt hours
Required:
(a) Compute the total indirect production cost allocated to X, Y and Z using the current
traditional costing…
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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