Managerial Accounting (5th Edition)
5th Edition
ISBN: 9780134128528
Author: Karen W. Braun, Wendy M. Tietz
Publisher: PEARSON
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Textbook Question
Chapter 4, Problem 4.34BE
Compare traditional and ABC cost allocations at a pharmacy (Learning Objective 2)
Gracen Pharmacy, part of a large chain of pharmacies, fills a variety of prescriptions for customers. The complexity of prescriptions filled by Gracen varies widely; pharmacists can spend between five minutes and six hours on a prescription order. Traditionally, the pharmacy has allocated its
The pharmacy chain’s controller is exploring whether activity-based costing (ABC) may better allocate the pharmacy overhead costs to pharmacy orders. The controller has gathered the following information:
The clerk for Gracen Pharmacy has gathered the following information regarding two recent pharmacy orders:
Requirements
- 1. What is the traditional overhead rate based on the number of prescriptions?
- 2. How much pharmacy overhead would be allocated to customer order number 1102 if traditional overhead allocation based on the number of prescriptions is used?
- 1. How much pharmacy overhead would be allocated to customer order number 1103 if traditional overhead allocation based on the number of prescriptions is used?
- 2. What are the following cost pool allocation rates?
- a. Pharmacy occupancy costs
- b. Packing supplies
- c. Professional training and insurance costs
- 3. How much would be allocated to customer order number 1102 if activity-based costing (ABC) is used to allocate the pharmacy overhead costs?
- 4. How much would be allocated to customer order number 1103 if activity-based costing (ABC) is used to allocate the pharmacy overhead costs?
- 5. Which allocation method (traditional or activity-based costing) would produce a more accurate product cost? Explain your answer.
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Activity-Based Costing, Lean Operations, and the Costs of Quality
E4-24A Compare traditional and ABC allocations on a job (Learning Objective 2)
Radley Products has adopted an ABC costing system. The following manufacturing activi-
ties, indirect manufacturing costs, and cost drivers have been identified:
Activity
Machine setup
Total estimated MOH
costs related to activity
Total estimated amount of
allocation base activity
$ 120,000
$1,050,000
Machining
Polishing
Quality control
Facility-level costs
sdngas 000'
6,000 machine hours
10,000 polishing cloths
4,000 tests run
50,000 DL hours
000'08
$ 280,000
$ 120.000
Total manufacturing overhead (MOH)
$1.650.000
The Job Cost Record for Job #624 revealed that direct materials requisitioned for the
job totaled $1,050. The Job Cost Record also showed that direct labor for this job totaled
10 hours at a wage rate of 525 per hour.
Other data collected on the resources used by Job #624 included:
1 machine setup required
5 machine hours
2…
Click to watch the Tell Me More Learning Objective 1 video and then answer the questions below.
1. Which of the following manufacturers is most likely to use a process cost system?
Purse manufacturer
Sports drink manufacturer
Automobile manufacturer
Guitar manufacturer
2. Process and job order cost systems are similar in that both systems _______.
record and summarize product costs
classify product costs as direct materials, direct labor, and factory overhead
allocate factory overhead costs to products
All of these choices are correct.
Purchasing department cost drivers, activity-based costing, simple regression analysis. Perfect Fit operates a chain of 10 retail department stores. Each department store makes its own purchasing decisions. Carl Hart, assistant to the president of Perfect Fit, is interested in better understanding the drivers of purchasing department costs. For many years, Perfect Fit has allocated purchasing department costs to products on the basis of the dollar value of merchandise purchased. A $100 item is allocated 10 times as many overhead costs associated with the purchasing department as a $10 item.
Hart recently attended a seminar titled “Cost Drivers in the Retail Industry.” In a presentation at the seminar, Kaliko Fabrics, a leading competitor that has implemented activity-based costing, reported number of purchase orders and number of suppliers to be the two most important cost drivers of purchasing department costs. The dollar value of merchandise purchased in each purchase order was not…
Chapter 4 Solutions
Managerial Accounting (5th Edition)
Ch. 4 - (Learning Objective 1) Cost distortion is more...Ch. 4 - (Learning Objective 2) The first step in computing...Ch. 4 - (Learning Objective 2) Activities incurred...Ch. 4 - (Learning Objective 3) Which of the following is...Ch. 4 - (Learning Objective 3) The potential benefits of...Ch. 4 - (Learning Objective 4) Lean operations are...Ch. 4 - Prob. 7QCCh. 4 - (Learning Objective 4) Concerning lean operations,...Ch. 4 - (Learning Objective 5) Which of the following is...Ch. 4 - (Learning Objective 5) Which of the following...
Ch. 4 - Understanding key terms (Learning Objectives 1, 2,...Ch. 4 - Use departmental overhead rates to allocate...Ch. 4 - Compute departmental overhead rates (Learning...Ch. 4 - Prob. 4.4SECh. 4 - Prob. 4.5SECh. 4 - Calculate a job cost using ABC (Learning Objective...Ch. 4 - Classifying costs within the cost hierarchy...Ch. 4 - Classifying costs within the cost hierarchy...Ch. 4 - Determine the usefulness of refined costing...Ch. 4 - Prob. 4.10SECh. 4 - Identifying costs as value-added or...Ch. 4 - Identify lean production characteristics (Learning...Ch. 4 - Identify the DOWNTIME activities at a manufacturer...Ch. 4 - Prob. 4.14SECh. 4 - Classifying costs of quality (Learning Objective...Ch. 4 - Quality initiative decision (Learning Objective 5)...Ch. 4 - Assess the impact of a quality initiative...Ch. 4 - Identify ethical standards violated (Learning...Ch. 4 - Compare traditional and departmental cost...Ch. 4 - Compute activity rates and apply to jobs (Learning...Ch. 4 - Apply activity cost allocation rates (Learning...Ch. 4 - Using ABC to bill clients at a service firm...Ch. 4 - Compare traditional and ABC allocations at a...Ch. 4 - Compare traditional and ABC allocations on a job...Ch. 4 - Use ABC to allocate manufacturing overhead...Ch. 4 - Continuation of E4-25A: Determine product...Ch. 4 - Prob. 4.27AECh. 4 - Classify costs and make a quality-initiative...Ch. 4 - Prob. 4.29AECh. 4 - Compare traditional and departmental cost...Ch. 4 - Prob. 4.31BECh. 4 - Prob. 4.32BECh. 4 - Prob. 4.33BECh. 4 - Compare traditional and ABC cost allocations at a...Ch. 4 - Prob. 4.35BECh. 4 - Prob. 4.36BECh. 4 - Prob. 4.37BECh. 4 - Prob. 4.38BECh. 4 - Classify costs and make a quality-initiative...Ch. 4 - Prob. 4.40BECh. 4 - Prob. 4.41APCh. 4 - Use ABC to compute full product costs (Learning...Ch. 4 - Prob. 4.43APCh. 4 - Prob. 4.44APCh. 4 - Prob. 4.45APCh. 4 - Prob. 4.46BPCh. 4 - Prob. 4.47BPCh. 4 - Comprehensive ABC implementation (Learning...Ch. 4 - Using ABC in conjunction with quality decisions...Ch. 4 - Comprehensive ABC (Learning Objectives 2 3)...Ch. 4 - Prob. 4.51SCCh. 4 - Discussion Questions 1. Explain why departmental...Ch. 4 - ABC in Real Companies Choose a company in any of...Ch. 4 - Value-Added versus Non-Value-Added at a Restaurant...Ch. 4 - Ethics involved with ABC and hazardous waste costs...
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