Managerial Accounting: Tools for Business Decision Making
7th Edition
ISBN: 9781118334331
Author: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
Publisher: WILEY
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Textbook Question
Chapter 4, Problem 4.8E
Wilmington, Inc. manufactures five models of kitchen appliances. The company is installing activity-based costing and has identified the following activities performed at its Mesa plant.
1. Designing new models.
2. Purchasing raw materials and pans.
3. Storing and managing inventory.
4. Receiving and inspecting raw materials and parts.
5. Interviewing and hiring new personnel.
6. Machine forming sheet steel into appliance pans.
7. Manually assembling parts into appliances.
8. Training all employees of the company.
9. Insuring all tangible fixed assets.
10. Supervising production.
11. Maintaining and repairing machinery and equipment.
12. Painting and packaging finished appliances.
Having analyzed its Mesa plant operations for purposes of installing activity-based costing, Wilmington, Inc. identified its activity cost centers. It now needs to identify relevant activity cost drivers in order to assign
Instructions
Using the activities listed above, identify for each activity one or more cost drivers that might be used to assign overhead to Wilmington's five products.
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Warren Furniture produces three models of desk chairs: Basic, Ergo, and Exec. The cost system at the Warren production facility
allocates overhead cost on the basis of direct labor hours. The company is considering updating its cost system to an activity-based
costing system and is interested in understanding the effects. A study team composed of the production facility's finance and
operations groups has identified three overhead cost pools along with appropriate cost drivers for each pool.
Cost Pools
Assembly
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Quality assurance
Costs
$ 2,925,000
1,023,000
642,000
Activity Drivers
Direct labor-hours
Number of setups
Number of tests
The plans for production for the next year and the budgeted direct costs and activity by product line are as follows:
Direct costs (material and labor)
Basic
$ 1,006,800
Direct labor-hours
25,200
Products
Ergo
$ 1,143,000
12,000
Exec
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Machine-hours
29,200
17,200
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48
140
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100…
Lens Care Inc. (LCI) manufactures specialized equipment for polishing optical lenses. There are two models - one mainly used for fine eyewear (F-32) and another for lenses used in binoculars, cameras, and similar equipment (B-13).The manufacturing cost of each unit is calculated using activity-based costing, using the following manufacturing cost pools:
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Cost Pools
Allocation Base
Costing Rate
Materials handling
Number of parts
$
3.20
per part
Manufacturing supervision
Hours of machine time
$
14.88
per hour
Assembly
Number of parts
$
3.70
per part
Machine setup
Each setup
$
56.90
per setup
Inspection and testing
Logged hours
$
45.90
per hour
Packaging
Logged hours
$
19.90
per hour
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LCI currently sells the B-13 model for $3,575 and the F-32 model for $3,460. Manufacturing costs and activity usage for the two products are as follows:
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B-13
Â
F-32
Direct materials
$
164.90
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Â
$
75.92
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Number of parts
Â
168
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Â
Â
128
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Machine hours
Â
8.30
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4.28…
Lens Care Inc. (LCI) manufactures specialized equipment for polishing optical lenses. There are two models - one mainly used for fine eyewear (F-32) and another for lenses used in binoculars, cameras, and similar equipment (B-13).The manufacturing cost of each unit is calculated using activity-based costing, using the following manufacturing cost pools:
Â
Cost Pools
Allocation Base
Costing Rate
Materials handling
Number of parts
$
4.20
per part
Manufacturing supervision
Hours of machine time
$
14.98
per hour
Assembly
Number of parts
$
4.20
per part
Machine setup
Each setup
$
57.40
per setup
Inspection and testing
Logged hours
$
46.40
per hour
Packaging
Logged hours
$
20.40
per hour
Â
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LCI currently sells the B-13 model for $5,825 and the F-32 model for $6,260. Manufacturing costs and activity usage for the two products are as follows:
Â
Â
B-13
Â
F-32
Direct materials
$
165.40
Â
Â
$
76.32
Â
Number of parts
Â
178.00
Â
Â
Â
138
Â
Machine hours
Â
8.80…
Chapter 4 Solutions
Managerial Accounting: Tools for Business Decision Making
Ch. 4 - Under what conditions is direct labor a valid...Ch. 4 - What has happened in recent industrial history to...Ch. 4 - In an automated manufacturing environment, what...Ch. 4 - What is generally true about overhead allocation...Ch. 4 - What are the principal differences between...Ch. 4 - What is the formula for computing activity-based...Ch. 4 - What steps are involved in developing an activity-...Ch. 4 - Prob. 8QCh. 4 - What is an activity cost pool?Ch. 4 - Prob. 10Q
Ch. 4 - Prob. 11QCh. 4 - What is the formula for assigning activity cost...Ch. 4 - What are the benefits of activity-based costing?Ch. 4 - What are the limitations of activity-based...Ch. 4 - Under what conditions is ABC generally the...Ch. 4 - Prob. 16QCh. 4 - Prob. 17QCh. 4 - Prob. 18QCh. 4 - Prob. 19QCh. 4 - Prob. 20QCh. 4 - Prob. 4.1BECh. 4 - Finney Inc. has conducted an analysis of overhead...Ch. 4 - Splash Co. identifies the following activities...Ch. 4 - Mason Company manufactures four products in a...Ch. 4 - Morgana Company identifies three activities in its...Ch. 4 - Weisman, Inc. uses activity-based costing as the...Ch. 4 - Spud, Inc. a manufacturer of gourmet potato chips,...Ch. 4 - Prob. 4.8BECh. 4 - Pine and Danner is an architectural firm that is...Ch. 4 - Prob. 4.10BECh. 4 - Fixlt, Inc. operates 20 injection molding machines...Ch. 4 - Prob. 4.12BECh. 4 - Indicate whether the following statements are true...Ch. 4 - Compute activity-based overhead rates and assign...Ch. 4 - Adamson Company manufactures four lines of garden...Ch. 4 - Ready Ride is a trucking company. It provides...Ch. 4 - Saddle Inc. has two types of handbags: standard...Ch. 4 - Ayala Inc. has conducted the following analysis...Ch. 4 - EcoFabrics has budgeted overhead costs of 945,000....Ch. 4 - Altex Inc. manufactures two products: car wheels...Ch. 4 - Perdon Corporation manufactures safeslarge mobile...Ch. 4 - Santana Corporation manufactures snowmobiles in...Ch. 4 - Rojas Vineyards in Oakville, California, produces...Ch. 4 - Wilmington, Inc. manufactures five models of...Ch. 4 - Air United, Inc. manufactures two products:...Ch. 4 - Kragan Clothing Company manufactures its own...Ch. 4 - Health 'R Us, Inc., uses a traditional product...Ch. 4 - Santana Corporation manufactures snowmobiles in...Ch. 4 - William Mendel Sons, Inc. is a small...Ch. 4 - Venus Creations sells window treatments (shades,...Ch. 4 - Snap Prints Company is a small printing and...Ch. 4 - Lasso and Markowitz is a law firm that is...Ch. 4 - Manzeck Company operates a snow-removal service....Ch. 4 - Combat Fire, Inc. manufactures steel cylinders and...Ch. 4 - Prob. 4.2APCh. 4 - Shaker Stairs Co. designs and builds factory-made...Ch. 4 - Prob. 4.4APCh. 4 - Lewis and Stark is a public accounting firm that...Ch. 4 - CURRENT DESIGNS As you teamed in the previous...Ch. 4 - Prob. 4.1BYPCh. 4 - Prob. 4.2BYPCh. 4 - Curtis Rich, the cost accountant for Hi-Power...Ch. 4 - As discussed in the chapter, the principles...
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