Managerial Accounting: Tools for Business Decision Making
7th Edition
ISBN: 9781118334331
Author: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
Publisher: WILEY
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 4, Problem 4.9E
Air United, Inc. manufactures two products: missile range instruments and space pressure gauges. During April. 50 range instruments and 300 pressure gauges were produced, and
| Activities | Cost Drivers | Total Cost | |
| 1. | Materials handling | Number of requisitions | $40,000 |
| 2. | Machine setups | Number of setups | 21,500 |
| 3. | Quality inspections | Number of inspections | 33,000 |
| $94,500 |
The cost driver volume for each product was as follows.
| Cost Drivers | Instruments | Gauges | Total |
| Number of requisitions | 400 | 600 | 1,000 |
| Number of setups | 200 | 300 | 500 |
| Number of inspections | 200 | 400 | 600 |
Instructions
(a) Determine the overhead rate for each activity.
(b) Assign the
(c) - Write a memorandum to the president of Air United explaining the benefits of activity-based costing.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Crane, Inc. manufactures two products: missile range instruments and space pressure gauges. During April, 50 range
instruments and 200 pressure gauges were produced, and overhead costs of $88,010 were estimated. An analysis of
estimated overhead costs reveals the following activities.
1. M Materials handling
Machine setups
Quality inspections
2.
3.
Activities
(a)
The cost driver volume for each product was as follows.
Cost Drivers
Number of requisitions
Number of setups
Number of inspections
Materials handling
Cost Drivers
Machine setups
Number of requisitions
Number of setups
Number of inspections
Quality inspections $
Instruments Gauges
390
200
240
640
Determine the overhead rate for each activity.
295
265
Total Cost
$37,080
28,710
22,220
$88,010
Total
1,030
495
505
Overhead Rate
per requisition
per setup
per inspection
Air United, Inc. manufactures two products: missile range instruments and space pressure gauges. During April, 50 range instruments
and 200 pressure gauges were produced, and overhead costs of $83.160 were estimated. An analysis of estimated overhead costs
reveals the following activities.
1 Materials handling
2
Machins setups
Quality inspections
3
Activities
The cost driver volume for each product was as follows
Cost Drivers
Number of requisitions
Number of setups
Number of inspections
Materials handling
(b)
Machine setups
Quality inspections 5
Determine the overhead rate for each activity.
Cost Drivers
Number of requisitions
Number of setups
Number of inspections
Instruments Gauges
Total cost assigned
3
Overhead cost per Unit
405
180
240
5
Total
625 1,030
340
520
250 490
Overhead Rate
Total Cost
34
$3
Instruments
$35,020
27,560
20,500
$83,160
Assign the manufacturing overhead costs for April to the two products using activity-based costing (Round per unit answers to 2
decinal places,…
Air United, Inc. manufactures two products: missile range instruments and space pressure gauges. During April, 50 range instruments and 300 pressure gauges were produced, and overhead costs of $94,500 were estimated. An analysis of estimated overhead costs reveals the following activities.
Activities
Â
Cost Drivers
Â
Total Cost
1.
Â
Materials handling
Â
Number of requisitions
Â
$40,000
2.
Â
Machine setups
Â
Number of setups
Â
21,500
3.
Â
Quality inspections
Â
Number of inspections
Â
33,000
Â
Â
Â
Â
Â
Â
$94,500
The cost driver volume for each product was as follows.
Cost Drivers
Â
Instruments
Â
Gauges
Â
Total
Number of requisitions
Â
400
Â
600
Â
1,000
Number of setups
Â
200
Â
300
Â
500
Number of inspections
Â
200
Â
400
Â
600
(a)
Â
Â
Determine the overhead rate for each activity.
Â
Â
Overhead Rate
Materials handling
Â
$enter a dollar amount per requisition
 per requisition
Machine setups…
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...
Additional Business Textbook Solutions
Find more solutions based on key concepts
3. What is just-in-time inventory management? What are its potential advantages?
Financial Accounting
E6-23 Measuring the effect of an inventory error
Learning Objective 5
b. Correct GP $19 000
Hot Bread Bakery ...
Horngren's Accounting (12th Edition)
How does management accounting differ from financial accounting?
Cost Accounting (15th Edition)
Using the chart of accounts in Figure 2-1, determine the changes to the balance sheet, income statement, job co...
Construction Accounting And Financial Management (4th Edition)
Determine and record job costs (Learning Objectives 2, 3, 4, 6) Red Canyon Homes manufactures prefabricated ch...
Managerial Accounting (5th Edition)
Discussion Questions 1. Why would it be inappropriate for a custom-home builder to use process costing? 2. For ...
Managerial Accounting (4th Edition)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- During the week of May 10, Hyrum Manufacturing produced and shipped 16,000 units of its aluminum wheels: 4,000 units of Model A and 12,000 units of Model B. The cycle time for Model A is 1.09 hours and for Model B is 0.47 hour. The following costs and production hours were incurred: Required: 1. Assume that the value-stream costs and total units shipped apply only to one model (a single-product value stream). Calculate the unit cost, and comment on its accuracy. 2. Assume that Model A is responsible for 40% of the materials cost. Calculate the unit cost for Models A and B, and comment on its accuracy. Explain the rationale for using units shipped instead of units produced in the calculation. 3. Calculate the unit cost for the two models, using DBC. Explain when and why this cost is more accurate than the unit cost calculated in Requirement 2.arrow_forwardActive Frame, Inc., manufactures clear and tinted sport glasses. The manufacturing of clear glasses takes 45,000 direct labor hours and involves 1,700 parts and 115 inspections. The manufacturing of tinted glasses takes 115,000 direct labor hours and involves 1,400 parts and 450 inspections. The traditional method applies $560,000 of overhead on the basis of direct labor hours. What is the amount of overhead per direct labor hour applied to the clear glass products? A. $933.33 B. $157,500 C. $322.500 D. $402,500arrow_forwardAlgers Company produces dry fertilizer. At the beginning of the year, Algers had the following standard cost sheet: Algers computes its overhead rates using practical volume, which is 54,000 units. The actual results for the year are as follows: a. Units produced: 53,000 b. Direct materials purchased: 274,000 pounds at 2.50 per pound c. Direct materials used: 270,300 pounds d. Direct labor: 40,100 hours at 17.95 per hour e. Fixed overhead: 161,700 f. Variable overhead: 122,000 Required: 1. Compute price and usage variances for direct materials. 2. Compute the direct labor rate and labor efficiency variances. 3. Compute the fixed overhead spending and volume variances. Interpret the volume variance. 4. Compute the variable overhead spending and efficiency variances. 5. Prepare journal entries for the following: a. The purchase of direct materials b. The issuance of direct materials to production (Work in Process) c. The addition of direct labor to Work in Process d. The addition of overhead to Work in Process e. The incurrence of actual overhead costs f. Closing out of variances to Cost of Goods Soldarrow_forward
- Zippy Inc. manufactures a fuel additive, Surge, which has a stable selling price of 44 per drum. The company has been producing and selling 80,000 drums per month. In connection with your examination of Zippys financial statements for the year ended September 30, management has asked you to review some computations made by Zippys cost accountant. Your working papers disclose the following about the companys operations: Standard costs per drum of product manufactured: Materials: Costs and expenses during September: Chemicals: 645,000 gallons purchased at a cost of 1,140,000; 600,000 gallons used. Empty drums: 94,000 purchased at a cost of 94,000; 80,000 drums used. Direct labor: 81,000 hours worked at a cost of 816,480. Factory overhead: 768,000. Required: Calculate the following for September, using the formulas on pages 421422 and 424 (Round unit costs to the nearest whole cent and compute the materials variances for both Surge and for the drums.): 1. Materials quantity variance. 2. Materials purchase price variance. 3. Labor efficiency variance. 4. Labor rate variance.arrow_forwardJohnston Company cleans and applies powder coat paint to metal items on a job-order basis. Johnston has budgeted the following amounts for various overhead categories in the coming year. In the coming year, Johnston expects to powder coat 120,000 units. Each unit takes 1.3 direct labor hours. Johnston has found that supplies and gas (used to run the drying ovensall units pass through the drying ovens after powder coat paint is applied) tend to vary with the number of units produced. All other overhead categories are considered to be fixed. (Round all overhead rates to the nearest cent.) Required: 1. Calculate the number of direct labor hours Johnston must budget for the coming year. Calculate the variable overhead rate. Calculate the total fixed overhead for the coming year. 2. Prepare an overhead budget for Johnston for the coming year. Show the total variable overhead, total fixed overhead, and total overhead. Calculate the fixed overhead rate and the total overhead rate (rounded to the nearest cent). 3. What if Johnston had expected to make 118,000 units next year? Assume that the variable overhead per unit does not change and the total fixed overhead amounts do not change. Calculate the new budgeted direct labor hours and prepare a new overhead budget. Calculate the fixed overhead rate and the total overhead rate (rounded to the nearest cent).arrow_forwardG Company manufactures two products: Product S and Product T. During January, 50 units of Product S and 300 units of Product T wee produced. And overhead costs of P81,000 were incurred. An analysis of overhead costs reveals the following activities: Activity Cost Driver Total cost 1. Material handling Number of requisitions P30,000 2. Machine setups Number of setups 27,000 3. Quality inspections Number of inspections 24,000 The cost drive volume for each product was as follows: Cost driver Product S Product T Number of requisitions 400 600 Number of setups 150 300 Number of inspections 200 400 Required: 1. Determine the overhead rate for each activity. 2. Allocate the manufacturing overhead costs to the two products using Activity Based Costing (ABC).arrow_forward
- Power Company manufactures a variety of drill bits. The company's plant is partially automated. The budget for the year includes $432,000 payroll for 4,800 direct labor-hours. Listed below is cost driver information used in the product-costing system:  Overhead Cost Pool Budgeted Overhead Cost Driver Estimated Cost Driver Level Machine setups $ 120,000 Number of setups 120 setups Materials handling 104,400 Number of barrels 8,700 barrels Quality control 264,000 Number of inspections 1,100 inspections Other overhead cost 144,000 Number of machine hours 12,000 machine hours Total overhead $ 632,400     A current product order has the following requirements:  Machine setups 8 setups Materials handling 606 barrels Quality inspections 80 inspections Machine hours 830 machine hours Direct labor hour 336 hours  Using activity-based costing, how much material handling overhead is assigned to the order?  Multiple Choice  $19,200.  $8,000.…arrow_forwardNumber of Setups Number of Inspections 150 300 200 TUATI 400 Instructions: a. Determine the overhead rate for each activity. b. Allocate the manufacturing overhead costs to the two products using ABC.arrow_forwardPower Company manufactures a variety of drill bits. The company's plant is partially automated. The budget for the year includes $492,000 payroll for 5,800 direct labor-hours. Listed below is cost driver information used in the product-costing system:  Overhead Cost Pool Budgeted Overhead Cost Driver Estimated Cost Driver Level Machine setups $ 464,950 Number of setups 170 setups Materials handling 107,400 Number of barrels 8,950 barrels Quality control 464,000 Number of inspections 1,600 inspections Other overhead cost 319,000 Number of machine hours 14,500 machine hours Total overhead $ 1,355,350     A current product order has the following requirements:  Machine setups 14 setups Materials handling 636 barrels Quality inspections 83 inspections Machine hours 1,000 machine hours Direct labor hour 396 hours  Using activity-based costing, how much quality control overhead is assigned to the order?   Multiple Choice  $130,186.…arrow_forward
- Huron Company produces a commercial cleaning compound known as Zoom. The direct materials and direct labor standards for one unit of Zoom are given below:   Standard Quantity or Hours Standard Price   or Rate    Standard Cost     Direct materials 7.40  pounds $ 2.30  per pounds $ 17.02      Direct labor 0.90  hours $ 8.50  per hour $ 7.65      During the most recent month, the following activity was recorded: a. 21,500 pounds of material were purchased at a cost of $2.10 per pound. b. All of the material purchased was used to produce 2,500 units of Zoom. c. 2,000 hours of direct labor time were recorded at a total labor cost of $21,000.  Required: 1. Compute the materials price and quantity variances for the month. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)    2. Compute the labor rate and efficiency variances for the month.…arrow_forwardEverlast Co. manufactures a variety of drill bits. The company's plant is partially automated. The budget for the year includes $432,000 payroll for 4,800 direct labor-hours. Listed below is cost driver information used in the product-costing system: Budgeted Overhead Cost Pool Overhead Cost Driver Estimated Cost Driver Level Machine setups Materials handling Quality control $120,000 # of setups 120 setups 8,700 barrels 1,100 inspections 12,000 machine hours 104,400 # of barrels 264,000 # of inspections Other overhead cost 144,000 # of machine hours Total overhead $632,400 A current product order has the following requirements: Machine setups 8 setups Materials handling 606 barrels Quality inspections 80 inspections Machine hours 830 machine hours Direct labor hour 336 hours Using ABC, how much machine setup overhead is assigned to the order?arrow_forwardHuron Company produces a commercial cleaning compound known as Zoom. The direct materials and direct labor standards for one unit of Zoom are given below:   Standard Quantity or Hours Standard Price or Rate Standard Cost Direct materials 7.80 pounds $ 2.50 per pound $ 19.50 Direct labor 0.30 hours $ 6.00 per hour $ 1.80  During the most recent month, the following activity was recorded:  9,300.00 pounds of material were purchased at a cost of $2.20 per pound. All of the material purchased was used to produce 1,000 units of Zoom. 200 hours of direct labor time were recorded at a total labor cost of $1,400.  Required: 1. Compute the materials price and quantity variances for the month. 2. Compute the labor rate and efficiency variances for the month. (For all requirements, Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Round your…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Principles of Cost AccountingAccountingISBN:9781305087408Author:Edward J. Vanderbeck, Maria R. MitchellPublisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Principles of Cost Accounting
Accounting
ISBN:9781305087408
Author:Edward J. Vanderbeck, Maria R. Mitchell
Publisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
Cost Accounting - Definition, Purpose, Types, How it Works?; Author: WallStreetMojo;https://www.youtube.com/watch?v=AwrwUf8vYEY;License: Standard YouTube License, CC-BY