Managerial Accounting: Creating Value in a Dynamic Business Environment
12th Edition
ISBN: 9781260417074
Author: HILTON, Ronald
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 5, Problem 34E
United Technologies Corporation implemented activity-based costing in two of its subsidiaries: Otis Elevator Company and Carrier Corporation. The following table shows 27 activities and eight accounts identified at Carrier, along with the classification determined by the ABC project team.12
Required: Choose two activities or accounts from each of the four classifications and explain why you agree or disagree with the ABC project team’s classification.
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Doede Corporation uses activity-based costing to compute product margins. In the first stage, the activity-based costing system allocates two overhead
accounts-equipment depreciation and supervisory expense-to three activity cost pools-Machining. Order Filing, and Other-based on resource
consumption, Data to perform these allocations appear below:
Overhead costs:
Equipment depreciation
Supervisory expense
$ 30,000
$ 14,800
Distribution of Resource Consumption Across Activity Cost Pools:
Equipment depreciation
Supervisory expense
Activity:
Product W1
Product Me
Total
Machining Order Filling
0.50
0.50
In the second stage, Machining costs are assigned to products using machine-hours (Ms) and Order Filing costs are assigned to products using the
number of orders. The costs in the Other activity cost pool are not assigned to products.
Product W1
Product Me
Total
Activity Cost Pools
MHS (Machining)
5,530
17,000
22,530
0.40
0.30
Show Transcribed Text
5,530
17,000
22,530
Orders (Order
Filling)…
Doede Corporation uses activity-based costing to compute product margins. In the first stage, the activity-based costing system allocates two overhead accounts--equipment depreciation and supervisory expense--to three activity cost pools--Machining, Order Filling, and Other--based on resource consumption. Data to perform these allocations appear below:
Overhead costs:
Equipment depreciation
$ 91,000
Supervisory expense
$ 12,300
Distribution of Resource Consumption Across Activity Cost Pools:
Activity Cost Pools
Machining
Order Filling
Other
Equipment depreciation
0.60
0.30
0.10
Supervisory expense
0.60
0.20
0.20
In the second stage, Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products.
Activity:
MHs (Machining)
Orders (Order Filling)
Product W1
6,050
198
Product M0
21,800
999
Total…
An activity based costing system is being considered at Evelia, nv to assign products overhead costs; these overhead costs are currently assigned strictly by number of units produced. First, the two overhead costs of Rent expense and Insurance expense would be allocated to three activity cost pools - Finishing, Sanding, and Other - based on resource consumption. The information used to perform these allocations is below:
Overhead Costs:
Rent expense: $2,000,000
Insurance expense: $1,650,000
Distribution of Resource Consumption across Activity Cost Pools:
Overhead Cost
Activity Cost Pools
Finishing
Sanding
Other
Rent expense
0.45
0.25
0.30
Insurance expense
0.20
0.35
0.45
In the second stage, Finishing costs would be assigned to products using direct labor hours and Sanding costs would be assigned to products using the number of machine hours. The costs in the Other activity pool would not be assigned to products. Activity data for the company's two products is as…
Chapter 5 Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
Ch. 5 - Briefly explain how a traditional, volume-based...Ch. 5 - Prob. 2RQCh. 5 - Explain how an activity-based costing system...Ch. 5 - What are cost drivers? What is their role in an...Ch. 5 - List and briefly describe the four broad...Ch. 5 - How can an activity-based costing system alleviate...Ch. 5 - Prob. 7RQCh. 5 - How is the distinction between direct and indirect...Ch. 5 - Explain the concept of a pool rate in...Ch. 5 - Briefly explain two factors that tend to result in...
Ch. 5 - List three factors that are important in selecting...Ch. 5 - Prob. 12RQCh. 5 - Explain why a new product-costing system may be...Ch. 5 - Prob. 14RQCh. 5 - Are activity-based costing systems appropriate for...Ch. 5 - Explain why maintaining their medical-services...Ch. 5 - How could the administration at Immunity Medical...Ch. 5 - Prob. 18RQCh. 5 - Prob. 19RQCh. 5 - What is meant by the term activity analysis? Give...Ch. 5 - Prob. 21RQCh. 5 - What is meant by customer-profitability analysis?...Ch. 5 - Explain the relationship between customer profit...Ch. 5 - What is a customer profitability profile?Ch. 5 - Describe the use of practical capacity in a TDABC...Ch. 5 - Tioga Company manufactures sophisticated lenses...Ch. 5 - Urban Elite Cosmetics has used a traditional cost...Ch. 5 - Kentaro Corporation manufactures Digital Video...Ch. 5 - Kentaro Corporation manufactures Digital Video...Ch. 5 - Prob. 31ECh. 5 - Refer to the description given for Wheelco, Inc....Ch. 5 - Prob. 33ECh. 5 - United Technologies Corporation implemented...Ch. 5 - Redwood Company sells craft kits and supplies to...Ch. 5 - Non-value-added costs occur in nonmanufacturing...Ch. 5 - Since you have always wanted to be an...Ch. 5 - Prob. 39ECh. 5 - Prob. 42ECh. 5 - Prob. 44ECh. 5 - Borealis Manufacturing has just completed a major...Ch. 5 - Ontario, Inc. manufactures two products, Standard...Ch. 5 - Kitchen Kings Toledo plant manufactures three...Ch. 5 - Prob. 48PCh. 5 - Maxey Sons manufactures two types of storage...Ch. 5 - Prob. 50PCh. 5 - John Patrick has recently been hired as controller...Ch. 5 - The controller for Tulsa Medical Supply Company...Ch. 5 - Prob. 53PCh. 5 - Prob. 54PCh. 5 - Prob. 55PCh. 5 - World Gourmet Coffee Company (WGCC) is a...Ch. 5 - Knickknack, Inc. manufactures two products: Odds...Ch. 5 - Prob. 58PCh. 5 - Marconi Manufacturing produces two items in its...Ch. 5 - Gigabyte, Inc. manufactures three products for the...Ch. 5 - Refer to the new target prices for Gigabytes three...Ch. 5 - Prob. 62PCh. 5 - Prob. 63PCh. 5 - Midwest Home Furnishings Corporation (MHFC)...Ch. 5 - Fresno Fiber Optics, Inc. manufactures fiber optic...Ch. 5 - Refer to the information given in the preceding...Ch. 5 - Whitestone Company produces two subassemblies,...Ch. 5 - Morelli Electric Motor Corporation manufactures...Ch. 5 - Refer to the product costs developed in...Ch. 5 - Morelli Electric Motor Corporations controller,...
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