Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 5, Problem 5.35P
First-stage allocation, time-driven activity-based costing, service sector. LawnCare USA provides lawn care and landscaping services to commercial clients. LawnCare USA uses activity-based costing to bid on jobs and to evaluate their profitability. LawnCare USA reports the following budgeted annual costs:
| Wages and salaries | $360,000 |
| Depreciation | 72,000 |
| Supplies | 120,000 |
| Other |
288,000 |
| Total overhead costs | $840,000 |
John Gilroy, controller of LawnCare USA, has established four activity cost pools and the following budgeted activity for each cost pool:
| Activity Cost Pool | Activity Measure | Total Activity for the Year |
| Estimating jobs | Number of job estimates | 250 estimates |
| Lawn care | Number of direct labor-hours | 10,000 direct labor-hours |
| Landscape design | Number of design hours | 500 design hours |
| Other | Facility-sustaining costs that are not allocated to jobs | Not applicable |
Gilroy estimates that LawnCare USA’s costs are distributed to the activity-cost pools as follows:
Sunset Office Park, a new development in a nearby community, has contacted LawnCare USA to provide an estimate on landscape design and annual lawn maintenance. The job is estimated to require a single landscape design requiring 40 design hours in total and 250 direct labor-hours annually. LawnCare USA has a policy of pricing estimates at 150% of cost.
- 1. Allocate LawnCare USA’s costs to the activity-cost pools and determine the activity rate for each pool.
Required
- 2. Estimate total cost for the Sunset Office Park job. How much would LawnCare USA bid to perform the job?
- 3. LawnCare USA does 30 landscape designs for its customers each year. Estimate the total cost for the Sunset Office park job if LawnCare USA allocated costs of the Landscape Design activity based on the number of landscape designs rather than the number of landscape design-hours. How much would LawnCare USA bid to perform the job? Which cost driver do you prefer for the Landscape Design activity? Why?
- 4. Sunset Office Park asks LawnCare USA to give an estimate for providing its services for a 2-year period. What are the advantages and disadvantages for LawnCare USA to provide a 2-year estimate?
Expert Solution & Answer
Learn your wayIncludes step-by-step video
schedule14:22
Students have asked these similar questions
Johnson Gardening Company provides lawn and garden services to its clients. The company uses an activity-based costing system for its overhead costs. The company has provided the following data from its activity-based costing system.
Activity Cost Pool Total Cost Total Activity
Mowing/trimming $150,750 12,250 hours
Job support 25,725 1,800 jobs
Client support 7,250 250 clients
Other 100,000 Not applicable
Total $283,725
The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
One particular client, the Guzman family, requested 26 jobs during the year that required a total of 150 hours of gardening. For these services, the client was charged $5,000.Required:a.…
ABC; pricingChester Inc. has identified activity centers to which overhead costs are assigned. The cost pool amounts for these centers and their selected activity drivers for the year follow.
Activity Centers
Costs
Activity Drivers
Utilities
$1,080,000
90,000 machine hours
Scheduling and setup
982,800
1,170 setups
Material handling
2,304,000
2,400,000 pounds of material
The company’s products and other operating statistics follow.
Product A
Product B
Product C
Direct costs
$72,000
$72,000
$81,000
Machine hours
45,000
15,000
30,000
Number of setups
195
570
405
Pounds of material
750,000
450,000
1,200,000
Number of units produced
60,000
30,000
90,000
Direct labor hours
48,000
27,000
75,000
a. Calculate the unit cost for each product using the appropriate cost drivers for each product.Note: Round your final answers to two decimal places (i.e. round $4.355 to $4.36).
Product A
Product B
Product C
Unit cost
Answer
Answer
Answer…
Activity-Based Costing
Slack Corporation has the following predicted indirect costs and cost drivers for the year for the given activity cost pools:
Maintenance
Materials handling
Machine setups
Inspections
Machine hours
Material moves
Machine setups
Inspection hours
Fabrication Department Finishing Department Cost Driver
Machine hours
Material moves
Direct materials cost
Direct labor cost
Machine hours (Fabrication)
Machine hours (Finishing)
Materials moves
Machine setups
Inspection hours
$150,000
The following activity predictions were also made for the year:
Fabrication Department Finishing Department
Direct materials
Direct labor
$50,000
30,000
70,000
It is assumed that the cost per unit of activity for a given activity does not vary between departments. Slack's president, Charles Slack, is trying to
evaluate the company's product mix strategy regarding two of its five product models, ZX300 and SL500. The company has been using a company-
wide overhead rate based on machine hours…
Chapter 5 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Ch. 5 - What is broad averaging, and what consequences can...Ch. 5 - Why should managers worry about product...Ch. 5 - What is costing system refinement? Describe three...Ch. 5 - What is an activity-based approach to designing a...Ch. 5 - Describe four levels of a cost hierarchy.Ch. 5 - Why is it important to classify costs into a cost...Ch. 5 - What are the key reasons for product cost...Ch. 5 - Prob. 5.8QCh. 5 - Department indirect-cost rates are never...Ch. 5 - Prob. 5.10Q
Ch. 5 - Prob. 5.11QCh. 5 - Prob. 5.12QCh. 5 - Activity-based costing is the wave of the present...Ch. 5 - Increasing the number of indirect-cost pools is...Ch. 5 - The controller of a retail company has just had a...Ch. 5 - Conroe Company is reviewing the data provided by...Ch. 5 - Prob. 5.17MCQCh. 5 - Cost hierarchy. Roberta, Inc., manufactures...Ch. 5 - ABC, cost hierarchy, service. (CMA, adapted)...Ch. 5 - Alternative allocation bases for a professional...Ch. 5 - Plant-wide, department, and ABC Indirect cost...Ch. 5 - Plant-wide, department, and activity-cost rates....Ch. 5 - ABC, process costing. Sander Company produces...Ch. 5 - Department costing, service company. DLN is an...Ch. 5 - Activity-based costing, service company....Ch. 5 - Activity-based costing, manufacturing. Decorative...Ch. 5 - ABC, retail product-line profitability. Fitzgerald...Ch. 5 - Prob. 5.28ECh. 5 - Activity-based costing. The job-costing system at...Ch. 5 - ABC, product costing at banks,...Ch. 5 - Problems 5-31 Job costing with single direct-cost...Ch. 5 - Job costing with multiple direct-cost categories,...Ch. 5 - Job costing with multiple direct-cost categories,...Ch. 5 - First-stage allocation, time-driven activity-based...Ch. 5 - First-stage allocation, time-driven activity-based...Ch. 5 - Department and activity-cost rates, service...Ch. 5 - Activity-based costing, merchandising. Pharmahelp,...Ch. 5 - Choosing cost drivers, activity-based costing,...Ch. 5 - ABC, health care. Crosstown Health Center runs two...Ch. 5 - Unused capacity, activity-based costing,...Ch. 5 - Unused capacity, activity-based costing,...Ch. 5 - ABC, implementation, ethics. (CMA, adapted) Plum...Ch. 5 - Activity-based costing, activity-based management,...
Additional Business Textbook Solutions
Find more solutions based on key concepts
What is a depreciation schedule?
Construction Accounting And Financial Management (4th Edition)
The fundamental tenets of SASBs Approach are considered _______. A. evidence-based, industry-specific, and mark...
Principles of Accounting Volume 2
The accounting assumption that governs given situation.
Financial Accounting (11th Edition)
Horizontal analysis(Learning Objective 2)15-20 min. What were the dollar and percentage changes in Fesslers Fin...
Financial Accounting, Student Value Edition (4th Edition)
Indefinite-Life Intangible Asset Impairment. Genius Auto Malls recently conducted its annual impairment review ...
Intermediate Accounting (2nd Edition)
E8-13 Identifying internal controls
Learning Objective 1
Consider each situation separately. Identify the missi...
Horngren's Accounting (11th 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
- A manufacturing company has two service and two production departments. Human Resources and Machine Repair are the service departments. The production departments are Grinding and Polishing. The following data have been estimated for next years operations: The direct charges identified with each of the departments are as follows: The human resources department services all departments of the company, and its costs are allocated using the numbers of employees within each department, while machine repair costs are allocable to Grinding and Polishing on the basis of machine hours. 1. Distribute the service department costs, using the direct method. 2. Distribute the service department costs, using the sequential distribution method, with the department servicing the greatest number of other departments distributed first.arrow_forwardA manufacturing company has two service and two production departments. Building Maintenance and Factory Office are the service departments. The production departments are Assembly and Machining. The following data have been estimated for next years operations: The direct charges identified with each of the departments are as follows: The building maintenance department services all departments of the company, and its costs are allocated using floor space occupied, while factory office costs are allocable to Assembly and Machining on the basis of direct labor hours. 1. Distribute the service department costs, using the direct method. 2. Distribute the service department costs, using the sequential distribution method, with the department servicing the greatest number of other departments distributed first.arrow_forwardCharlies Wood Works produces wood products (e.g., cabinets, tables, picture frames, and so on). Production departments include Cutting and Assembly. The Janitorial and Security departments support the Cutting and Assembly departments. The Assembly Department spans about 46,400 square feet and holds assets valued at about 60,000. The Cutting Department spans about 33,600 square feet and holds assets valued at about 140,000. Charlies Wood Works allocates support department costs using the direct method. If costs from the Janitorial Department are allocated based on square feet and costs from the Security Department are allocated based on asset value, determine (a) the percentage of Janitorial costs that should be allocated to the Assembly Department and (b) the percentage of Security costs that should be allocated to the Cutting Department.arrow_forward
- Firenza Company manufactures specialty tools to customer order. Budgeted overhead for the coming year is: Previously, Sanjay Bhatt, Firenza Companys controller, had applied overhead on the basis of machine hours. Expected machine hours for the coming year are 50,000. Sanjay has been reading about activity-based costing, and he wonders whether or not it might offer some advantages to his company. He decided that appropriate drivers for overhead activities are purchase orders for purchasing, number of setups for setup cost, engineering hours for engineering cost, and machine hours for other. Budgeted amounts for these drivers are 5,000 purchase orders, 500 setups, and 2,500 engineering hours. Sanjay has been asked to prepare bids for two jobs with the following information: The typical bid price includes a 40 percent markup over full manufacturing cost. Required: 1. Calculate a plantwide rate for Firenza Company based on machine hours. What is the bid price of each job using this rate? 2. Calculate activity rates for the four overhead activities. What is the bid price of each job using these rates? 3. Which bids are more accurate? Why?arrow_forwardABC; pricingChester Inc. has identified activity centers to which overhead costs are assigned. The cost pool amounts for these centers and their selected activity drivers for the year follow. Activity Centers Costs Activity Drivers Utilities $1,440,000 90,000 machine hours Scheduling and setup 1,310,400 1,170 setups Material handling 3,072,000 2,400,000 pounds of material The company’s products and other operating statistics follow. Product A Product B Product C Direct costs $96,000 $96,000 $108,000 Machine hours 45,000 15,000 30,000 Number of setups 195 570 405 Pounds of material 750,000 450,000 1,200,000 Number of units produced 60,000 30,000 90,000 Direct labor hours 48,000 27,000 75,000 b. Before it installed an ABC system, Chester used a traditional costing system that allocated factory overhead to products using direct labor hours. The firm operates in a competitive market and sets product prices at cost plus a 25 percent markup.…arrow_forwardObjective: Consider that you are an analyst at Regeneron Pharmaceuticals. You need to decide how to allocate administrative overhead costs to Regeneron's main commercial products (Eylea, Dupixent, Kevzara and Praluent). Determine how to appropriately allocate the costs in the table below to each of the commercial products using an allocation methodology of your choice. Department2019 Annual Operating ExpenseTime spent supporting Commercial productsCommercial$200MM100%IT$100MM25%Facilities$150MM0%Finance$25MM20%Human Resources$75MM10% Use the supporting document Net Product Sales of REGN Products to facilitate your analysis. Provide a written summary of how you allocated the overhead costs to each product in an outline of no more than one page. As a starting point, it's recommended that you revisit the material we covered in Chapter 12. Guidance on calculations:Start off with Net Product Sales of REGN Products. Your objective pertains to 2019 expenses, so you should be reviewing 2019…arrow_forward
- Sunshine Company sells custom made surf boards in California. The finance manager has supplied the following data from its activity-based costing system: Overhead Costs Staff Salaries $500,000 Selling and administration overheads 200,000 Total Overhead Costs $700,000 Activity Cost Pool Activity Measure Total Activity for the Year Product design Number of new designs 500 new designs Order Processing Number of Customer orders 700 orders Customer Support Number of Customers 400 customers Others Organization sustaining activity Not applicable Distribution of Resource Consumption across Activities Product Design Order Processing Customer Support Other Total Staff Salaries 40% 30% 20% 10% 100% Selling and administration overheads 30% 10% 20% 40% 100% During the year Sunshine Company completed three individual orders for a new customer, Tarpaper…arrow_forwardMiddler Corporation, a manufacturer of electronics and communications systems, allocates Computing and Communications Services (CCS) service department costs to profit centers. The following table lists service categories and cost drivers used by the CCS department. The table also includes cost and cost drivers for each service for October. CCS ServiceCategory Cost Driver Budgeted Cost Budgeted CostDriver Quantity Help desk Number of calls $110,250 2,500 Network center Number of devices monitored 619,500 8,850 Electronic mail Number of user accounts 47,600 5,950 Handheld technology support Number of handheld devices issued 106,240 8,300 One of the profit centers for Middler Corporation is the Communication Systems (COMM) sector. Assume the following information for the COMM sector: The sector has 2,000 employees, of whom 40% are office employees. Almost all office employees (70%) have a computer on the network. 90 percent of the employees with a computer…arrow_forwardProduct Costing and Decision Analysis for a Service Company Pleasant Stay Medical Inc. wishes to determine its product costs. Pleasant Stay offers a variety of medical procedures (operations) that are considered its “products.” The overhead has been separated into three major activities. The annual estimated activity costs and activity bases follow: Activity Budgeted Activity Cost Activity Base Scheduling and admitting $432,000 Number of patients Housekeeping 4,212,000 Number of patient days Nursing 5,376,000 Weighted care unit Total costs $10,020,000 Total “patient days” are determined by multiplying the number of patients by the average length of stay in the hospital. A weighted care unit (wcu) is a measure of nursing effort used to care for patients. There were 192,000 weighted care units estimated for the year. In addition, Pleasant Stay estimated 6,000 patients and 27,000 patient days for the year. (The…arrow_forward
- Mission Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the information provided below. (CMA adapted) Multiple Choice Units produced Material moves per product line Direct labor-hours per product line Budgeted material handling costs: $279,500 Under an activity-based costing (ABC) system, the materials handling costs allocated to one unit of Specialty Windows would be: $6,450.00. $2,170.68. $12,900.00. Wall Mirrors 220 5 1,100 $10,320.00. Specialty Windows 20 60 1,200arrow_forwardThornton Corporation's computer services department assists two operating departments in using the company's information system effectively. The annual cost of computer services is $626,200. The production department employs 37 employees, and the sales department employs 25 employees. Thornton uses the number of employees as the cost driver for allocating the cost of computer services to operating departments. Required Allocate the cost of computer services to operating departments. Department Allocated Cost Production Salesarrow_forwardCompute activity rates and apply to jobs Fortunado Company uses ABC to account for its chrome wheel manufacturing process. Company managers have identified four manufacturing activities that incur manufacturing overhead costs: materials handling, machine setup, insertion of parts, and finishing. The budgeted activity costs for the upcoming year and their allocation bases are as follows: Total Budgeted Manufacturing Overhead Activity Allocation Base Cost Materials $ 6,400 Number of parts handling Machine setup 9,000 Number of setups Insertion of parts 54,400 Number of parts Finishing direct labor Finishing 89,700 hours Total $159,500 Fortunado expects to produce 1,000 chrome wheels during the year. The wheels are expected to use 3,200 parts, require 25 setups, and consume 2,300 hours of finishing time. Job 420 used 250 parts, required 3 setups, and consumed 130 finishing hours. Job 510 used 425 parts, required 6 setups, and consumed 320 finishing hours. Requirements 1. Compute the cost…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Principles of Cost AccountingAccountingISBN:9781305087408Author:Edward J. Vanderbeck, Maria R. MitchellPublisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Principles of Cost Accounting
Accounting
ISBN:9781305087408
Author:Edward J. Vanderbeck, Maria R. Mitchell
Publisher:Cengage Learning
What is Cost Allocation? Definition & Process; Author: FloQast;https://www.youtube.com/watch?v=hLhvvHvZ3JM;License: Standard Youtube License