Managerial Accounting
15th Edition
ISBN: 9780078025631
Author: Ray H Garrison, Eric Noreen, Peter C. Brewer Professor
Publisher: McGraw-Hill Education
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Chapter 7.A, Problem 1E
EXERCISE 7A-1 Preparing an Action Analysis Report [L07-6]
Fairway Golf Corporation produces private label golf clubs for pro shops throughout North America. The company uses activity-based ousting to evaluate the profitability of serving its customers. This analysis is based on categorizing the company’s costs as follows, using the ease of adjustment color coding scheme described in Appendix 7A:
| Ease of Adjustment Code | |
| Direct materials | Green |
| Direct labor | Yellow |
| Indirect labor | Yellow |
| Factory equipment depreciation | Red |
| Factory administration | Red |
| Selling and administrative wages and salaries | Red |
| Selling and administrative depreciation | Red |
| Marketing expenses | Yellow |
Management would like to evaluate the profitability of a particular customer—Shaker Run Golf Club of Lebanon, Ohio. Over the last twelve months this customer submitted one order for 100 golf clubs that had to be produced in four batches due to differences in product labeling requested by the customer. Summary data concerning the order appear below:
| Number of clubs | 100 |
| Number of orders | 1 |
| Number of batches | 4 |
| Direct labor-hours per club | 0.3 |
| Selling price per club | $50.00 |
| Direct materials cost per club | $29.50 |
| Direct labor rate per hour | $20.50 |
A cost analyst working in the controller’s office at the company has already produced the action analysis cost matrix for the Shaker Run Golf Club that appears below:
| Action Analysis Cost Matrix for Shaker Run Golf Club | Activity Cost Pools | ||||
| Supporting Direct labor | Batch Processing | Order Processing | Customer Service | Total | |
| Activity | 30 direct labor-hours | 4 batches | 1 order | 1 customer | |
| Manufacturing |
|||||
| Indirect labor | $ 35.40 | $ 53.70 | $ 6.80 | $ 0.00 | $ 95.90 |
| Factory equipment depreciation | 102.80 | 0.90 | 0.00 | 0.00 | 103.70 |
| Factory administration | 18.50 | 0.50 | 12.00 | 228.00 | 259.00 |
| Selling and administrative overhead: | |||||
| Wages and salaries | 11.00 | 0.00 | 36.00 | 382.00 | 429.00 |
| Depreciation | 0.00 | 0.00 | 6.00 | 24.00 | 30.00 |
| Marketing expenses | 117.70 | 0.00 | 54.00 | 369.00 | 540.70 |
| Total | $285.40 | $55.10 | $114.80 | $1,003.00 | $1,458.30 |
Required:
Prepare an action analysis report showing the profitability of the Shaker Run Golf Club. Include direct materials and direct labor costs in the report. Use Exhibit 7A-5 as a guide for organizing the report.
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Instruction: Read each problem carefully ana proviue h n
Prob
Problem 1. Classify each of the following costs of Bug Company in two ways: (a) as variable
(V) fixed costs (F); (b) as inventoriable costs (I) or period costs (P):
Example: Direct labor
1. Salary of company
2. Fire insurance on direct materials
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held for sale
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Exercise 7-5 (Algo) Product and Customer Profitability Analysis [LO7-4, LO7-5]
Thermal Rising, Incorporated, makes paragliders for sale through specialty sporting goods stores. The company has a standard
paraglider model, but also makes custom-designed paragliders. Management designed an activity-based costing system with the
following activity cost pools and activity rates:
Activity Cost Pool
Supporting direct labor
Order processing
Custom design processing
Customer service
Management wants to calculate the profitability of a particular customer, Big Sky Outfitters, which ordered the following products over
the last 12 months:
Number of gliders
Number of orders
Activity Rate
$ 22 per direct labor-hour
$ 200 per order
$ 254 per custom design
$426 per customer
Number of custom designs
Direct labor-hours per glider
Selling price per glider
Direct materials cost per glider
The company's direct labor rate is $20 per hour.
Customer margin
Standard
Model
15
1
0
28.50
$ 1,925
$ 456
Custom…
please answer a1 and a2
Chocolate Bars, Inc. (CBI), manufactures creamy deluxe chocolate candy bars. The firm has developed three distinct products: Almond Dream, Krispy Krackle, and Creamy Crunch.
CBI is profitable, but management is quite concerned about the profitability of each product and the product costing methods currently employed. In particular, management questions whether the overhead allocation base of direct labor-hours accurately reflects the costs incurred during the production process of each product.
In reviewing cost reports with the marketing manager, Steve Hoffman, who is the cost accountant, notices that Creamy Crunch appears exceptionally profitable and that Almond Dream appears to be produced at a loss. This surprises both him and the manager, and after much discussion, they are convinced that the cost accounting system is at fault and that Almond Dream is performing very well at the current market price.
Steve decides to hire Jean Sharpe, a management…
Chapter 7 Solutions
Managerial Accounting
Ch. 7.A - EXERCISE 7A-1 Preparing an Action Analysis Report...Ch. 7.A - Prob. 2ECh. 7.A - Prob. 3ECh. 7.A - Prob. 4ECh. 7.A - Prob. 5ECh. 7 - Prob. 1QCh. 7 - Prob. 2QCh. 7 - Prob. 3QCh. 7 - What are unit-level, batch-level, product-level,...Ch. 7 - What types of costs should not be assigned to...
Ch. 7 - What are the two stages off allocation in...Ch. 7 - Why is the first stage of the allocation process...Ch. 7 - When activity-based costing is used, why do...Ch. 7 - Prob. 9QCh. 7 - Why is the form of activity-based costing...Ch. 7 - The Excel worksheet form that appears below is to...Ch. 7 - Prob. 2AECh. 7 - The Excel worksheet form that appears below is to...Ch. 7 - Prob. 1F15Ch. 7 - Prob. 2F15Ch. 7 - Prob. 3F15Ch. 7 - Prob. 4F15Ch. 7 - Prob. 5F15Ch. 7 - Prob. 6F15Ch. 7 - Prob. 7F15Ch. 7 - Prob. 8F15Ch. 7 - Prob. 9F15Ch. 7 - Prob. 10F15Ch. 7 - Prob. 11F15Ch. 7 - Prob. 12F15Ch. 7 - Prob. 13F15Ch. 7 - Prob. 14F15Ch. 7 - Prob. 15F15Ch. 7 - Prob. 1ECh. 7 - Prob. 2ECh. 7 - Prob. 3ECh. 7 - Prob. 4ECh. 7 - Prob. 5ECh. 7 - Prob. 6ECh. 7 - EXERCISE 7-7 First-Stage Allocations LO7-2
The...Ch. 7 - Prob. 8ECh. 7 - Prob. 9ECh. 7 - Prob. 10ECh. 7 - Prob. 11ECh. 7 - Prob. 12ECh. 7 - EXERCISE 7-13 Computing ABC Product Costs LO7-3,...Ch. 7 - Prob. 14ECh. 7 - Prob. 15ECh. 7 - Prob. 16PCh. 7 - Prob. 17PCh. 7 - Prob. 18PCh. 7 - Prob. 19PCh. 7 -
PROBLEM 7-20 Evaluating the Profitability of...
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