Concept explainers
Time-Driven Activity-Based Costing
Kim Distribution Services (KDS) distributes food purchased in bulk to small retailers. The firm is divided into two divisions: Purchasing and Distribution. Purchasing is responsible for ordering goods from the manufacturer, receiving them, and then moving them to the appropriate location in the warehouse. Distribution is responsible for taking orders from retailers, picking the products from the warehouse for the orders, and packaging the orders for shipment. KDS has a policy of filling every order on the day of the order. If the firm is out of a particular item, it will ship a partial order and complete the order when the item is back in stock. Occasionally, an order will not have to be packaged if the retailer chooses to take delivery at the KDS loading dock.
Distribution has 15 employees who are responsible for the activities, and all 15 are trained to handle any of the three tasks. Each of these employees works 40 hours per week for 50 weeks. There is an allowance of 15 percent of the employees’ time for training and other administrative tasks. The total costs of distribution for the coming year are estimated to be $826,200. When asked, the manager of Distribution estimated the following times for each of the three activities:
- Taking orders: 10 minutes.
- Picking orders: 14 minutes.
- Packaging orders: 20 minutes.
During the year, the Distribution received 25,000 orders. Because of out-of-stock events, pickers had to pick 30,000 orders. 27,700 orders were packaged.
Required:
- a. What is the cost per minute for activities in Distribution?
- b. What is the cost of an order that requires all three activities?
- c. How many minutes of unused capacity did Distribution have for the year?
- d. What was the cost of the unused capacity in Distribution?
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Chapter 9 Solutions
FUNDAMENTALS OF COST ACCOUNTING BUNDLE
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- Central Perk, LLC, a manufacturer of coffee beans, is considering switching its operations to an Activity Based Costing system. The following manufacturing overhead activities and cost drivers have been identified: Activity. Machine setup Machine assembly Product inspection Product movement General factory Cost Driver Number of machine setups Machine hours logged Inspection hours logged Number of moves Machine hours logged Based on the above descriptions, which of the following correctly pairs the activity with its appropriate cost level? O A. Product Inspection... batch level cost OB. Product Movement... facility level cost O C. Machine Assembly... unit level cost O D. General Factory... batch level cost O E. Machine Setup... unit level costarrow_forwardimplementing an activity-based costing system that has four activity cost pools: Travel, Pickup and Delivery, Customer Service, and Other. The activity measures are miles for the Travel cost pool, number of pickups and deliveries for the Pickup and Delivery cost pool, and number of customers for the Customer Service cost pool. The Other cost pool has no activity measure because it is an organization-sustaining activity. The following costs will be assigned using the activity-based costing system Driver and guard wages Vehicle operating expense Vehicle depreciation. Customer representative salaries and i expenses office expenses Driver and guard wages Vehicle operating expense Vehicle depreciation Customer representative salaries and expenses office expenses Administrative expenses Administrative expenses Total cost The distribution of resource consumption across the activity cost pools is as follows. Pickup and Delivery 35% 5% $1,000,000 510,000 390,000 Driver and guard wages Vehicle…arrow_forwardA cost center is a unit of a business that Incurs costs without directly generating revenues. All of the following are considered cost centers except Multiple Cholce Advertising department at Hertz. Research department at Microsoft. Accounting department at Warner Bros. Juice product line division at Coca Cola. Purchasing department at Best Buy.arrow_forward
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