ManagerialAccounting-OP_x3x7rSO-70

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PA8. 6.4 A company has traditionally allocated its overhead based on machine hours but had collected this
information to change to activity-based costing:
A. How much overhead would be allocated to each unit under the traditional allocation method?
B. How much overhead would be allocated to each unit under activity-based costing?
PA9. 6.4 Carlton’s Kitchens makes two types of pasta makers: Strands and Shapes. The company expects to
manufacture 70,000 units of Strands, which has a per-unit direct material cost of $10 and a per-unit direct
labor cost of $60. It also expects to manufacture 30,000 units of Shapes, which has a per-unit material cost of
$15 and a per-unit direct labor cost of $40. It is estimated that Strands will use 140,000 machine hours and
Shapes will require 60,000 machine hours. Historically, the company has used the traditional allocation method
and applied overhead at a rate of $21 per machine hour. It was determined that there were three cost pools,
and the overhead for each cost pool is shown:
The cost driver for each cost pool and its expected activity is shown:
A. What is the per-unit cost for each product under the traditional allocation method?
B. What is the per-unit cost for each product under ABC costing?
PA10. 6.4 Carlton’s Kitchen’s three cost pools and overhead estimates are as follows:
Compare the overhead allocation using:
A. The traditional allocation method
B. The activity-based costing method
(Hint: the traditional method uses machine hours as the allocation base.)
336 Chapter 6 Activity-Based, Variable, and Absorption Costing
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PA11. 6.4 Lampierre makes brass and gold frames. The company computed this information to decide
whether to switch from the traditional allocation method to ABC:
The estimated overhead for the material cost pool is estimated as $12,500, and the estimate for the machine
setup pool is $35,000. Calculate the allocation rate per unit of brass and per unit of gold using:
A. The traditional allocation method
B. The activity-based costing method
PA12. 6.4 Portable Seats makes two chairs: folding and wooden. This information was obtained to review
the decision to consider ABC:
Compute the overhead assigned to each product under:
A. The traditional allocation method
B. The activity-based costing method
PA13. 6.5 Grainger Company produces only one product and sells that product for $100 per unit. Cost
information for the product is:
Direct Material $15 per Unit
Direct Labor $25 per Unit
Variable Overhead $5 per Unit
Fixed Overhead $34,000
Selling expenses are $4 per unit and are all variable. Administrative expenses of $20,000 are all fixed. Grainger
produced 5,000 units; sold 4,000; and had no beginning inventory.
A. Compute net income under
i. absorption costing
ii. variable costing
B. Reconcile the difference between the income under absorption and variable costing.
Chapter 6 Activity-Based, Variable, and Absorption Costing 337
PA14. 6.5 Summarized data for Walrus Co. for its first year of operations are:
A. Prepare an income statement under absorption costing
B. Prepare an income statement under variable costing
PA15. 6.5 Happy Trails has this information for its manufacturing:
Its income statement under absorption costing is:
Prepare an income statement with variable costing and a reconciliation statement between both methods.
PA16. 6.5 Appliance Apps has the following costs associated with its production and sale of devices that
allow appliances to receive commands from cell phones.
Prepare an income statement under both the absorption and variable costing methods along with a
reconciliation between the two statements.
338 Chapter 6 Activity-Based, Variable, and Absorption Costing
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PA17. 6.5 This information was collected for the first year of manufacturing for Appliance Apps:
Prepare an income statement under variable costing, and prepare a reconciliation to the income under the
absorption method.
B Problem Set B
PB1. 6.1 Bobcat uses a traditional cost system and estimates next year’s overhead will be $800,000, as
driven by the estimated 25,000 direct labor hours. It manufactures three products and estimates the following
costs:
If the labor rate is $30 per hour, what is the per-unit cost of each product?
PB2. 6.1 Five Card Draw manufactures and sells 10,000 units of Aces, which retails for $200, and 8,000 units
of Kings, which retails for $170. The direct materials cost is $20 per unit of Aces and $15 per unit of Kings. The
labor rate is $30 per hour, and Five Card Draw estimated 64,000 direct labor hours. It takes 4 direct labor hours
to manufacture Aces and 3 hours for Kings. The total estimated overhead is $128,000. Five Card Draw uses the
traditional allocation method based on direct labor hours.
A. How much is the gross profit per unit for Aces and Kings?
B. What is the total gross profit for the year?
Chapter 6 Activity-Based, Variable, and Absorption Costing 339
PB3. 6.2 A local picnic table manufacturer has budgeted the following overhead costs:
They are considering adapting ABC costing and have estimated the cost drivers for each pool as shown:
Recent success has yielded an order for 1,500 tables. Determine how much the job would cost given the
following activities, and assuming an hourly rate for direct labor of $25 per hour:
PB4. 6.2 Explain how each activity in this list can be associated with the corresponding unit or batch level
provided.
A. Assembling products: batch level
B. Issuing raw materials: unit level
C. Machine setup: unit level
D. Inspection: batch level
E. Loading the labeling machine: unit level
F. Equipment maintenance: unit level
G. Printing a banner: batch level
H. Moving material: unit level
I. Ordering a part: unit level
340 Chapter 6 Activity-Based, Variable, and Absorption Costing
This OpenStax book is available for free at http://cnx.org/content/col25479/1.11
	Chapter 6. Activity-Based, Variable, and Absorption Costing
	Problem Set B