ACCT 2230 Lecture Notes - Lecture 5: Deutsche Luft Hansa, Product Design, Earnings Before Interest And Taxes

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27 Dec 2015

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Activity-based costing: a tool to aid decision making. Abc differs from traditional cost accounting in 4 ways: and-effect basis: abc assigns manufacturing and non-manufacturing costs to products but only on cause, abc does not assign all manufacturing costs to products, abc uses more cost pools. Non-manufacturing costs for abc: often apart of costs of producing, selling, distributing, servicing. Abc systems assign costs to a product only if there"s reason to believe the cost would be affected by decisions concerning product ie: plant controller"s salary, plant security guard wages. A cost bucket where costs related to a particular activity are accumulated. Transaction driver: count of number of times an activity occurs. Activity measures: duration driver: measure of amount of time needed for an activity. Activity rates base: more stable unit costs. Identify & de ne activities, activity cost pools & activity measures. Identify activities that form foundation for system. Involves great deal of judgement & time.

Related Questions

Kinnard Electronics manufactures two home theater systems: theElite which sells for $1,400, and a new model, the Preferred, whichsells for $1,100. The production cost computed per unit undertraditional costing for each model in 2012 was as follows.

Traditional Costing	Elite	Preferred
Direct materials	$600	$320
Direct labor ($20 per hour)	100	80
Manufacturing overhead ($35 per DLH)	175	140
Total per unit cost	$875	$540

In 2012, Kinnard manufactured 20,000 units of the Elite and10,000 units of the Preferred. The overhead rate of $35 per directlabor hour was determined by dividing total expected manufacturingoverhead of $4,900,000 by the total direct labor hours (140,000)for the two models. Under traditional costing, the gross profit onthe models was: Elite $525 ($1,400 _ $875), and Preferred $560($1,100 _ $540). Because of this difference, management isconsidering phasing out the Elite model and increasing theproduction of the Preferred model. Before finalizing its decision,management asks Kinnard's controller to prepare an analysis usingactivity-based costing (ABC). The controller accumulates thefollowing information about overhead for the year ended December31, 2012.

			Expected	Activity-
			Use of	Based
		Estimated	Cost	Overhead
Activity	Cost Driver	Overhead	Drivers	Rate
Purchasing	Number of orders	$ 775,000	25,000	$31
Machine setups	Number of setups	580,000	20,000	29
Machining	Machine hours	3,100,000	100,000	31
Quality control	Number of inspections	445,000	5,000	89

The cost drivers used for each product were:

Cost Driver	Elite	Preferred	Total
Purchase orders	11,250	13,750	25,000
Machine setups	11,000	9,000	20,000
Machine hours	40,000	60,000	100,000
Inspections	2,750	2,250	5,000

Instructions

(a) Assign the total 2012 manufacturing overhead costs to thetwo products using activitybased costing (ABC).

(b) What was the cost per unit and gross profit of each modelusing ABC costing?

fuchsiahorse108

Problem 4-2A (Part Level Submission)

Schultz Electronics manufactures two large-screen televisionmodels: the Royale which sells for $1,546, and a new model, theMajestic, which sells for $1,315. The production cost computed perunit under traditional costing for each model in 2014 was asfollows.

Traditional Costing	Royale	Majestic
Direct Materials	$640	$410
Direct Labor ($20 perhour)	120	100
Manufacturing Overhead ($41per DLH)	246	205
Total per unit cost	$1006	$715

In 2014, Schultz manufactured 25,000 units of the Royale and10,000 units of the Majestic. The overhead rate of $41 per directlabor hour was determined by dividing total expected manufacturingoverhead of $8,154,010 by the total direct labor hours (200,000)for the two models.

Under traditional costing, the gross profit on the models wasRoyale $540 or ($1,546 â $1,006), and Majestic $600 or ($1,315 â$715). Because of this difference, management is consideringphasing out the Royale model and increasing the production of theMajestic model.

Before finalizing its decision, management asks Schultzâscontroller to prepare an analysis using activity-based costing(ABC). The controller accumulates the following information aboutoverhead for the year ended December 31, 2014.

Activities	Cost Drivers	Estimated Overhead	Expected use of costDrivers	Activity-Based OverheadRate
Purchasing	Number of Orders	$1,395,450	39,870	$35/order
Machine setups	Number of Setups	967,250	18,250	53/setup
Machining	Machine hours	4,976,990	121,390	41/hour
Quality control	Number of inspections	814,320	28,080	29/inspection

The cost drivers used for each product were:

CostDrivers	Royale	Majestic	Total
Purchase orders	16,510	23,360	39,870
Machine setups	5,270	12,980	18,250
Machine hours	75,660	45,730	121,390
Inspections	11,900	16,180	28,080

Assign the total 2014 manufacturing overhead costs to the twoproducts using activity-based costing (ABC) and determine theoverhead cost per unit. (Round cost per unit to 2decimal places, e.g. $12.25.)

	Royale	Majestic
Total assigned costs	4304320	3849690
Cost per unit	172.17	384.97

Calculate cost per unit of each model using ABC costing.(Round cost per unit to 2 decimal places, e.g.$12.25.)

	Royale	Majestic
Cost Per Unit	932.16	894.97

Calculate gross profit of each model using ABC costing.(Round answers to 2 decimal places, e.g.$12.25.)

	Royale	Majestic
Gross Profit	$_____________	$_____________

peachcricket436

Problem 4-2A (Part Level Submission)

Traditional Costing	Royale	Majestic
Direct Materials	$640	$410
Direct Labor ($20 per hour)	120	100
Manufacturing Overhead ($41 per DLH)	246	205
Total per unit cost	$1006	$715

Activities	Cost Drivers	Estimated Overhead	Expected use of cost Drivers	Activity-Based Overhead Rate
Purchasing	Number of Orders	$1,395,450	39,870	$35/order
Machine setups	Number of Setups	967,250	18,250	53/setup
Machining	Machine hours	4,976,990	121,390	41/hour
Quality control	Number of inspections	814,320	28,080	29/inspection

The cost drivers used for each product were:

Cost Drivers	Royale	Majestic	Total
Purchase orders	16,510	23,360	39,870
Machine setups	5,270	12,980	18,250
Machine hours	75,660	45,730	121,390
Inspections	11,900	16,180	28,080

	Royale	Majestic
Total assigned costs	$_______________	$_____________
Cost per unit	$_______________	$_____________

chocolatewoodchuck193

ACCT 2230 Lecture Notes - Lecture 5: Deutsche Luft Hansa, Product Design, Earnings Before Interest And Taxes

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