AFM102 Chapter Notes - Chapter 5: Cost Driver, Expense, Product Design

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orangecoyote929

21 Nov 2013

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM102

Professor

Tom Vance

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Document Summary

Chapter 5: activity-based costing activity-based costing (abc): a costing method based on activities that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore fixed costs. Duration driver: a measure of the amount of time required to perform an activity. The cost of idle capacity in activity-based costing costs of idle capacity are not charged to products page 1 of 5. Designing an activity-based costing system initiative to implement abc must be strongly supported by top management. Managers might not see a reason to change without leadership from top management if top management doesn"t support then, subordinates will quickly get the message that abc is not important and will abandon its. Design and implementation of an abc system should be the responsibility of cross-functional team (not the accounting dept) cost object: the specific product or service to be costed.

Related Questions

Benoist Corporation has an activity-based costing system withthree activity cost pools-Machining, Setting Up, and Other. Thecompany's overhead costs have already been allocated to the costpools and total $17,200 for the Machining cost pool, $7,700 for theSetting Up cost pool, and $52,100 for the Other cost pool.

Costs in the Machining cost pool are assigned to products based onmachine-hours (MHs) and costs in the Setting Up cost pool areassigned to products based on the number of batches. Costs in theOther cost pool are not assigned to products. Data concerning thetwo products and the company's costs appear below:

Required:

a. Calculate activity rates for each activity cost pool usingactivity-based costing.
b. Determine the amount of overhead cost that would be assigned toeach product using activity-based costing.
c. Determine the product margins for each product usingactivity-based costing.

ultramarineporpoise156

Smoky Mountain Corporation makes two types of hiking bootsâthe Xtreme and the Pathfinder. Data concerning these two product lines appear below:

	Xtreme			Pathfinder
Selling price per unit	$	120.00		$	92.00
Direct materials per unit	$	63.50		$	54.00
Direct labor per unit	$	13.50		$	9.00
Direct labor-hours per unit		1.5	DLHs		1.0	DLHs
Estimated annual production and sales		24,000	units		71,000	units

The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below:


Estimated total manufacturing overhead	$	2,033,000
Estimated total direct labor-hours		107,000	DLHs

Required:

1. Compute the product margins for the Xtreme and the Pathfinder products under the companyâs traditional costing system.

2. The company is considering replacing its traditional costing system with an activity-based costing system that would assign its manufacturing overhead to the following four activity cost pools (the Other cost pool includes organization-sustaining costs and idle capacity costs):

	Estimated Overhead Cost		Expected Activity
Activities and Activity Measures	Estimated Overhead Cost		Xtreme	Pathfinder	Total
Supporting direct labor (direct labor-hours)	$	663,400	36,000	71,000	107,000
Batch setups (setups)		572,000	240	200	440
Product sustaining (number of products)		750,000	1	1	2
Other		47,600	NA	NA	NA
Total manufacturing overhead cost	$	2,033,000

Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system.

3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.

amaranthimpala82

Murri Corporation has an activity-based costing system withthree activity cost pools-Processing, Setting Up, and Other. Thecompany's overhead costs, which consist of factory utilities andindirect labor, are allocated to the cost pools in proportion tothe activity cost pools' consumption of resources. Costs in theProcessing cost pool are assigned to products based onmachine-hours (MHs) and costs in the Setting Up cost pool areassigned to products based on the number of batches. Costs in theOther cost pool are not assigned to products. Data concerning thetwo products and the company's costs and activity-based costingsystem appear below:


Factory utilities (total)	$	36,500
Indirect labor (total)	$	11,000

Distribution of Resources Consumption Across ActivityCost Pools
	Processing	Settingup	Other
Factoryutilities	0.30	0.20	0.50
Indirect labor	0.50	0.30	0.20

	MHs	Batches
Product X7	3,600	1,500
Product L4	7,600	900

Total	11,200	2,400

	Product X7		Product L4
Sales (total)	$	70,900	$	100,100
Direct materials(total)	$	25,400	$	37,500
Direct labor(total)	$	32,400	$	44,000

Required:
a.	Assign overhead costs to activity cost pools usingactivity-based costing. (Omit the "$" sign in yourresponse.)

	Activity Cost Pools
	Processing		Settingup		Other		Total
Factoryutilities		$		$		$		$
Indirect labor

Total		$		$		$		$

b.	Calculate activity rates for each activity cost pool usingactivity-based costing. (Round youranswers to 2 decimal places. Omitthe "$" sign in your response.)

	ActivityRate
Processing	$	per MH
Setting up	$	per batch

c.	Determine the amount of overhead cost that would be assigned toeach product using activity-based costing. (Omit the "$"sign in your response.)

	Product X7	Product L4
Processing	$	$
Setting up

Total	$	$

d.	Determine the product margins for each product usingactivity-based costing. (Omit the "$" sign in yourresponse.)

	Product Margin
Product X7	$
Product L4	$

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AFM102 Chapter Notes - Chapter 5: Cost Driver, Expense, Product Design

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