ADMS 1500 Chapter Notes - Chapter 5: Activity-Based Costing, Deutsche Luft Hansa, Cost Driver

57 views3 pages

coffeegrasshopper461

14 Mar 2018

School

York University

Department

Administrative Studies

Course

ADMS 1500

Professor

K Paul Evans

For unlimited access to Textbook Notes, a Class+ subscription is required.

Document Summary

Part a (35 multiple choice questions mix of both calculation and conceptual) ** practice cp, ice, self study question, and assigned question. Traditional costing: allocates overhead using single predetermined rate, based on direct labour. Satisfactory when direct labour was a major portion of total manufacturing costs or there was a high correlation between direct labour and oh costs. The concept of cost pool and cost driver. Activity cost pool: a distinct type of activity. For example, ordering materials or setting up machines. Cost drivers: any factors or activities that have a direct cause-effect relationship with the resources consumed. Applying an activity-based costing (abc) system- follow four steps approach mentioned in the text book. Atlas company produces two automotive anti-theft devices: the boot: a high volume item with sales totaling 25,000 per year, the club: a low volume item with sales totaling 5,000 per year.

Related Questions

Tommy Lyons Company manufactures and sells two products: Product S3 and Product S2. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce the output appear below:

Product Info

Product S3: 800 units @ 8.0 DLH/unit = 6,400 hours

Product K2: 900 units @6.0 DLH/unit = 5,400 hours

Direct Material Cost/Unit

The direct labor rate is $18.00 per DLH. The direct materials cost per unit for each product is given below:

Product S3: $280.70

Product K2: $157.90

Activity Cost Pools

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, total overhead costs and expected activity for each product.

Labor Related

Direct labor hours, total OH $523,094

S3 = 6,400

K2 = 5,400

Total = 11,800 DLHs

Machine Set-ups

Number of tests, total OH = $135,478

S3 = 600

K2 = 800

Total = 1,400 Tests

General Factory

Machine hours, total OH = $392,327

S3 = 5,000

K2 = 5,300

Total = 10,300 MHs

Total Overhead Costs

Including: DLHs, machine set-ups, machine hours = $1,050,899

Required:

The company currently uses a traditional costing methodin which overhead is applied to products based solely on direct labor-hours. Compute the company's predetermined overhead rate under this costing method.

How much overhead would be applied to each product under the company's traditional costing method?

Determine the unit product cost of each product under the company's traditional costing method.

Compute the activity rates under the activity-based costing system.

Determine how much overhead would be assigned to each product under the activity-based costing system.

Determine the unit product cost of each product under the activity-based costing method.

What is the difference between the overhead per unit under the traditional costing method and the activity-based costing system for each of the two products?

jadewater-buffalo856

Claire Company produces Tablets and Books. Total overhead coststraditionally have been allocated on the basis of direct laborhours. After implementing activity-based costing, managersdetermined the following cost pools and cost drivers. They alsodecided that general costs should no longer be allocated toproducts. Activity Pool Department Costs Cost Driver Binding$255,816 Number of units Printing 831,402 Machine hours Productdesign 193,116 Change orders General 619,894 None Total overheadcosts $1,900,228 Other information is as follows: Tablets BooksUnits 62,600 20,100 Direct materials cost per unit $3.11 $10.44Direct labor cost per unit $4.17 $7.85 Direct labor hours 25,30016,500 Machine hours 126,000 122,000 Change orders 1,400 2,900Calculate predetermined OH rate. (Round answer to 2 decimal places,e.g. 15.25.) Determine the unit product cost for Tablets and Booksusing the traditional costing system. (Round overhead rate andfinal answers to 2 decmial places, e.g. 15.25.) Calculate ABCrates. (Round answers to 2 decimal places, e.g. 15.25.) Determinethe unit product cost for Tablets and Books using theactivity-based costing system. (Round all rates and final answersto 2 decmial places, e.g. 15.25.) Show that General cost is thedifference between the total overhead costs allocated to productsunder the traditional system and the total cost allocated toproducts under the activity-based costing system. (Round answers to0 decmial places, e.g. 1,525.)

pearcrab948

Please answer only the Discussion Questions

Giant Bicycles (GB) produces 2 different grades of bikes.

1^st â is a Multi-Purpose Bike produced in highvolumes that uses relatively few components.

2^nd - is a Custom Bike, produced in lower volumes anduses more unique components.

Company strategy: Produce the multi-purpose bike in high volumesto effectively utilize capacity and the lower volume custom bike toearn higher profit margins.

	Multi-purpose Bike	Custom Bike	Total
Units Produced	10000	1000	11000
Direct Materials	$200/bike	$400/bike
Direct labor hours @ $20/hour	1.6 hours/bike	4.0 hours/bike

Part A

Assuming the company's cost accounting system allocates totaloverhead costs based on total direct labor hours: (a) Calculate anoverhead rate per direct labor hour. (b) Calculate the full unitcost per bike for the multi-purpose bike and custom bike,respectively.

Part B

Upon further inspection, a feature of the manufacturing processis the use of state-of-the-art fabrication equipment that enablesthe company to produce bike frames. GBâs manufacturing overheadis:

Frame Fabrication Overhead	$360,000
Bike Assembly Overhead	350,000
Total	$710,000

Assume the company's cost accounting system allocates framefabrication related overhead costs based on machine hours and bikeassembly overhead costs based on direct labor hours. The followingvolume mix and other data are relevant:

	Multi-purpose Bike	Custom Bike	Total
Units Produced	10000	1000	11000
Direct Materials	$200/bike	$400/bike
Direct labor hours @ $20/hour	1.6 hours/bike	4.0 hours/bike
Machine Hours	0.3 hours/bike	1.5 hours/bike

Assuming the company's cost accounting system allocates overheadcosts based on total machine hours for fabrication overhead andtotal direct labor hours for assembly overhead: (a) Calculateoverhead rates per direct labor hour and machine hour. (b)Calculate full unit cost per bike for the multi-purpose bike andcustom bike, respectively. Comment on the difference between partsA. and B.

Part C

Subsequent analysis suggested that additional data could be usedto "activity cost" the overhead allocation. The research shows thatfabrication set-up is a required activity to configure the machine,at the beginning of a production run for each particular type ofbike. It is also noted that component handling is an identifiableactivity within bike assembly. Therefore, GBâs manufacturingoverhead is now detailed as:

Frame Fabrication Overhead:
Fabrication Set-up	$150000
Fabrication	210000
Total Frame Fabrication Overhead	360000

Bike Assembly Overhead:
Component Handling	$75000
Assembly	275000
Total Bike Assembly Overhead	350000
Total	$710000

The new additional activity data by biketype:

Activity Pool

	Activity Volume
	Multi-Purpose Bike	Custom Bike	Total
Fabrication Set-ups	150	150	600
Components handled	120000	30000	150000

The remaining frame fabrication overhead costs not applicable toset-ups can be allocated, as before in Part B, using machine hours.Likewise, the bike assembly overhead costs not applicable tocomponent handling can be allocated, as before in Part B, directlabor hours.

Company's cost accounting system allocates overhead costs basedon total machine hours for fabrication overhead & total directlabor hours for assembly overhead:

a. Calculate the four activity overhead rates required fromabove.

b. Calculate full unit cost per bike for the multi-purpose bikeand custom bike, respectively.

DISCUSSION QUESTIONS

Discuss the following concepts concerning the company:

1. What are the mechanics and conceptual basis for activitybased product/service costing? and

2. How do they apply to the case? Including the Overhead CostBehavior and Activity.

3. How was Activity Costing utilized to determine product costsin this problem.

turquoiseelk849

ADMS 1500 Chapter Notes - Chapter 5: Activity-Based Costing, Deutsche Luft Hansa, Cost Driver

Document Summary

Get access

Related Documents

ADMS 1500 Chapter Notes - Chapter 8: Total Absorption Costing, Net Income, Variable Cost

ADMS 1500 Chapter Notes - Chapter 2: Behaviorism, Finished Good, Fixed Cost

ADMS 1500 Chapter Notes - Chapter 9-11: Fixed Cost, Multiple Choice

Related Questions