ADMS 2510 Chapter Notes - Chapter 5: General Ledger, Cost Driver, Total Absorption Costing

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amethystarmadillo670

31 Mar 2013

School

York University

Department

Administrative Studies

Course

ADMS 2510

Professor

Alison Beavis

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ADMS 2510 Full Course Notes

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Most organizations that use activity-based costing have two costing systems the official costing system that is used for preparing external financial reports and the activity-based costing system that is used for internal decision making and for managing activities. As noted above, traditional absorption costing is designed to provide data for external financial reports. In contrast, activity-based costing is designed for use in internal decision making. Overhead cost pool: a group of overhead cost elements. Activity: is any event that causes the consumption of overhead resources. Activity cost pool is a bucket in which costs are accumulated that relate to a single activity measure in the. Activity measure is an allocation base in an activity-based costing system. The term cost driver is also used to refer to an activity measure because the activity measure should drive the cost being allocated. The two most common types of activity measures are transaction drivers and duration drivers.

Related Questions

Bunker makes two types of briefcase, fabric and leather. The company is currently using a traditional costing system with labor hours as the cost driver but is considering switching to an activity-based costing system. In preparation for the possible switch, Bunker has identified two activity cost pools: materials handling and setup. Pertinent data follow:

	Fabric Case	Leather Case
Number of labor hours	12,000	11,000
Number of material moves	483	667
Number of setups	42	38

Total estimated overhead costs are $135,000, of which $115,000 is assigned to the materials handling cost pool and $20,000 is assigned to the setup cost pool.

Required:

1. Calculate the overhead assigned to the fabric case using the traditional costing system based on direct labor hours. (Do not round intermediate calculations and round your final answer to the nearest whole dollar amount.)

2. Calculate the overhead assigned to the fabric case using ABC. (Round activity rates or activity proportions, and intermediate calculations to four decimal places.)

3. Was the fabric case over- or undercosted by the traditional cost system compared to ABC?

whitekoala529

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

EXERCISE 7-9 Second-Stage Allocation to an Order [LO7-4] Durban Metal Products, Ltd., of the Republic of South Africa makes specialty metal parts used in applications ranging from the cutting edges of bulldozer blades to replacement parts for Land Rovers. The company uses an activity-based costing system for internal decision-making pur- poses. The company has four activity cost pools as listed below: Activity Cost Pool Activity Measure Activity Rate Order size Customer orders ..... Product testing ........ Selling ............... Number of direct labor-hours Number of customer orders Number of testing hours Number of sales calls $16.85 per direct labor-hour $320.00 per customer order $89.00 per testing hour $1,090.00 per sales call The managing director of the company would like information concerning the cost of a recently completed order for heavy-duty trailer axles. The order required 200 direct labor-hours, 4 hours of product testing, and 2 sales calls. Required: Prepare a report summarizing the overhead costs assigned to the order for heavy-duty trailer axles. What is the total overhead cost assigned to the order?

ADMS 2510 Chapter Notes - Chapter 5: General Ledger, Cost Driver, Total Absorption Costing

ADMS 2510 Full Course Notes

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