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Chapter 19: Q26E (page 1073)

Question:Refer to Exercises E19-24 and E19-25. Suppose Western鈥檚 direct labor rate was $280 per hour. The Halbert engagement used the following resources last month:

Allocation Base Halbert

Direct labor hours 170

Pages 310

Applications used 80

Requirements

1. Compute the cost assigned to the Halbert engagement, using the ABC system.

2. Compute the operating income or loss from the Halbert engagement, using theABC system.

Short Answer

Expert verified

Total Cost:$97,920

Operating Loss:$21,760

Step by step solution

01

Step-by-Step-SolutionStep1: Cost assigned to Halbert

Directlaborcost=Totaldirectlaborhours脳Laborrate=170脳$280=$47,600DocumentationPreprationCost=Predetermiendoverheadallocationrate脳No.ofpages=$50脳310=$15,500TSCost=Predetermiendoverheadallocationrate脳No.ofapplicationsused=$210脳80=$16,800

TrainingCost=Predetermiendoverheadallocationrate脳No.ofdirectlaborhours=$106脳170=$18,020TotalCostassignedtoHalbert=DirectLaborCost+DocumentationCost+ITSCost+TrainingCost=$47,600+$15,500+$16,800+$18,020=$97,920

02

Operating Income/loss from Halbert

ServicerevenuefromHalbert=TotalDirectlaborcost脳160100=$47,600脳160100=$76,160OperatingIncome/loss=Servicerevenue-TotalCost=$76,160-$97,920=-$21,760

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Most popular questions from this chapter

The Alright Manufacturing Company in Rochester, Minnesota, assembles and tests electronic components used in smartphones. Consider the following data regarding component T24 (amounts are per unit):

Direct materials cost \( 80.00

Direct labor cost 20.00

Activity-based costs allocated ?

Total manufacturing product cost ?

The activities required to build the component follow:

Activity Allocation Base Cost Allocated to Each Unit

Start station Number of raw component chassis 4 * \) 1.50 = \( 6.00

Dip insertion Number of dip insertions ? * 0.30 = 9.60

Manual insertion Number of manual insertions 10 * 0.50 = ?

Wave solder Number of components soldered 4 * 1.90 = 7.60

Backload Number of backload insertions 7 * ? = 4.20

Test Number of testing hours 0.43 * 90.00 = ?

Defect analysis Number of defect analysis hours 0.15 * ? = 12.00

Total activity-based costs \) ?

Requirements

2. Why might managers favor this ABC system instead of Alright鈥檚 older system, which allocated all manufacturing overhead costs on the basis of direct labor hours?

Refer to Exercise E19-20. For 2019, Eason鈥檚 managers have decided to use the same indirect manufacturing costs per wheel rim that they computed in 2018 using activity based costing. In addition to the unit indirect manufacturing costs, the following data are expected for the company鈥檚 standard and deluxe models for 2019:

Standard Deluxe

Sales price \( 800.00 \) 940.00

Direct materials 31.00 48.00

Direct labor 45.00 52.00

Because of limited machine hour capacity, Eason can produce either2,000 standard rims or2,000 deluxe rims.

Requirements

1. If Eason鈥檚 managers rely on the ABC unit cost data computed in Exercise E19-20, which model will they produce? Carry each cost to the nearest cent. (Ignore selling and administrative expenses for this calculation.)

The Oakman Company manufactures products in two departments: Mixing and Packaging. The company allocates manufacturing overhead using a single plantwide rate with direct labor hours as the allocation base. Estimated overhead costs for the year are $810,000, and estimated direct labor hours are 360,000. In October, the company incurred 20,000 direct labor hours.

Requirements

1. Compute the predetermined overhead allocation rate. Round to two decimal places.

Harris Systems specializes in servers for workgroup, e-commerce, and ERP applications. The company鈥檚 original job costing system has two direct cost categories: direct materials and direct labor. Overhead is allocated to jobs at the single rate of \(22 per direct labor hour.

A task force headed by Harris鈥檚 CFO recently designed an ABC system with four activities. The ABC system retains the current system鈥檚 two direct cost categories. Overhead costs are reflected in the four activities. Pertinent data follow:

___________________________________________________________________

Activity Allocation Base Predetermined Overhead

Allocation Rate____

Materials handling Number of parts \) 0.85

Machine setup Number of setups 500.00

Assembling Number of assembling hours 80.00

Shipping Number of shipments 1,500.00_______

Harris Systems has been awarded two new contracts, which will be produced as Job A and Job B. Budget data relating to the contracts follow:

____________________________________________________________

Job A Job B__

Number of parts 15,000 2,000

Number of setups 6 4

Number of assembling hours 1,500 200

Number of shipments 1 1

Total direct labor hours 8,000 600

Number of units produced 100 10

Direct materials cost \( 220,000 \) 30,000

Direct labor cost \( 160,000 \) 12,000__

Requirements

3. Which costing system more accurately assigns to jobs the costs of the resources consumed to produce them? Explain.

Question:Treat Dog Collars uses activity-based costing. Treat鈥檚 system has the following features:

___________________________________________________________________

Activity Allocation BasePredetermined

Overhead Allocation Rate

Purchasing Number of purchase orders \( 60.00 per purchase order

Assembling Number of parts 0.36 per part

Packaging Number of finished collars 0.19 per collar

___________________________________________________________________

Each collar has three parts, direct materials cost is \)5.00 per collar, and direct laborcost is \(4.00 per collar. Suppose Animal Hut has asked for a bid on 30,000 dog collars.Treat will issue a total of 175 purchase orders if Animal Hut accepts Treat鈥檚 bid.

Requirements

1. Compute the total estimated cost Treat will incur to purchase the needed materialsand then assemble and package 30,000 dog collars. Also compute the cost percollar.

2. For bidding, Treat adds a 40% markup to total cost. What total price will the companybid for the entire Animal Hut order?

3. Suppose that instead of an ABC system, Treat has a traditional product costingsystem that allocates indirect costs at the rate of \)9.50 per direct labor hour. Thedog collar order will require 9,000 direct labor hours. What total price will Treat bidusing this system鈥檚 total cost?

4. Use your answers to Requirements 2 and 3 to explain how ABC can help Treatmake a better decision about the bid price it will offer Animal Hut.
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