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Chapter 19: Q27E (page 1074)

Question:Refer to Exercise E19-26. Western desires a 20% target net profit after covering all costs. Considering the total costs assigned to the Halbert engagement in Exercise E19-26, what would Western have to charge the customer to achieve that net profit? Roundto two decimal places.

Short Answer

Expert verified

Targeted service charge:$166,464

Step by step solution

01

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

Directlaborcost=Totaldirectlaborhours脳Laborrate=170脳$280=$47,600

DocumentationPreprationCost=Predetermiendoverheadallocationrate脳No.ofpages=$50脳310=$15,500

TSCost=Predetermiendoverheadallocationrate脳No.ofapplicationsused=$210脳80=$16,800

TrainingCost=Predetermiendoverheadallocationrate脳No.ofdirectlaborhours=$106脳170=$18,020

02

Computation of target service charge

As the targeted net profit is 20% of sales, So the operating cost percent to sales would be

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Most popular questions from this chapter


Willette Pharmaceuticals manufactures an over-the-counter allergy medication. The company sells both large commercial containers of 1,000 capsules to health care facilities and travel packs of 20 capsules to shops in airports, train stations, and hotels. The following information has been developed to determine if an activity-based costing system would be beneficial:

Activity Estimated Estimated Quantity

Indirect Cost Allocation Base of Allocation Base

Materials handling \( 95,000 Number of kilos 19,000 kilos

Packaging 200,000 Number of machine hours 5,000 hours

Quality assurance 112,500 Number of samples 1,875 samples

Total indirect costs \) 407,500

Actual production information includes the following:

Commercial Containers Travel Packs

Units produced 2,400 containers 50,000 packs

Weight in kilos 9,600 5,000

Machine hours 1,680 500

Number of samples 240 750

Requirements

1. Willitte鈥檚 original single plantwide overhead allocation rate costing system allocated indirect costs to products at $81.50 per machine hour. Compute the total indirect costs allocated to the commercial containers and to the travel packs under the original system. Then compute the indirect cost per unit for each product. Round to two decimal places.

Explain the difference between the target price and target cost.

Haworth Company is a management consulting firm. The company expects to incur \(167,500 of indirect costs this year. Indirect costs are allocated based on the following activities:

Activity

Estimated cost

Allocation Base

Estimated quantity of allocation base

Predetermined

Overhead allocation rate

Site visits

\) 45,000

Number of visits

900 visits

\( 50 per visit

Documentation Preparation

122,500

Number of pages

3,500 Pages

\) 35 per page

Total Indirect costs

\( 167,500

Haworth bills clients at 120% of the direct labor costs. The company has estimated direct labor costs at \)240 per hour. Last month, Haworth completed a consulting job for Client 76 and used the following resources:

Allocation Base Client 76

Direct labor hours 60

Visits 5

Pages 50

Determine the total cost of the consulting job and the operating income earned.

Question:Low Range produces fleece jackets. The company uses JIT costing for its JIT production system.

Low Range has two inventory accounts: Raw and In-Process Inventory and

Finished Goods Inventory. On March 1, 2018, the account balances were Raw and In-Process Inventory, \(9,000; Finished Goods Inventory, \)1,700.

The standard cost of a jacket is \(40, composed of \)12 direct materials plus \(28 conversion costs. Data for March鈥檚 activities follow:

Number of jackets completed 15,000

Number of jackets sold (on account, for \)50 each) 14,600

Direct materials purchased (on account) \( 177,500

Conversion costs incurred \) 521,000

Requirements

1. What are the major features of a JIT production system such as that of Low Range?

PetSmart, Inc. is a large specialty pet retailer of services and solutions for the needs of pets. In addition to selling pet food and pet products, PetSmart also offers dog grooming services including bath, nail trim, teeth brushing, aromatherapy to reduce everyday stress, and nail polish and stickers. PetSmart even offers a Top Dog service that includes a premium shampoo, milk bath conditioner, scented cologne spritz, teeth brushing, and bandana or bow.

Assume PetSmart, Inc. expects to incur \(380,000 of indirect costs this year. The company allocates indirect costs based on the following activities:

___________________________________________________________________

Activity Estimated Allocation Base Estimated Quantity

Cost of Allocation

Base____

Admission \) 60,000 Number of admissions 20,000

Cleaning 240,000 Cleaning direct labor hours 100,000

Grooming 80,000 Grooming direct labor hours 4,000

Total indirect costs \( 380,000________________________________________

Requirements.

2. Assume a customer brought in Sophie, a beagle, for Top Dog service. PetSmart used the following resources:

_____________________________________________

Allocation Base Sophie, Beagle

Number of admissions 1

Cleaning direct labor hours 1

Grooming direct labor hours 0.5______

Determine the total cost of the Top Dog service for Sophie assuming the total direct materials cost was \)3.50 and the total direct labor cost was $12 per DLHr.
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