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Chapter 19: Q2DC (page 1085)

Harris Systems has decided to adopt ABC. To remain competitive, Harris Systems鈥� management believes the company must produce the type of servers produced in Job B (from Decision Case 19-1) at a target cost of \(5,400. Harris Systems has just joined a B2B e-market site that management believes will enable the firm to cut direct materials costs by 10%.

Harris鈥檚 management also believes that a value engineering team can reduce assembly time.

Compute the assembling cost savings required per Job B-type server to meet the \)5,400 target cost.

Short Answer

Expert verified

The business entity is required to save an assembly cost of$620.

Step by step solution

01

Definition of Activity-Based Costing

The costing method under which the cost incurred in each activity is calculated and then allocated to each product or service depending upon the activity consumed by each product or service.

02

Calculation of assembling cost savings

Original cost per unit in JOB B:

Particular

Amount $

Direct material per unit ($30,00010)

$3,000

Direct labor ($12,00010)

$1,200

Shipment ($1,50010)

$150

Material handling ($0.85脳2,00010)

$170

Machine set up ($500脳410)

$200

Assembling ($80脳20010)

$1,600

Total cost per server

$6,320

03

Calculation of cost-saving required

Particular

Amount $

Original cost

$6,320

Less: targeted cost

($5,400)

Less: Decline in direct material cost($30,00010脳0.10)

($300)

Cost-saving required

$620

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Most popular questions from this chapter

Bubba and Danny are college friends planning a skiing trip to Killington before the new year. They estimated the following for the trip:

Estimated Activity Allocation

Costs Allocation Base Bubba Danny

Food \( 400 Pounds of food eaten 24 26

Skiing 300 Number of lift tickets 2 0

Lodging 280 Number of nights 2 2

\) 980

Requirements

2. Danny does not like the idea of sharing the costs equally because he plans to stay in the room rather than ski. Danny suggests that each type of cost be allocated to each person based on the above-listed allocation bases. Using the activity allocation for each person, calculate the amount that each person would pay based on his own consumption of the activity.

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.

Eason Company manufactures wheel rims. The controller expects the following ABC allocation rates for 2018:

Activity Allocation Base Predetermined Overhead

Allocation Rate

Materials handling Number of parts $ 4.00 per part

Machine setup Number of setups 400.00 per setup

Insertion of parts Number of parts 26.00 per part

Finishing Number of finishing hours 90.00 per hour

Eason produces two wheel rim models: standard and deluxe. Expected data for 2018 are as follows:

Standard Deluxe

Parts per rim 4.0 7.0

Setups per 500 rims 18.0 18.0

Finishing hours per rim 1.0 5.5

Total direct hours per rim 5.0 6.0

The company expects to produce 500 units of each model during the year.

Requirements

3. Compute the estimated ABC indirect manufacturing cost per unit of each model for 2018. Carry each cost to the nearest cent.

How is the Conversion Costs account used in JIT costing?

Koehler (see Exercise E19-15) makes handheld calculators in two models鈥攂asic and professional鈥攁nd wants to refine its costing system by allocating overhead using departmental rates. The estimated \(721,000 of manufacturing overhead has been divided into two cost pools: Assembly Department and Packaging Department. The following data have been compiled:

Assembly Packaging

Department Department Total

Overhead costs \) 456,500 \( 264,500 \) 721,000

Machine hours:

Basic Model 185,000 MHr 45,000 MHr 230,000 MHr

Professional Model 230,000 MHr 55,000 MHr 285,000 MHr

Total 415,000 MH 100,000 MHr 515,000 MHr

Direct labor hours:

Basic Model 20,000 DLHr 50,000 DLHr 70,000 DLHr

Professional Model 105,125 DLHr 280,625 DLHr 385,750 DLHr

Total 125,125 DLHr 330,625 DLHr 455,750 DLHr

Compute the predetermined overhead allocation rates using machine hours as the allocation base for the Assembly Department and direct labor hours for the Packaging Department. How much overhead is allocated to the basic model? To the professional model? Round allocation rates to two decimal places and allocated costs to whole dollars.
See all solutions

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