No.

5-20 page 179-180

1.

Trophies
Direct Material
Forming 26,000
Assembly 5,200
Total 31,200
Direct Manufacturing labor
Forming 31,200
Assembly 15,600
Total 46,800
Total direct costs $78,000

Budgested = ($24,000+$20,772+$46,000+$21,920) =
Overhead rate

Trophies
Direct material 31,200
Direct labor 46,800
Total direct cost 78,000
Allocated overhead 55,544
Total costs 133,544

*Allocated overhead = Total direct × Budgete overhead rate (0.712114).

2. =
Budgeted overhead rate
forming Department Budgeted Forming Department direct manufacturing labor costs

= Budgeted Assembly Department overhead costs

budgeted overhead rate assembly
Dept. Budgeted Assembly Department direct costs
 budgeted overhead rate assembly
Dept.

$46,000+$21,920
($5,200+$18,750+$15,600+$21,000)

Trophies
Direct materials 31,200
Direct labor 46,800
Total direct cost 78,000
Allocated overhead
forming Dept. 28,392
Assembly Dept 23,332
Total costs $129,724

Trophies
Forming Dept.
Direct manufacturing labor costs $31,200
Allocated overhead
(0.91×$31,200; $18,000) $28,392
Assembly Dept.
Total direct costs
(5200+$15600; $18750+$21000) 20800
Allocated overhead
(1.121718×$20,800;$39,750) $11,666

3.
Forming Department

Budgete setup rate 24000

156

Budgeted supervision rate 20772

49200

Assembly Department

Budgeted set up rate 46000

146

Budgeted supervision rate 21920

36600
 Trophies
Direct materials costs 31,200
Direct labor costs 46,800
Total direct costs 78,000
forming Dept. overhead
set up
$153.84615×4%;116 6,154
supervision
0.422195×$31,200;$18,000 13,172

Assembly Dept. overhead

set up
$315.06849×43;103 13,548
supervision
0.598907×$15,600;$21,000 9,343
Total costs $120,217

No. 5-21 page 179-180

1 Rates per unit cost driver

Activity
Machining

Set up

Inspection

Overhead cost per unit:

Machinig:$6×40,000;80,000
Set up:$1,250×60; $1,250×60
Inspection:$60×1,500; $60×750
Total manufacturing overhead costs
Divide by number of units
 Manufacturing overhead cost per unit

2. Mathematical
Manufacturing cost per unit
Direct materials
$240,000÷60,000 4.00
$480,000÷120,000
Direct manufacturing labor
$75,000÷$60,000 1.25
$150,000÷120,000
Manufacturing overhead (from
requirement 1) $ 6.75
Manufacturing cost per unit $ 12.00
 Plaques Total

22,500
18,750
41,250

18,000
21,000
39,000
$80,250 $158,250

$112,692 = $0.712114 per dollar of direct cost

$158,250 $158,250

Plaques Total
41,250 72,450
39,000 85,800
80,250 158,250
57,148 112,692
137,398 270,942

Budgete Forming Department Overhead Costs

irect manufacturing labor costs
$24,00+$20,772 = 44772 = $0.91 per forming depertment direct manufacturing.-lab
$31,200+18,000 49200

overhead costs
nt direct costs
 $46,000+$21,920 = 67920 = $1.121718
($5,200+$18,750+$15,600+$21,000) 60550

Plaques Total
41,250 72,450
39,000 85,800
80,250 158,250

16,380 44,772
44,588 67,920
$141,218 $270,942

Plaques Total

$18,000 $49,200

$16,380 $44,772

39750 60550

$22,294 $33,960

= 153.84615 per batch

= 0.422195 per direct-labor dollar

= 315.06849 per batch

= 0.598907 per direct manuf.-labor dollar

Plaques Total
41,250 72,450
39,000 85,800
80,250 158,250

17,846 24,000

7,600 20,772

32,452 46,000

12,577 21,920
$150,725 $270,942

Cost Driver Rate

Machine-hours $720,000÷(40,000+80,000)
$ 6 per machine hour

Production runs $150,000÷(60+60)

$ 1,250 per production run

Inspection-hours $135,000÷(1,500+750)
$ 60 per inspection hour

Mathematical Financial
$240,000 $ 480,000
75000 75000
90000 45000
$405,000 $600,000
60,000 120,000
 $ 6.75 $ 5.00

Financial

4.00

1.25

$ 5.00
$ 10.25
r dollar of direct cost

ertment direct manufacturing.-labor dollar

per Assembly Department direct cost dollar
1. using the simple costing system, total overhead costs are equally allocated to projects.
there were 3 projects in 2017, so the overhead cost per project is

Overhead cost per project in 2017 = $4,011,780÷3=$1,337,260 per project

2. Rates per unit cost driver.

Activity cost Driver

design Design department hours

Engineering Engineering department hours

Construction labor-hours

Oberhead cost allocated to each project using department overhead cost rates:

Sanders
Design: $150×1,000; 5,000; 4,000 150000
Engineering:$80.65×2,000; 2,000; 2,200 161300
Construction: $32.50×20,800; 21,500; 19,600 676000
Total overhead costs $ 987,300.000

3.
Sanders
a. Department rates
(Requirement 2) $ 987,300.000
b. Plantwide rate
(Requirement 1) $ 1,337,260.000
Ratio of (a)÷(b) 0.74

Department Cost Driver

Design Design-hour
 Engineering Engineering-hour
Construction Lbor-hour

4.

If (1) one activity accounts for a significant portion of the department's costs, (2) significant costs are incurred on va
department, but each activity has a different cost driver, or (3) there is little variation among contracts in the consu
department, it would not be worthwhile to further refine the cost system into an ABC system. The more sophisticat
and be no more accurate than the department-based cost system, for instance, if the majority of activities inside th
actually driven by design-hours.

No. 5-23 page 181

1.
Total indirect costs = $75,000+$45,000+$18,000+$20,000+$19,50+$24,000 =

Total machine-hours = (400×10)+(200×10)=6,000

Indirect cost rate per machine-hour = $201,500÷6,000

= $33,583 per machine hour
Simple Costing System Standard Job
Cost of supplies per job $ 100.00
Direct labor cost per job $ 90.00
indirect cost allocated to each job
(10 machine hours × $33.583 per machine hour) 335.83
Total costs $ 525.83

2. Activity-based costing system

Quantity of cost Driver Consumed

during 2017(see column (1)

Activity 1 Cost Driver 2

Machine operation Machine hours

 (400jobs × 10 mach.
hrs. Per job; 200jobs
×10 mach. Hrs. Per job)
set ups (4×400;7×200) Setup hour

Purchase orders (given) No. Of purchase oders

Design
Marketing percentage of revenue

Administration Dir. labor costs

revenue from standard jobs, $600,000×400=$40,000; revenue from special jobs,$750×200=$150,000

Direct labor costs of stadard jobs, $90×400 jobs= $36,000; direct labor costs of special jobs, $100×200jobs=$20,000
Total Costs
Standard Job
Cost of supplies ($100×400; $125×200) 40000
Direct labor costs ($90×400; $100×200) 36000
Indirect Costs allocated:
Machine operations ($12.50 per mach.
Hr. ×4,000; 2,000) 50000
Setup ($15per setuo hour.×1,600; 1,400 24000
Purchase orders ($20 per order×400; 500) 8000
Dersign 4000
Marketing(0.05×$240,000; 0.05×$150,000 12000
Administration(0.42857×$36,000; $20,000 15428.57
Total costs 189428.57
Cost of each job ($189,429÷400; $133,071÷200) 473.57

3. Cost per job Standard job

Simple costing system $ 525.83
Activity-based Costing System $ 473.57
Difference (Simple - ABC) $ 52.26
Rate
$1,500,000÷(1,000+5,000+4,000)
150 per design hour
$500,030÷(2,000+2,000+2,200)
80.65 per engineering-hour
$2,011,750÷(20,800+21,500+19,600)
32.50 per labor-hour

Hanley Stanley
750000 600000
161300 177430
698750 637000
$ 1,610,050.000 $ 1,414,430.000

Hanley Stanley

$ 1,610,050.000 $ 1,414,430.000

$ 1,337,260.000 $ 1,337,260.000
1.20 1.06

Sanders Hanley Stanley

10% 50% 40%
 32 32 36
33 35 32

costs are incurred on various activities within a

ng contracts in the consumption of activities within a
em. The more sophisticated system would cost more
rity of activities inside the design department were

= $201,500

Special Job
$ 125.00
$ 100.00

335.83
$ 560.83

Allocated rate (6)=(5)÷(3)+(4), or given

Standard Job 3 Special Job 4 Total cost of activity given) 5

4000 2000 75000 12.50 per machine

 hour

1600 1400 45000 15.00 per set up

hour
400 500 18000 20.00 Per purchase
order
$20,000
240000 150000 19500 0.05 per dollar
sales
36000 20000 24000 0.42857 per dollar of
direct manuf.
labor cost

$100×200jobs=$20,000
Total Costs
Special Job
25000
20000

25000
21000
10000
16000
7500
8571.43
133071.43
665.36

Special job
$ 560.83
$ 665.36
-$ 104.53
 3. No 5-24 page 182

1. Simple Costing System:

Total indirect costs=$95,000+$45,000+$25,000+$60,000+$8,000+3%($125×3,200)+($200×1,800)=$255,800

Total machine-hour=$5,500+4,500=10,000
Indirect cost rate per machine-hour=$255,800÷10,000=$25.58 per machine-hour

Simple Costing System

Direct materials
Direct manufacturing labor
Indirect cost allocated to each job
($25,58×5,500; 4,500 machine Hours)
Total costs
Total cost per unit
($313,490÷3,200; $260,910÷1,800

a $30×3,200 units; $45×1,800 units

b $16×1.5×3,200 units; $16×2.25×1,800 units

2. Activity-based costing system

Activity
1
Product
schuduling
Material
handling
Machine setup
Assembly

Inspection
Marketing

c. 40+85=125;
d. 72+168=249;
e. 45+155=200;
f. 250+150=400

ABC System
Direct materials
Direct manufacturing labor
indirect costs allocated:
 productions scheduling ($760 per run×40; 85)
Material handling($187.50 per move×72; 168)
Machine setup($125 per setup×45; 155)
Assembly ($6per MH×5,500;4,500)
Inspection($20 per inspecton×250; 150)
Marketing (0.03×$125×3,200; 0.03×$200×1,800)
Total costs

Total costs per unit

($272,325÷3,200 units; $302,075÷1,800 units

3. Cost per unit

Simple Costing System
Activity-based Costing System
Different (simple - ABC)

The simple costing system overpriced interior doors and underpriced exterior doors in comparison to the ABC schem
2.5 machine hours per unit, while interior doors only need 1.72 machine hours per unit (5.500 hours x 3,200 units).
machine hours each type of door uses, the simple-costing technique divides overhead costs equally between interio
ABC investigation demonstrates that the ratio of 2.5 to 1.72 machine-hours for each outside comparison to each in
understated when compared to the cost of production runs, material moves, and setup for each exterior relative to
this larger ratio, external doors incur higher indirect expenses than interior doors in the ABC system.

4.

The information provided by the ABC system can be used by Decorative Doors Inc. to adjust its pricing in accordanc
The operating margin for decorative doors under the straightforward approach was 21.6% for interior doors ($125-
outside doors ($200-$144.95). But according to the ABC system, it actually makes an operational margin of around
and about 32% on each inner door ($125 - $85.10 - $125). In order to be more competitive, Decorative Doors, Inc. s
the cost of its interior doors. Depending on the level of competition in this sector, decorative doors should also thin
its outside doors.
The ABC data can also be used by decorative doors to enhance their own functions. It could look at each category o
determine whether it would be able to provide the same level of service while using fewer indirect resources, or it c
lower the cost per unit of some of those indirect resources. By implementing these operational upgrades, ornamen
expenses, boost their level of competition, and lower prices to expand their market share and boost profits.
0,000+$8,000+3%($125×3,200)+($200×1,800)=$255,800

000=$25.58 per machine-hour

Interior Exterior
96,000 81,000
76,800 64,800

$ 140,690 $ 115,110
$ 313,490 $ 260,910

$ 97.97 $ 144.95

Total cost of activity Cost Driver cost driver quantity Allocated rate
2 3 4 (5)=(2)÷(4)

95000 Production runs 125 760

Material moves
45000 240 187.50
25000 Machine setups 200 125.00
60000 Machine hour
10.000 $6.00
80000 Inspections 400 200
percentage of $0.03
revenues

Interior Exterior
96,000 81,000
76,800 64,800
 30400 64600
13500 31500
5625 19375
33000 27000
5000 3000
$ 12,000 $ 10,800
$ 272,325 $ 302,075

$ 85.10 $ 167.82

Interior Exterior
$ 97.97 $ 144.95
$ 85.10 $ 167.82
$ 12.86 -$ 22.87

s and underpriced exterior doors in comparison to the ABC scheme. Exterior doors require
ly need 1.72 machine hours per unit (5.500 hours x 3,200 units). According to the number of
costing technique divides overhead costs equally between interior and exterior doors. The
5 to 1.72 machine-hours for each outside comparison to each interior door is actually
tion runs, material moves, and setup for each exterior relative to each inside door. Due to
t expenses than interior doors in the ABC system.

e used by Decorative Doors Inc. to adjust its pricing in accordance with the ABC expenses.
he straightforward approach was 21.6% for interior doors ($125-$97.97) and 27.5% for
ABC system, it actually makes an operational margin of around 16% on each outside door
$125). In order to be more competitive, Decorative Doors, Inc. should think about lowering
el of competition in this sector, decorative doors should also think about raising the cost of

to enhance their own functions. It could look at each category of indirect costs and
same level of service while using fewer indirect resources, or it could figure out a way to
sources. By implementing these operational upgrades, ornamental doors can lower
er prices to expand their market share and boost profits.
located rate
(5)=(2)÷(4)
per production
run
per material
move
per setup
per machine
hour
per inspection
per dollar of
sales
 4. No. 5-31
1. Indirect costs = $10,000
Total professional labor-hours = 250 hours (150 hours on Campa Coal + 100 hour
Indirect cost allocated per professional labor-hour (revised) = $10,000 ÷ 250 = $40 per hour

2. Campa Coal St. Edith’s Glass Total

Direct costs:
Direct professional labor
$80 X 150; $80 X 100 12000 8000 20000
Research support labor 1800 3850 5650
Computer time 400 1600 2000
Travel and allowances 700 4200 4900
Telephones/faxes 250 1200 1450
Photocopying 300 700 1000
Total direct costs 15450 19550 35000
Indirect costs allocated
$40 X 150; $40 X 100 6000 4000 10000
Total costs to be billed 21450 23550 45000

Campa Coal St. Edith’s Glass Total

Problem 5-30 27000 18000 45000
Problem 5-31 21450 23550 45000

4. No. 5-32
1
Campa Coal St. Edith’s Glass Tota
Direct costs:
Partner professional labor
$100 × 50; $100 × 75 5000 7500 12500
Associate professional labor
$60 × 100; $60 × 25 6000 1500 7500
Research support labor 1800 1850 3650
Computer time 400 1600 2000
Travel and allowances 700 4200 4900
Telephones/faxes 250 1200 1450
Photocopying 300 700 1000
Total direct costs 14450 20550 35000
Indirect costs allocated:
Indirect costs for partners
$48 × 50; $48 × 75 2400 3600 6000
Indirect costs for associates
$32 × 100; $32 × 25 3200 800 4000
Total indirect costs 5600 4400 10000
Total costs to be billed 20050 24950 45000

Comparison Campa Coal St. Edith‘s Glass Total

Single direct cost/
Single indirect cost pool 27000 18000 45000
Multiple direct costs/
Single indirect cost pool 21450 23550 45000
Multiple direct costs/
Multiple indirect cost pools 20050 24950 45000

Campa Coal St. Edith‘s Glass

Partner professional labor 40.0% 60.0%
Associate professional labor 80.0% 20.0
Research support labor 31.9 68.1
Computer time 20.0 80.0
Travel and allowances 14.3 85.7
Telephones/faxes 17.2 82.8
Photocopying 30.0 70.0
urs on Campa Coal + 100 hours on St. Edith‘s Glass)
1. Identify the cost hierarchy level for each cost category.
Cost Cost Hierarchy Level
Direct materials—purses Output unit-level cost
Direct materials—backpacks Output unit-level cost
Direct labor—purses Output unit-level cost
Direct labor—backpacks Output unit-level cost
Setup Batch-level cost
Shipping Batch-level cost
Design Product-sustaining cost
Plant utilities and administration Facility-sustaining cost

2. Identify the most appropriate cost driver for each cost category. Explain briefly your choice of cost driver.
Cost Cost Driver Reason
Direct materials— purses Number of purses The cost is determined by the number of output.
Direct materials— backpacks Number of backpacks The cost is determined by the number of output.
Direct labor—purses Number of purses The cost is determined by the number of output.
Direct labor— backpacks Number of backpacks The cost is determined by the number of output.
Setup Number of batches The cost is determined by the number of batches.
Shipping Number of batches The cost is determined by the number of batches.
Design Number of designs The cost is determined by the number of designs.
Plant utilities and administration Hours of production The more the machines are used the higher the cost.

3. Calculate the budgeted cost per unit of cost driver for each cost category.
Cost Total quantity of cost driver cost driver rate
1) 2) 3) = 1) / 2)
Direct materials— purses $319,155 3,075 103.79 per purse
Direct materials— backpacks 454,995 6,175 73.68 per backpack
Direct labor— purses 99,000 3,075 32.20 per purse
Direct labor— backpacks 113,000 6,175 18.30 per backpack
Setup costs 64,000 200 320.00 per batch
Shipping costs 73,000 200 365.00 per batch
Design costs 169,000 4 42250.00 per design
Plant Util and Admin 221,000 4,250 52.00 per hour

4. Calculate the budgeted total costs and cost per

unit for each product line.
Backpacks Purses
Direct materials 454,995 $319,155
Direct labor 113,000 99,000
38,400
Setup
25,600
43,800
Shipping
29,200
 84,500
Design
84,500
86,580
Plant utilities and
administration 134,420
Total costs 821,275 691,875
133
Cost per backpack and
cost per purse 225
ost driver.

ber of output.
ber of output.
ber of output.
ber of output.
ber of batches.
ber of batches.
ber of designs.
e higher the cost.

ost driver rate

3) = 1) / 2)
er purse
er backpack
er purse
er backpack
er batch
er batch
er design
er hour