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Determine the total overhead cost
Course:- Accounting Basics
Reference No.:- EM131722644




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Question 1 - SecuriCorp operates a fleet of armored cars that make scheduled pickups ad deliveries in the Los Angeles area The company is implementing an activity-based costing system that has four activity cost pools: Travel, Pickup and Delivery, Customer Service, and Other. The activity measures are miles for the Travel cost pool, number of pickups and deliveries for the Pickup and Delivery cost pool, and the number of customers for the Customer Service cost pool. The Other cost pool has no activity measure because it is an organization-sustaining activity. The following costs will be assigned using the activity-based costing system:

Driver and guard wages

720000

Vehicle operating expense

280000

Vehicle depreciation

120000

Customer representative salaries and expenses

160000

Office expenses

30000

Administrative expenses

320000

Total cost

1630000

The distribution of resource consumption across the activity cost pools is as follows:


Travel

Pick up and Delivery

Customer Service

Other

Totals

Driver and guard wages

50%

35%

10%

5%

100%

Vehicle operating expense

70%

5%

0%

25%

100%

Vehicle depreciation

60%

15%

0%

25%

100%

Customer representative salaries and expenses

0%

0%

90%

10%

100%

Office expenses

0%

20%

30%

50%

100%

Administrative expenses

0%

5%

60%

35%

100%

Complete the first stage of costs to activity cost pools.

Question 2 - Green Thumb Gardening is a small gardening service that uses activity-based costing to eliminate costs for pricing and other purposes. The proprietor of the company believes that costs are driven primarily by the size of customer lawns, the size of customer garden beds, the distance to travel to customers, and the number of customers. In addition, the costs of maintaining garden beds depends on whether the beds are low maintance beds (mainly ordinary trees and shrubs) or high maintenance beds (mainly flowers and exotic plants). Accordingly, the company uses the five activity cost pools listed below:

Activity Cost Pool

Activity Measure

Caring for lawn

Square feet of lawn

Caring for garden beds-low maintenance

Square feet of low maintenance beds

Caring for garden beds-high maintenance

Square feet of high maintenance beds 

Travel to jobs

Miles

Customer billing and service

Number of customers

The company has already completed its first stage allocations of costs and has summarized its annual costs and activity as follows:

Activity Cost Pool

Estimated Overhead Cost

Expected Activity

Caring for lawn

$72,000

150,000 square feet of lawn

Caring for garden beds-low maintenance

$26,400

20,000 square feet of low mainteenance beds

Caring for garden beds-high maintenance

$41,400

15,000 square feet of high maintenance beds

Travel to jobs

$3,250

12,500 miles

Customer billing and service

$8,750

25 customers

Compute the activity rate for each of the activity cost pools. (Round your answers to 2 decimal places.)

Question 3 - Klumper Corporation is a diversified manufacturer of industrial goods. The company's activity-based costing system contains the following six activity cost pools and activity rates:

Activity Cost Pool

Activity Rates

Supporting direct labor

$6.00 per direct labor hour

Machine processing

$4.00 per machine-hour

Machine setups

$50.00 per setup

Production orders

$90.00 per order

Shipments

$14.00 per shpiment

Product sustaining

$840.00 per product

Activity data have been supplied for the following two products:


Total Expected Activity

K425

M67

Numbers of units produced per year

200

2000

Direct Labor-hours

80

500

Machine-hours

100

1500

Machine setups

1

4

Production Orders

1

4

Shipments

1

10

Product sustaining

1

1

Determine the total overhead cost that would be assigned to each of the products listed above in the activity-based costing system.

Question 4 - Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management has designed an activity-based costing system with the following activity cost pools and activity rates:

Activity Cost Pool

Activity Rate

Supporting direct labor

$26 per direct labor-hour

Order processing

$284 per order

Custom design processing

$186 per custom design

Customer service

$379 per customer

Management would like an analysis of the profitability of a particular customer, Big Sky Outfitters, which has ordered the following products over the last 12 months:


Standard Model

Custom Design

Number of gliders

20

3

Number of orders

1

3

Number of custom designs

0

3

Direct labor-hours per glider

26.35

28

Selling price per glider

$1,850

2,400

Direct materials cost per glider

$564

$634

The company's direct labor rate is $19.50 per hour.

Using the company's activity-based costing system, compute the customer margin of Big Sky Outfitters, which has ordered the following products over the last 12 months:

Question 5 - The operations vice president of Security Home Bank has been interested in investigating the efficiency of the bank's operations. She has been particularly concerned about the cost of handling routine transactions at the bank and would like to compare these costs at the bank's various branches. If the branches with the most efficient operations can be identified, their methods can be studied and then replicated elsewhere. While the bank maintains meticulous records of wages and other costs, there has been no attempt thus far to show how those costs are related to the various services provided by the bank. The operations Vice President has asked your help in conducting an activity-based costing study of bank operations. In particular, she would like to know the cost of opening an account, the cost of processing deposits and withdrawals, and the cost of processing other customer transactions.

The westfield branch of security home bank has submitted the following cost data for last year:

Teller wages

$160,000

Assistant branch manager salary

$75,000

Branch manager salary

$80,000

Total

$315,000

Virtually all other costs of the branch - rent, depreciation, utilities, and so on - are organization-sustaining costs that cannot be meaningfully assigned to individual customer transactions such as depositing checks. In addition to the cost data above, the employees of the west field branch have been interviewed, concerning how their time was distributed last year across the activities included in the activity-based costing study. The results of those interviews appear below:

Distribution of Resource Consumption Across Activities


Opening Accounts

Processing Deposits and Withdrawals

Processing Other Customer Transactions

Other Activities

Totals

Teller Wages

5%

65%

20%

10%

100%

Assistant branch manager salary

15%

5%

30%

50%

100%

Branch manager salary

5%

0%

10%

85%

100%

Prepare the first-stage allocation fo the activity-based costing study.

The manager of the west field branch of Security Home Bank has provided the following data concerning the transactions of the branch during the past year:                         

Activity

Total Activity at the Westfield Branch

Opening Accounts

500 new accounts opened

Processing deposits and withdrawals

100,000 deposits and withdrawals processed

Processing other customer transactions

5,000 other customer transactions processed

Compute the activity rates for the activity-based costing system.

Question 6 - Smoky Mountain Corporation makes two types of hiking boots - Xtreme and the Pathfinder. Data concerning these two product lines appear below:


Xtreme

Pathfinder

Selling price per unit

$140.00

$99.00

Direct materials per unit

$72.00

$53.00

Direct labor per unit

$24.00

$12.00

Direct labor-hours per unit

2.0 DLHs

1.0 DLHs

Estimated annual production and sales

20,000 units

80,000 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

$1,980,000

Estimated total direct labor-hours

120,000 DLHs

1. Compute the product margins for the Xtreme and the Pathfinder products under the company's traditional costing system. (Round your intermediate calculations to 2 decimal places.)

The company iis considering replacing its traditional costing system with an activity-based costing system that would assignits manufacturing overhead to the following four activity cost pools (the Other cost pool includes organization-sustaining costs and idle capacity costs):

Activities and Activity Measures

Estimated Overhead Cost

Expected Activity

Xtreme

Pathfinder

Total

Supporting direct labor (direct labor-hours)

$783600

40000

80000

120000

Batch setups (setups)

495000

200

100

300

Product sustaining (number of products)

602400

1

1

2

Other

99000

NA

NA

NA

Total Manufacturing overhead cost

1980000




Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system.

Prepare a quantitative comparison of the traditional and activity-based cost assignments.

Question 7 - Mercer Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. There has been a long-simmering dispute between the accompany's esimator and the work supervisors.The on-site claim that the estimators do not adequately distinguish between routne work such as removal of asbestos insulation around heating pipes in older homes and non-routine work such as removing asbestos-contaminated ceiling plaster in industrial buildings. The on-site supervisors believe that non-routine work is far more expensive than routine work and should bear higher customer charges. The estimator sums up his position in this way:"My job is to measure the area to be cleared of asbestos. As directed by top management, I simply multiply the square footage by $2.50 to determine the bid price. Since our average cost is only $2.175 per square foot, that leaves enough cushion to taake care of the additional cost of non-routine work that shows up. Besides, it is difficult to know what is routine and what is not routine until you actually start tearing things apart."

To shed light on this controversy, the company initiated an activity-based costing study of all of its costs. Data from the activity-based costing system follow:

Activity Cost Pool

Activity Measure 

Total Activity

Removing asbestos 

Thousands of square feet

800,000 square feet

estimating and job setup

Number of jobs

500 jobs

Working on non-routine jobs

Number of non-routine jobs 

100 non-routine jobs

Note: The 100 non-routine jobs are included in the total of 500 jobs. Both non-routine jobs and routine jobs require estimating and setup.

Cost for the Year


Wages and salaries

300,000

Disposal fees

700,000

Equipment depreciation

90,000

On-site supplies

50,000

Office expenses

200,000

Licensing and Insurance

400,000

Total Cost

1,740,000

Distribution of resource consumption across activities


Removing Asbestos

Estimating and Job Setup

Working on Non-routine Jobs

Other

Total

Wages and salaries

50%

10%

30%

10%

100%

Disposal fees

60%

0%

40%

0%

100%

Equipment depreciation

40%

5%

20%

35%

100%

On-site supplies

60%

30%

10%

0%

100%

Office expenses

10%

35%

25%

30%

100%

Licensing and insurance

30%

0%

50%

20%

100%

1. Perform the first stage allocation of costs to the activity cost pools.

2. Compute the activity rates for the activity cost pools.

3. Using the activity rates you have computed, determine the total cost and the average cost per thousand square feet of each of the following jobs according to the activity-based costing system. (Round the "Average Cost per thousand square feet" to 2 decimal places.)

a. A routine 1000-square-foot asbestos removal job.

b. A routine 2,000-square-foot asbestos removal job.

Attachment:- Assignment File.rar




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