Reference no: EM131465483

Assignment

1. Lehner Corporation has provided the following data from its activity-based costing accounting system:

Indirect factory wages	$526,000
Factory equipment depreciation	$344,000

Distribution of Resource Consumption across Activity Cost Pools:

Activity Cost Pools

	Customer Orders	Product Processing	Other	Total
Indirect factory wages	55%	20%	25%	100%
Factory equipment depreciation	40%	55%	5%	100%

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products.

How much indirect factory wages and factory equipment depreciation cost would NOT be assigned to products using the activity-based costing system?

$0
$344,000
$148,700
$526,000

2. Worley Company buys surgical supplies from a variety of manufacturers and then resells and delivers these supplies to hundreds of hospitals. Worley sets its prices for all hospitals by marking up its cost of goods sold to those hospitals by 8%. For example, if a hospital buys supplies from Worley that had cost Worley $100 to buy from manufacturers, Worley would charge the hospital $108 to purchase these supplies.

For years, Worley believed that the 8% markup covered its selling and administrative expenses and provided a reasonable profit. However, in the face of declining profits Worley decided to implement an activity-based costing system to help improve its understanding of customer profitability. The company broke its selling and administrative expenses into five activities as shown below:

Activity Cost Pool (Activity Measure)	Total Cost	Total Activity
Customer deliveries (Number of deliveries)	340,000	4,000  deliveries
Manual order processing (Number of manual orders)	304,000	4,000  orders
Electronic order processing (Number of electronic orders)	312,000	13,000  orders
Line item picking (Number of line items picked)	594,000	440,000  line items
Other organization-sustaining costs (None)	610,000
Total selling and administrative expenses	2,160,000

Total selling and administrative expenses $ 2,160,000

Worley gathered the data below for two of the many hospitals that it serves-University and Memorial (both hospitals purchased a total quantity of medical supplies that had cost Worley $38,000 to buy from its manufacturers):

	Activity
Activity Measure	University	Memorial
Number of deliveries	19	20
Number of manual orders	0	45
Number of electronic orders	11	0
Number of line items picked	190	230

Required:

1. Compute the total revenue that Worley would receive from University and Memorial.

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

3. Compute the total activity costs that would be assigned to University and Memorial.(Round your intermediate calculations and final answers to 2 decimal places.)

4. Compute Worley's customer margin for University and Memorial. (Hint: Do not overlook the $38,000 cost of goods sold that Worley incurred serving each hospital.)(Loss amount should be indicated with a minus sign. Round your intermediate calculations and final answers to 2 decimal places.)

3. SecuriCorp operates a fleet of armored cars that make scheduled pickups and 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 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	1,100,000
Vehicle operating expense	530,000
Vehicle depreciation	410,000
Customer representative salaries and expenses	440,000
Office expenses	300,000
Administrative expenses	600,000
Total cost	3,380,000

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

	Travel		Pickup 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	%

Required:

Complete the first stage allocations of costs to activity cost pools.

4. In activity-based costing, nonmanufacturing costs are not assigned to products.

True
False

5. Which of the following would probably be the most accurate measure of activity to use for allocating the costs associated with a factory's purchasing department?
Machine-hours
Direct labor-hours
Number of orders processed
Cost of materials purchased