Reference no: EM131722644

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