Managerial Accounting ACCT 2200

Accounting Information for Decisions. 3rd edition. Ingram, Albright, Balwin, Hill

Selected Homework problems and solutions.

CH.M5 E5-5 (p.M121) (see book for complete problem)

Auto Detail Company
Traditional: $175 per direct labor hour
Activity Based Cost:
$120.00 per direct labor hour
$ 345.00 per machine changeover
$ 100.00 per inspection

Per production run Vinyl striping Metallic striping

Direct labor hours 10 hours 8 hours
Batch size 180 Rolls 65 Rolls
# of inspections 0 inspections 3 inspections

A. Calculate overhead cost per roll to make in vinyl and metallic using the
traditional method.

*Vinyl*
10 Hours X $175.00/hour = $1750.00 total to make 180 rolls
$1750.00 divided by 180 rolls = $9.72 per roll of vinyl
*Metallic*
8 hours X $175.00/ hour = $1400.00 total to make 65 rolls
$1400.00 divided by 65 rolls = $21.54 per roll of metallic
B. Calculate overhead cost per roll to make vinyl and metallic using the activity
based cost method.

Vinyl Overhead Costs

Labor cost- 10 hours X $120.00= $1200.00
Setup $345.00
Inspections- 0 X 100.00 = $0.00
$1545.00
$1545.00 divided by 180 rolls = $8.58 cost per roll of vinyl

Metallic Overhead Costs

Labor cost- 8 hours X $120.00 = $960.00
Setup $345.00
Inspections – 3 X 100.00 = $300.00
$1605.00
$1605.00 divided by 65 rolls = $24.69 cost per roll of metallic
CH. M5 E5-6 (p.M121) (see book for complete problem)
Company uses 3 activity pools to assign costs to products. Each activity pool has
a unique cost driver to apply overhead costs to products.

Activity Cost Driver Est. Overhead Costs Est. Actvity Level

Materials handling # of Batches $60,000.00 500 batches
Machine Setup # of Setups $150,000.00 300 Setups
Machine Operations Machine Hrs. $500,000.00 4,000 machine hours

-Calculate the predetermined rate for each activity. Then classify each activity as
unit level, batch level, product level, or facility level.
*Predetermined overhead rate = Est. Overhead divided by activity level

*Materials Handling
POR= $60,000.00 divided by 500 batches
POR=120 Batch Level

*Machine Setup
POR= $150,000.00 divided by 300 setups
POR=500 Batch Level

*Machine Operations
POR= $500,000.00 divided by 4,000 machine hours
POR= 125 Unit Level

CH M5 E-5-16 (p.M121)
Gonzalez Manufacturing had the following activity during the 1st quarter this
year:
Actual Level of Activity
Activity Pool Cost/Activity Product A Product B Product C Product D
Machine setups $50.00/setup 500 setups 600 800 650
Inspection $15.00/inspection 3165 inspections 2155 780 3000
Receiving $100.00/receipt 420 Receipts 175 655 500
Factory $20/machine hr. 19,250 hours 14300 21500 15950
# of units 20,000 units 17500 25000 22500

*Determine the total overhead cost charged to each product for the quarter. Then,
calculate the overhead cost per unit.
-Product A
Machine setups $50.00 X 500 setups = 25,000.00
Inspections $15.00 X 3165 inspections = 47,475.00
Receiving $100.00 X 420 receipts = 42,000.00
Factory $20.00 X 19,250 hours = 385,000
Overhead Costs 499,475.00
$499,475.00 divided by 20,000 units = $24.97 per unit of product A
-Product B
Machine Setups $50.00 X 600 setups = 30,000.00
Inspections $15.00 X 2155 inspections = 32,325.00
Receiving $100.00 X 175 Receipts = 17,500.00
Factory $20.00 X 14300 hours = 286,000.00 _____
Overhead Costs 365,825.00
$365,825.00 divided by 17,500 units = $20.90 per unit of product B

-Product C
Machine Setups $50.00 X 800 setups = 40,000.00
Inspections $15.00 X 780 inspections = 11,700.00
Receiving $100 X 655 receipts = 65,500.00
Factory $20.00 X 21500 hours = 430,000.00
Overhead Costs 547,200.00
$547,200.00 divided by 25,000 units = $21.89 per unit of Product C

-Product D
Machine Setups $50.00 X 650 setups = 32,500.00
Inspections $15.00 X 3000 inspections = 45,000.00
Receiving $100.00 X 500 receipts = 50,000.00
Factory $20.00 X 15950 hours = 319,000.00
Overhead Costs 446,500.00
$446,500.00 divided by 22,500 units = $19.84 per unit of Product D