2 Example Problems CH 7 8

Submit Homew ork for Ch tad9000 kdlkffpbhmgaagb Advanced Manag
Question 1: Score 2.5/5
Your response Correct response

Exercise 7-1 Variable and Absorption Costing Unit Product Costs [LO1]
Exercise 7-1 Variable and Absorption Costing Unit Product Costs [LO1]
Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the
Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the
island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument
island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument
called a gamelan that is similar to a xylophone. The sounding bars are cast from brass and hand-
called a gamelan that is similar to a xylophone. The sounding bars are cast from brass and hand-
filed to attain just the right sound. The bars are then mounted on an intricately hand-carved wooden
filed to attain just the right sound. The bars are then mounted on an intricately hand-carved wooden
base. The gamelans are sold for 850 (thousand) rupiahs. (The currency in Indonesia is the rupiah,
base. The gamelans are sold for 850 (thousand) rupiahs. (The currency in Indonesia is the rupiah,
which is denoted by Rp.) Selected data for the company's operations last year follow (all currency
which is denoted by Rp.) Selected data for the company's operations last year follow (all currency
values are in thousands of rupiahs):
values are in thousands of rupiahs):
Units in beginning inventory 0

Units in beginning inventory 0
Units produced 340
Units produced 340
Units sold 295
Units sold 295
Units in ending inventory 45
Units in ending inventory 45
Variable costs per unit:
Variable costs per unit:
Direct materials Rp 260
Direct labor Rp 370
Direct labor Rp 370
Variable manufacturing overhead Rp 62
Variable manufacturing overhead Rp 62
Variable selling and administrative Rp 24
Variable selling and administrative Rp 24
Fixed costs:
Fixed costs:
Fixed manufacturing overhead Rp 52,000
Fixed manufacturing overhead Rp 52,000
Fixed selling and administrative Rp 39,000
Fixed selling and administrative Rp 39,000
Requirement 1:
Requirement 1:
Assume that the company uses absorption costing. Compute the unit product cost for one gamelan.
Assume that the company uses absorption costing. Compute the unit product cost for one gamelan.
(Omit the "Rp" sign in your response. Round your answer to the nearest whole number.)
(Omit the "Rp" sign in your response. Round your answer to the nearest whole number.)
Unit product
Rp 1105 (0%) Unit product cost Rp 845
cost
Total grade: 0.0×1/1 = 0%

Feedback:
Under absorption costing, all manufacturing costs (variable and fixed) are included in product
costs. (All currency values are in thousands of rupiah, denoted by Rp.)

Direct labor 370
Variable manufacturing overhead 62
Fixed manufacturing overhead
(Rp52,000 ÷ 340 units) 153

Absorption costing unit product cost Rp 845

Requirement 2: Requirement 2:
Assume that the company uses variable costing. Compute the unit product cost for one gamelan. Assume that the company uses variable costing. Compute the unit product cost for one gamelan.
(Omit the "Rp" sign in your response.) (Omit the "Rp" sign in your response.)
Unit product cost Rp 692 (100%) Unit product cost Rp 692
Feedback:
Under variable costing, only the variable manufacturing costs are included in product costs. (All
currency values are in thousands of rupiah, denoted by Rp.)

Direct labor 370
Variable costing unit product cost Rp 692
Note that selling and administrative expenses are not treated as product costs under either
absorption or variable costing. These expenses are always treated as period costs and are charged
against the current period's revenue.

Exercise 7-2 Variable Costing Income Statement; Explanation of Difference in Net Operating Exercise 7-2 Variable Costing Income Statement; Explanation of Difference in Net Operating
Income [LO2] Income [LO2]
Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the
island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument
called a gamelan that is similar to a xylophone. The sounding bars are cast from brass and hand- called a gamelan that is similar to a xylophone. The sounding bars are cast from brass and hand-
filed to attain just the right sound. The bars are then mounted on an intricately hand-carved wooden filed to attain just the right sound. The bars are then mounted on an intricately hand-carved wooden
base. The gamelans are sold for 850 (thousand) rupiahs. (The currency in Indonesia is the rupiah, base. The gamelans are sold for 850 (thousand) rupiahs. (The currency in Indonesia is the rupiah,
which is denoted by Rp.) Selected data for the company's operations last year follow (all currency which is denoted by Rp.) Selected data for the company's operations last year follow (all currency
values are in thousands of rupiahs): values are in thousands of rupiahs):
Units in beginning inventory 0 Units in beginning inventory 0

Units produced 250 Units produced 250
Units sold 225 Units sold 225
Units in ending inventory 25 Units in ending inventory 25
Variable costs per unit: Variable costs per unit:
Direct materials Rp 100 Direct materials Rp 100
Direct labor Rp 320 Direct labor Rp 320
Variable manufacturing overhead Rp 40 Variable manufacturing overhead Rp 40
Variable selling and administrative Rp 20 Variable selling and administrative Rp 20
Fixed costs: Fixed costs:
Fixed manufacturing overhead Rp 60,000 Fixed manufacturing overhead Rp 60,000
Fixed selling and administrative Rp 20,000 Fixed selling and administrative Rp 20,000
The absorption costing income statement prepared by the company's accountant for last year The absorption costing income statement prepared by the company's accountant for last year
appears below (all currency values are in thousands of rupiahs): appears below (all currency values are in thousands of rupiahs):
Sales Rp 191,250 Sales Rp 191,250

Cost of goods sold 157,500 Cost of goods sold 157,500
Gross margin 33,750 Gross margin 33,750
Selling and administrative expenses 24,500 Selling and administrative expenses 24,500
Net operating income Rp 9,250 Net operating income Rp 9,250
Determine how much of the ending inventory consists of fixed manufacturing overhead cost Determine how much of the ending inventory consists of fixed manufacturing overhead cost
deferred in inventory to the next period. (Omit the "Rp" sign in your response.) deferred in inventory to the next period. (Omit the "Rp" sign in your response.)
Fixed manufacturing Fixed manufacturing overhead Rp 6,000

Rp 60000 (0%)
overhead

Feedback:
25 units in ending inventory × Rp 240 per unit fixed manufacturing overhead per unit = Rp 6,000

Requirement 2:
Prepare an income statement for the year using the variable costing method. (Input all amounts as Requirement 2:
positive values. Omit the "Rp" sign in your response.) Prepare an income statement for the year using the variable costing method. (Input all amounts as
positive values. Omit the "Rp" sign in your response.)
Sales (7%) Rp 191250 (7%)

Variable expenses: Sales Rp 191250
Variable cost of goods sold (7%) Rp 103500 (7%) Variable expenses:
Variable selling and Variable selling and administrative
Rp 4,500
5000 (0%) 108500 (0%) expenses
administrative expenses (7%)
Variable cost of goods sold 103500 108,000
Contribution margin 82750 (0%) 83,250
Contribution margin
Fixed expenses:
Fixed expenses:
Fixed manufacturing
60000 (7%) Fixed manufacturing overhead 60000
overhead (7%) Fixed selling and administrative
Fixed selling and 20000 80000
20000 (7%) 80000 (7%) expenses
administrative expenses (7%) Net operating income 3,250
Rp
Net operating income (7%) Rp 2750 (0%)
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Total grade: 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 0.0×1/15 + 1.0×1/15 + 1.0×1/15 + 0.0×1/15 + 0.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 0.0×1/15 = 7% + 7% + 7% + 0% + 7% + 7% + 0% + 0% + 7% + 7% + 7% + 7% + 7% +
7% + 0%
Feedback:
Variable cost of goods sold (225 units sold × Rp460 per unit) Rp 103,500
Variable selling and administrative expenses (225 units × Rp20 per
Rp 4,500
unit)
Exercise 7-3 Reconciliation of Absorption and Variable Costing Net Operating Incomes
Exercise 7-3 Reconciliation of Absorption and Variable Costing Net Operating Incomes
[LO3]
[LO3]
Jorgansen Lighting, Inc., manufactures heavy-duty street lighting systems for municipalities. The
Jorgansen Lighting, Inc., manufactures heavy-duty street lighting systems for municipalities. The
company uses variable costing for internal management reports and absorption costing for external
company uses variable costing for internal management reports and absorption costing for external
reports to shareholders, creditors, and the government. The company has provided the following
reports to shareholders, creditors, and the government. The company has provided the following
data:
data:
Year 1 Year 2 Year 3
Inventories:
Inventories:
Beginning (units) 200 170 180
Beginning (units) 200 170 180
Ending (units) 170 180 220
Ending (units) 170 180 220
Variable costing net operating
$ 1,080,400 $ 1,032,400 $ 996,400 Variable costing net operating
income $ 1,080,400 $ 1,032,400 $ 996,400
income
The company's fixed manufacturing overhead per unit was constant at $560 for all three years.
The company's fixed manufacturing overhead per unit was constant at $560 for all three years.
Requirement 1:
Requirement 1:
Determine each year's absorption costing net operating income. (Omit the "$" sign in your
Determine each year's absorption costing net operating income. (Omit the "$" sign in your
response.)
response.)
Absorption costing net
$ 16800 (0%) $ 5600 (0%) $ 16800 (0%) Absorption costing net operating income $ 1,063,600 $ 1,038,000 $ 1,018,800
operating income
Total grade: 0.0×1/3 + 0.0×1/3 + 0.0×1/3 = 0% + 0% + 0%

Feedback:
Beginning inventories 200 170 180
Ending inventories 170 180 220
Change in inventories (30) 10 40
Fixed manufacturing overhead in beginning inventories
(@$560 per unit) $ 112,000 $ 95,200 $ 100,800
Fixed manufacturing overhead in ending inventories
(@$560 per unit) 95,200 100,800 123,200
Fixed manufacturing overhead deferred in (released
from) inventories (@$560 per unit) $ (16,800) $ 5,600 $ 22,400
Variable costing net operating income $ 1,080,400 $ 1,032,400 $ 996,400
Add (deduct) fixed manufacturing overhead cost
deferred in (released from) inventory under
absorption costing (16,800) 5,600 22,400
Absorption costing net operating income $ 1,063,600 $ 1,038,000 $ 1,018,800
Requirement 2:
In Year 4, the company's variable costing net operating income was $984,400 and its absorption
costing net operating income was $1,012,400.
(a) Did inventories increase or decrease during Year 4?
Your Answer:
Choice Selecte
d
Increase
Decreas
e
Feedback: Because absorption costing net operating income was greater than variable costing net operating
income in Year 4, inventories must have increased during the year.

(b) How much fixed manufacturing overhead cost was deferred or released from inventory during
(b) How much fixed manufacturing overhead cost was deferred or released from inventory during
Year 4? (Omit the "$" sign in your response.)
Year 4? (Omit the "$" sign in your response.)
Deferred (50%) fixed manufacturing overhead
$ 16800 (0%) Deferred fixed manufacturing overhead cost $ 28,000
cost
Total grade: 1.0×1/2 + 0.0×1/2 = 50% + 0%

Feedback:
Because inventories increased in year 4, fixed manufacturing overhead was deferred in inventories.
The amount of the deferral is the difference between the two net operating incomes, or $28,000 =
$1,012,400 – $984,400.
Question 4: Score 5/5

Exercise 7-5 Variable and Absorption Costing Unit Product Costs and Income Statements Exercise 7-5 Variable and Absorption Costing Unit Product Costs and Income Statements
[LO1, LO2] [LO1, LO2]
Lynch Company manufactures and sells a single product. The following costs were incurred during Lynch Company manufactures and sells a single product. The following costs were incurred during
the company's first year of operations: the company's first year of operations:

Manufacturing: Manufacturing:
Direct materials $ 6 Direct materials $ 6
Direct labor $ 9 Direct labor $ 9
Variable manufacturing overhead $ 3 Variable manufacturing overhead $ 3
Variable selling and administrative $ 4 Variable selling and administrative $ 4
Fixed costs per year: Fixed costs per year:
Fixed manufacturing overhead $ 300,000 Fixed manufacturing overhead $ 300,000
Fixed selling and administrative $ 190,000 Fixed selling and administrative $ 190,000
During the year, the company produced 25,000 units and sold 20,000 units. The selling price of the During the year, the company produced 25,000 units and sold 20,000 units. The selling price of the
company's product is $50 per unit. company's product is $50 per unit.
Assume that the company uses absorption costing: Assume that the company uses absorption costing:
(a) Compute the unit product cost. (Omit the "$" sign in your response.) (a) Compute the unit product cost. (Omit the "$" sign in your response.)
Unit product cost $ 30 (100%) Unit product cost $ 30
Feedback:
The unit product cost under absorption costing would be:
Direct materials $ 6
Direct labor 9
Total variable costs 18
Fixed manufacturing overhead ($300,000 ÷25,000
12
units)
Absorption costing unit product cost $ 30

(b) Prepare an income statement for the year.(Input all amounts as positive values. Omit the "$"
sign in your response.) (b) Prepare an income statement for the year.(Input all amounts as positive values. Omit the "$"
sign in your response.)
Sales (10%) $ 1000000 (10%)

Sales $ 1000000
Cost of goods sold (10%) 600000 (10%)
Cost of goods sold 600000
Gross profit (10%) 400000 (10%)
Gross profit 400000
Selling and administrative
270000 (10%) Selling and administrative expenses 270000
expenses (10%)
Net operating income $ 130000
Net operating income (10%) $ 130000 (10%)
Feedback:
The absorption costing income statement:
Sales (20,000 units × $50 per unit) = $1,000,000

Cost of goods sold (20,000 units × $30 per unit) = $600,000
Selling and administrative expenses = $270,000 *
*(20,000 units × $4 per unit) + $190,000 = $270,000.

Assume that the company uses variable costing: Assume that the company uses variable costing:
(a) Compute the unit product cost. (Omit the "$" sign in your response.) (a) Compute the unit product cost. (Omit the "$" sign in your response.)
Feedback:
The unit product cost under variable costing would be:
Direct labor 9
Variable costing unit product cost $ 18

(b) Prepare an income statement for the year. (Input all amounts as positive values. Omit the
"$" sign in your response.) (b) Prepare an income statement for the year. (Input all amounts as positive values. Omit the
"$" sign in your response.)
Sales (6%) $ 1000000 (6%)

Variable expenses: Sales $ 1000000
Variable cost of goods sold (6%) $ 360000 (6%) Variable expenses:
Variable selling and Variable cost of goods sold $ 360000
80000 (6%) 440000 (6%) Variable selling and administrative 80000 440000
administrative (6%)
Contribution margin 560000
Contribution margin (6%) 560000 (6%)
Fixed expenses:
Fixed expenses: Fixed manufacturing overhead 300000
Fixed manufacturing overhead (6%) 300000 (6%) Fixed selling and administrative
Fixed selling and administrative 190000 490000
190000 (6%) 490000 (6%) expense
expense (6%) Net operating income 70000
$
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Feedback:
The variable costing income statement:
Variable cost of goods sold (20,000 units × $18 per unit) = $360,000
Variable selling expense (20,000 units × $4 per unit) = $80,000

Exercise 7-7 Variable Costing Income Statement; Reconciliation [LO2, LO3] Exercise 7-7 Variable Costing Income Statement; Reconciliation [LO2, LO3]
Whitman Company has just completed its first year of operations. The company's absorption Whitman Company has just completed its first year of operations. The company's absorption
costing income statement for the year appears below: costing income statement for the year appears below:
Whitman Company Whitman Company
Income Statement Income Statement
Sales (35,000 units × $25 per unit) $ 875,000 Sales (35,000 units × $25 per unit) $ 875,000
Cost of goods sold (35,000 units × $16 per unit) 560,000 Cost of goods sold (35,000 units × $16 per unit) 560,000
Gross margin 315,000 Gross margin 315,000
Selling and administrative expenses 280,000 Selling and administrative expenses 280,000
Net operating income $ 35,000 Net operating income $ 35,000
The company's selling and administrative expenses consist of $210,000 per year in fixed expenses The company's selling and administrative expenses consist of $210,000 per year in fixed expenses
and $2 per unit sold in variable expenses. The $16 per unit product cost given above is computed and $2 per unit sold in variable expenses. The $16 per unit product cost given above is computed
as follows: as follows:
Direct labor 6 Direct labor 6
Variable manufacturing overhead 1 Variable manufacturing overhead 1
Fixed manufacturing overhead ($160,000 ÷ 40,000 units) 4 Fixed manufacturing overhead ($160,000 ÷ 40,000 units) 4
Absorption costing unit product cost $ 16 Absorption costing unit product cost $ 16
Redo the company's income statement in the contribution format using variable costing. (Input all Redo the company's income statement in the contribution format using variable costing. (Input all
amounts as positive values. Omit the "$" sign in your response.) amounts as positive values. Omit the "$" sign in your response.)
Sales (7%) $ 875000 (7%) Sales $ 875000

Variable expenses: Variable expenses:
Variable cost of goods Variable cost of goods sold $ 420,000
$ 490000 (0%) Variable selling and administrative
sold (7%) 70000 490,000
Variable selling and expenses
administrative 70000 (7%) 560000 (0%) Contribution margin 385,000
expenses (7%) Fixed expenses:
Contribution margin 315000 (0%) Fixed manufacturing overhead 160000
Fixed selling and administrative
Fixed expenses: 210000 370000
Fixed manufacturing expenses
160000 (7%) Net operating income $ 15,000
overhead (7%)
Fixed selling and
administrative 210000 (7%) 370000 (7%)
expenses (7%)
Net operating loss (0%) $ 55000 (0%)
Total grade: 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 0.0×1/15 + 1.0×1/15 + 1.0×1/15 + 0.0×1/15 + 0.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 0.0×1/15 + 0.0×1/15 = 7% + 7% + 7% + 0% + 7% + 7% + 0% + 0% + 7% + 7% + 7% + 7% + 7% +
0% + 0%
Feedback:
Variable cost of goods sold (35,000 units × $12 per unit*) = $420,000
Variable selling and administrative expenses (35,000 units × $2 per unit) =
$70,000
*Direct materials $ 5
Direct labor 6
Total variable manufacturing cost $ 12
Reconcile any difference between the net operating income on your variable costing income Reconcile any difference between the net operating income on your variable costing income
statement and the net operating income on the absorption costing income statement above. (Omit statement and the net operating income on the absorption costing income statement above. (Omit
the "$" sign in your response.) the "$" sign in your response.)
- Variable costing net operating income (loss) $ 15,000

Variable costing net operating income (loss) $ Add: Fixed manufacturing overhead cost deferred 20,000
55000 (0%)
Add (25%): Fixed manufacturing overhead cost deferred 80000 (0%) Absorption costing net operating income (loss) $ 35000
Absorption costing net operating income (loss) $ 35000 (25%)
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Total grade: 0.0×1/4 + 1.0×1/4 + 0.0×1/4 + 1.0×1/4 = 0% + 25% + 0% + 25%

Feedback:
Fixed manufacturing overhead cost deferred in inventory under absorption costing (5,000 units ×
$4 per unit in fixed manufacturing cost) = $20,000

Exercise 7-8 Variable Costing Unit Product Cost and Income Statement; Break-Even [LO1, Exercise 7-8 Variable Costing Unit Product Cost and Income Statement; Break-Even [LO1,
LO2] LO2]
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it
sells for $210. Data for last year's operations follow: sells for $210. Data for last year's operations follow:

Units produced 20,000 Units produced 20,000
Units sold 19,000 Units sold 19,000
Units in ending inventory 1,000 Units in ending inventory 1,000
Variable selling and administrative 10 Variable selling and administrative 10
Total variable cost per unit $ 160 Total variable cost per unit $ 160
Fixed selling and administrative 285,000 Fixed selling and administrative 285,000
Total fixed costs $ 985,000 Total fixed costs $ 985,000
Assume that the company uses variable costing. Compute the unit product cost for one barbecue Assume that the company uses variable costing. Compute the unit product cost for one barbecue
grill. (Omit the "$" sign in your response.) grill. (Omit the "$" sign in your response.)
Feedback:
Under variable costing, only the variable manufacturing costs are included in product costs.
Direct labor 80
Note that selling and administrative expenses are not treated as product costs; that is, they are not
included in the costs that are inventoried. These expenses are always treated as period costs.

Requirement 2:
Assume that the company uses variable costing. Prepare a contribution format income statement Requirement 2:
for the year. (Input all amounts as positive values. Omit the "$" sign in your response.) Assume that the company uses variable costing. Prepare a contribution format income statement
for the year. (Input all amounts as positive values. Omit the "$" sign in your response.)
Sales (6%) $ 3990000 (6%)
Variable expenses: Sales $ 3990000
Variable cost of goods Variable expenses:
$ 2850000 (6%)
sold (6%) Variable cost of goods sold $ 2850000
Variable selling and Variable selling and administrative
19010 (0%) 2869010 (0%) 190,000 3,040,000
administrative expenses (6%) expenses
Contribution margin (6%) 1120990 (0%) Contribution margin 950,000
Fixed expenses: Fixed expenses:
Fixed manufacturing Fixed manufacturing overhead 700000
700000 (6%) Fixed selling and administrative
overhead (6%) 285000 985000
Fixed selling and expenses
285000 (6%) 985000 (6%) Net operating loss 35,000
administrative expenses (6%) $
Total grade: 1.0×1/16 + 1.0×1/16 + 1.0×1/16 + 1.0×1/16 + 1.0×1/16 + 0.0×1/16 + 0.0×1/16 + 1.0×1/16 + 0.0×1/16 + 1.0×1/16 + 1.0×1/16 + 1.0×1/16 + 1.0×1/16 + 1.0×1/16 + 0.0×1/16 + 0.0×1/16 = 6% + 6% + 6% + 6% + 6% + 0% + 0% + 6% + 0% + 6% + 6% +
6% + 6% + 6% + 0% + 0%
Feedback:
Variable cost of goods sold (19,000 units × $150 per unit) = $2,850,000
Variable selling and administrative expenses (19,000 units ×
= $190,000
$10 per unit)

What is the company's break-even point in terms of the number of barbecue grills sold? What is the company's break-even point in terms of the number of barbecue grills sold?
Break-even point 18352 (0%) units Break-even point 19,700 units
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Feedback:
The break-even point in units sold can be computed using the contribution margin per unit as
follows:
Selling price per unit $ 210

Variable cost per unit 160
Contribution margin per unit $ 50

Exercise 7-9 Absorption Costing Unit Product Cost and Income Statement [LO1 , LO2] Exercise 7-9 Absorption Costing Unit Product Cost and Income Statement [LO1 , LO2]
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it
sells for $210. Data for last year's operations follow: sells for $210. Data for last year's operations follow:

Units produced 20,000 Units produced 20,000
Units sold 19,000 Units sold 19,000
Units in ending inventory 1,000 Units in ending inventory 1,000
Variable selling and administrative 10 Variable selling and administrative 10
Total variable cost per unit $ 160 Total variable cost per unit $ 160
Fixed selling and administrative 285,000 Fixed selling and administrative 285,000
Total fixed costs $ 985,000 Total fixed costs $ 985,000
Assume that the company uses absorption costing. Assume that the company uses absorption costing.
Compute the unit product cost for one barbecue grill. (Omit the "$" sign in your response.) Compute the unit product cost for one barbecue grill. (Omit the "$" sign in your response.)
Feedback:
Under absorption costing, all manufacturing costs (variable and fixed) are included in product
costs.
Direct labor 80
Fixed manufacturing overhead ($700,000 ÷
35
20,000 units)

Prepare an income statement. (Leave no cells blank - be certain to enter "0" wherever Prepare an income statement. (Leave no cells blank - be certain to enter "0" wherever
required. Input all amounts as positive values. Omit the "$" sign in your response.) required. Input all amounts as positive values. Omit the "$" sign in your response.)
Sales (10%) $ 3990000 (10%) Sales $ 3990000

Cost of goods sold (10%) 3515000 (10%) Cost of goods sold 3515000
Gross profit (10%) 475000 (10%) Gross profit 475000
Selling and administrative expenses (10%) 475000 (10%) Selling and administrative expenses 475000
Net operating loss (0%) $ 0 (10%) Net operating income $ 0
Total grade: 1.0×1/10 + 1.0×1/10 + 1.0×1/10 + 1.0×1/10 + 1.0×1/10 + 1.0×1/10 + 1.0×1/10 + 1.0×1/10 + 0.0×1/10 + 1.0×1/10 = 10% + 10% + 10% + 10% + 10% + 10% + 10% + 10% + 0% + 10%
Feedback:
Cost of goods sold (19,000 units × $185 per unit) = $3,515,000
Selling and administrative expenses ($285,000 + 19,000 units × $10 per unit) = $475,000
Exercise 8-1 ABC Cost Hierarchy [LO1] Exercise 8-1 ABC Cost Hierarchy [LO1]
Classify each of the activities as either a unit-level, batch-level, product-level, or organization Classify each of the activities as either a unit-level, batch-level, product-level, or organization
sustaining activity. sustaining activity.
a. Receive raw materials from suppliers. Batch-level (13%) a. Receive raw materials from suppliers. Batch-level
Organization- b. Manage parts inventories. Product-level
b. Manage parts inventories.
sustaining (0%) c. Do rough milling work on products. Unit-level
c. Do rough milling work on products. Batch-level (0%) Organization-
Product- d. Interview and process new employees in the personnel department. sustaining
d. Interview and process new employees in the personnel department.
level (0%) e. Design new products. Product-level
e. Design new products. Product-level (13%) Organization-
Organization- f. Perform periodic preventive maintenance on general-use equipment. sustaining
f. Perform periodic preventive maintenance on general-use equipment.
sustaining (13%) Organization-
g. Use the general factory building. Unit-level (0%) g. Use the general factory building. sustaining
h. Issue purchase orders for a job. Batch-level (13%) h. Issue purchase orders for a job. Batch-level
Total grade: 1.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 1.0×1/8 + 1.0×1/8 + 0.0×1/8 + 1.0×1/8 = 13% + 0% + 0% + 0% + 13% + 13% + 0% + 13%

Problem 7-11 Variable Costing Income Statement; Reconciliation [LO2, LO3]
During Heaton Company's first two years of operations, the company reported absorption costing Problem 7-11 Variable Costing Income Statement; Reconciliation [LO2, LO3]
net operating income as follows: During Heaton Company's first two years of operations, the company reported absorption costing
net operating income as follows:
Year 1 Year 2
Sales (@ $25 per unit) $ 1,000,000 $ 1,250,000 Year 1 Year 2
Cost of goods sold (@ $18 per unit) 720,000 900,000 Sales (@ $25 per unit) $ 1,000,000 $ 1,250,000
Gross margin 280,000 350,000 Cost of goods sold (@ $18 per unit) 720,000 900,000
Selling and administrative expenses* 210,000 230,000 Gross margin 280,000 350,000
Net operating income $ 70,000 $ 120,000 Selling and administrative expenses* 210,000 230,000
Net operating income $ 70,000 $ 120,000
*$2 per unit variable; $130,000 fixed each year.
The company's $18 unit product cost is computed as follows: *$2 per unit variable; $130,000 fixed each year.
The company's $18 unit product cost is computed as follows:
Direct labor 7 Direct materials $ 4
Variable manufacturing overhead 1 Direct labor 7
Fixed manufacturing overhead ($270,000 ÷ 45,000 Variable manufacturing overhead 1
6 Fixed manufacturing overhead ($270,000 ÷ 45,000
units) 6
Absorption costing unit product cost $ 18 units)
Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder
consists of depreciation charges on production equipment and buildings. Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder
Production and cost data for the two years are: consists of depreciation charges on production equipment and buildings.
Production and cost data for the two years are:
Year
Year 1 Year
2 Year 1
Units produced 45,000 45,000 2
Units sold 40,000 50,000 Units produced 45,000 45,000
Units sold 40,000 50,000
Requirement 1:
Prepare a variable costing contribution format income statement for each year. (Input all amounts Requirement 1:
as positive values. Omit the "$" sign in your response.) Prepare a variable costing contribution format income statement for each year. (Input all amounts
as positive values. Omit the "$" sign in your response.)
Year 1 Year 2
Sales (4%) $ 1000000 (4%) $ 1250000 (4%) Year 1 Year 2
Variable expenses: Sales $ 1000000 $ 1250000
Variable cost of goods sold (4%) 480000 (4%) 600000 (4%) Variable expenses:
Variable selling and administrative Variable cost of goods sold 480000 600000
80000 (4%) 100000 (4%) Variable selling and administrative
expenses (4%) 80000 100000
expenses
Total variable expenses 560000 (4%) 700000 (4%)
Total variable expenses 560000 700000
Contribution margin (4%) 440000 (4%) 550000 (4%) Contribution margin 440000 550000
Fixed expenses:
Fixed expenses:
Fixed manufacturing overhead (4%) 270000 (4%) 270000 (4%) Fixed manufacturing overhead 270000 270000
Fixed selling and administrative Fixed selling and administrative expenses 130000 130000
130000 (4%) 130000 (4%)
expenses (4%) 400000 400000
Total fixed expenses
Total fixed expenses 400000 (4%) 400000 (4%) Net Operating income $ 40000 $ 150000
Net Operating income (4%) $ 40000 (4%) $ 150000 (4%)
Feedback:
The unit product cost under the variable costing is computed as follows:
Direct labor 7
Year 1 Year 2
Variable cost of goods sold (@ $12 per unit) 480,000 600,000
Variable selling and administrative expenses (@ $2 per
80,000 100,000
unit)

Determine the absorption costing and variable costing net operating income figures for each year. Determine the absorption costing and variable costing net operating income figures for each year.
(Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.) (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)
Year 1 Year 2 Year 1 Year 2
Variable costing net operating income $ 40000 (17%) $ 150000 (17%) Variable costing net operating income $ 40000 $ 150000
Add/(deduct): Fixed manufacturing overhead Add/(deduct): Fixed manufacturing overhead deferred in
deferred in inventory under absorption costing 30000 (17%) 30000 (0%) inventory under absorption costing 30000 -30,000
Absorption costing net operating income $ 70000 (17%) $ 120000 (17%) Absorption costing net operating income $ 70000 $ 120000
P7_11_id5 P7_11_id5
P7_11_id8 P7_11_id8
P7_11_id16 P7_11_id16
P7_11_id19 P7_11_id19
Total grade: 1.0×1/6 + 1.0×1/6 + 1.0×1/6 + 0.0×1/6 + 1.0×1/6 + 1.0×1/6 = 17% + 17% + 17% + 0% + 17% + 17%
Feedback:
Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption
costing (5,000 units × $6 per unit in Year 1; 5,000 units × $6 per unit in Year 2)

Exercise 8-2 First-Stage Allocation [LO2] Exercise 8-2 First-Stage Allocation [LO2]
SecuriCorp operates a fleet of armored cars that make scheduled pickups and deliveries in the Los
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
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
cost pools: Travel, Pickup and Delivery, Customer Service, and Other. The activity measures are
for the Travel cost pool, number of pickups and deliveries for the Pickup and Delivery cost pool, and
miles for the Travel cost pool, number of pickups and deliveries for the Pickup and Delivery cost
number of customers for the Customer Service cost pool. The Other cost pool has no activity measure
pool, and number of customers for the Customer Service cost pool. The Other cost pool has no
because it is an organization-sustaining activity. The following costs will be assigned using the
activity measure because it is an organization-sustaining activity. The following costs will be
activity-based costing system:
assigned using the activity-based costing system:
Driver and guard wages $ 720,000
Vehicle operating expense 280,000 Driver and guard wages $ 720,000
Vehicle depreciation 120,000 Vehicle operating expense 280,000
Customer representative salaries and expenses 160,000
Vehicle depreciation 120,000
Office expenses 30,000
Administrative expenses 320,000 Customer representative salaries and expenses 160,000
Total cost $ 1,630,000 Office expenses 30,000
Administrative expenses 320,000
Total cost $ 1,630,000
The distribution of resource consumption across the activity cost pools is as follows:
Pickup and Customer
Travel Delivery Service Other Totals The distribution of resource consumption across the activity cost pools is as follows:
Driver and guard wages 50 % 35 % 10 % 5% 100 %
Pickup and Customer
Vehicle operating expense 70 % 5% 0% 25 % 100 %
Travel Delivery Service Other Totals
Vehicle depreciation 60 % 15 % 0% 25 % 100 %
Customer representative salaries Driver and guard wages 50 % 35 % 10 % 5% 100 %
and expenses 0% 0% 90 % 10 % 100 % Vehicle operating expense 70 % 5% 0% 25 % 100 %
Office expenses 0% 20 % 30 % 50 % 100 % Vehicle depreciation 60 % 15 % 0% 25 % 100 %
Administrative expenses 0% 5% 60 % 35 % 100 % Customer representative
salaries and expenses 0% 0% 90 % 10 % 100 %
Office expenses 0% 20 % 30 % 50 % 100 %
Required: Administrative expenses 0% 5% 60 % 35 % 100 %
Complete the first-stage allocations of costs to activity cost pools. (Leave no cells blank - be certain
to enter "0" wherever required. Omit the "$" sign in your response.)
Pickup and Customer Required:
Travel Delivery Service Other Totals Complete the first-stage allocations of costs to activity cost pools. (Leave no cells blank - be certain
Driver and guard wages $ 360000 (3%) $ 252000 (3%) $ 72000 (3%) $ 36000 (3%) $ 720000 (3%) to enter "0" wherever required. Omit the "$" sign in your response.)
Vehicle operating
196000 (3%) 14000 (3%) 0 (3%) 70000 (3%) 280000 (3%) Pickup and Customer
expense
Vehicle depreciation 72000 (3%) 18000 (3%) 0 (3%) 30000 (3%) 120000 (3%) Travel Delivery Service Other Totals
Customer representative Driver and guard wages $ 360000 $ 252000 $ 72000 $ 36000 $ 720000
salaries Vehicle operating expense 196000 14000 0 70000 280000
and expenses 0 (3%) 0 (3%) 144000 (3%) 16000 (3%) 160000 (3%) Vehicle depreciation 72000 18000 0 30000 120000
Office expenses 0 (3%) 6000 (3%) 9000 (3%) 15000 (3%) 30000 (3%) Customer representative salaries
Administrative expenses 0 (3%) 16000 (3%) 192000 (3%) 112000 (3%) 320000 (3%) and expenses 0 0 144000 16000 160000
Total cost $ 628000 (3%) $ 306000 (3%) $ 417000 (3%) $ 279000 (3%) $ 1630000 (3%) Office expenses 0 6000 9000 15000 30000
Administrative expenses 0 16000 192000 112000 320000
Total cost $ 628000 $ 306000 $ 417000 $ 279000 $ 1630000
Feedback:
Each entry in the table is derived by multiplying the total cost for the cost category by the percentage
taken from the table above that shows the distribution of resource consumption.

Exercise 8-3 Compute Activity Rates [LO3] Exercise 8-3 Compute Activity Rates [LO3]
Green Thumb Gardening is a small gardening service that uses activity-based costing to estimate Green Thumb Gardening is a small gardening service that uses activity-based costing to estimate
costs for pricing and other purposes. The proprietor of the company believes that costs are driven 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 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 customers, and the number of customers. In addition, the costs of maintaining garden beds depends
on whether the beds are low maintenance beds (mainly ordinary trees and shrubs) or high on whether the beds are low maintenance beds (mainly ordinary trees and shrubs) or high
maintenance beds (mainly flowers and exotic plants). Accordingly, the company uses the five maintenance beds (mainly flowers and exotic plants). Accordingly, the company uses the five
activity cost pools listed below: activity cost pools listed below:
Activity Cost Pool Activity Measure Activity Cost Pool Activity Measure
Caring for lawn Square feet of lawn Caring for lawn Square feet of lawn
Caring for garden beds–low maintenance Square feet of low maintenance beds Caring for garden beds–low maintenance Square feet of low maintenance beds
Caring for garden beds–high Caring for garden beds–high
Square feet of high maintenance beds Square feet of high maintenance beds
maintenance maintenance
Travel to jobs Miles Travel to jobs Miles
Customer billing and service Number of customers Customer billing and service Number of customers
The company has already completed its first stage allocations of costs and has summarized its The company has already completed its first stage allocations of costs and has summarized its
annual costs and activity as follows: annual costs and activity as follows:
Estimated Estimated
Overhead Overhead
Activity cost Pool Cost Expected Activity Activity cost Pool Cost Expected Activity
Caring for lawn $ 72,000 150,000 square feet of lawn Caring for lawn $ 72,000 150,000 square feet of lawn
Caring for garden beds–low Caring for garden beds–low
$ 26,400 20,000 square feet of low maintenance beds $ 26,400 20,000 square feet of low maintenance beds
maintenance maintenance
Caring for garden beds–high square feet of high maintenance Caring for garden beds–high square feet of high maintenance
$ 41,400 15,000 $ 41,400 15,000
maintenance beds maintenance beds
Travel to jobs $ 3,250 12,500 miles Travel to jobs $ 3,250 12,500 miles
Customer billing and service $ 8,750 25 customers Customer billing and service $ 8,750 25 customers
Required: Required:
Compute the activity rate for each of the activity cost pools. (Round your answers to 2 decimal Compute the activity rate for each of the activity cost pools. (Round your answers to 2 decimal
places. Omit the "$" sign in your response.) places. Omit the "$" sign in your response.)
Activity Cost Pool Activity Rate Activity Cost Pool Activity Rate
Caring for lawn $ .48 (20%) per square foot of lawn Caring for lawn $ .48 per square foot of lawn
per square foot of low maintenance per square foot of low maintenance
Caring for garden beds–low maintenance $ Caring for garden beds–low maintenance $
1.32 (20%) beds 1.32 beds
per square foot of high maintenance per square foot of high maintenance
Caring for garden beds–high maintenance $ Caring for garden beds–high maintenance $ 2.76 beds
2.76 (20%) beds
Travel to jobs $ .26 (20%) per mile Travel to jobs $ .26 per mile
Customer billing and service $ 350 (20%) per customer Customer billing and service $ 350 per customer
Feedback:
Estimated
Overhead
Activity Cost Pool cost Expected Activity Activity Rate
per square foot of
Caring for lawn $ 72,000 150,000 square feet of lawn $ 0.48
lawn
Caring for garden beds– $ 26,400 20,000 $ 1.32
square feet of low per square foot of low
low
maintenance beds maintenance beds
maintenance
Caring for garden beds– $ 41,400 15,000 $ 2.76 per square foot of
square feet of high
high high maintenance
maintenance beds
maintenance beds
Travel to jobs $ 3,250 12,500 miles $ 0.26 per miles
Customer billing and
$ 8,750 25 customers $ 350 per Customer
service
The activity rate for each activity cost pool is computed by dividing its estimated overhead cost by
its expected activity.
Exercise 8-5 Product and Customer Profitability Analysis [LO4, LO5]

Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The
Exercise 8-5 Product and Customer Profitability Analysis [LO4, LO5]
company has a standard paraglider model, but also makes custom-designed paragliders. Management
Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The company
has designed an activity-based costing system with the following activity cost pools and activity rates:
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
Activity Cost Pool Activity Rate Supporting direct labor $ 26 per direct labor-hour
Supporting direct labor $ 26 per direct labor-hour Order processing $ 284 per order
Order processing $ 284 per order Custom designing processing $ 186 per custom design
Custom designing processing $ 186 per custom design Customer service $ 379 per customer
Customer service $ 379 per customer
Management would like an analysis of the profitability of a particular customer, Big Sky Outfitters,
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:
which has ordered the following products over the last 12 months:
Standard Custom Standard Custom

Model Design Model Design
Number of gliders 20 3 Number of gliders 20 3
Number of orders 1 3 Number of orders 1 3
Number of custom designs 0 3 Number of custom designs 0 3
Direct labor-hours per glider 26.35 28.0 Direct labor-hours per glider 26.35 28.0
Selling price per glider $ 1,850 $ 2,400 Selling price per glider $ 1,850 $ 2,400
Direct materials cost per glider $ 564 $ 634
Direct materials cost per glider $ 564 $ 634
The company's direct labor rate is $19.50 per hour.

The company's direct labor rate is $19.50 per hour.
Required:
Using the company's activity-based costing system, compute the customer margin of Big Sky Required:
Outfitters. (Round your answers to the nearest dollar amount. Omit the "$" sign in your Using the company's activity-based costing system, compute the customer margin of Big Sky
response.) Outfitters. (Round your answers to the nearest dollar amount. Omit the "$" sign in your
response.)
Sales $ 44200 (11%)
Costs: 44200
Sales $
Direct materials $ 35742 (0%)
Costs:
Direct labor 11915 (11%)
Supporting direct Direct materials $ 13,182
15886 (11%) Direct labor 11915
labor
Order processing 1136 (11%) Supporting direct labor 15886
Custom designing 558 (11%) Order processing 1136
Customer service 379 (11%) 65616 (0%) Custom designing 558
- 43,056
Customer margin $ with a
21416 (0%) Customer service 379
tolerance
of ±0.5
1,144
Customer margin $ with a
tolerance
of ±0.5
Total grade: 1.0×1/9 + 0.0×1/9 + 1.0×1/9 + 1.0×1/9 + 1.0×1/9 + 1.0×1/9 + 1.0×1/9 + 0.0×1/9 + 0.0×1/9 = 11% + 0% + 11% + 11% + 11% + 11% + 11% + 0% + 0%
Feedback:
Sales ($1,850 per standard model glider × 20 standard model gliders + $2,400
per custom designed glider × 3 custom designed gliders) $ 44,200
Costs:
Direct materials ($564 per standard model glider × 20 standard model
gliders + $634 per custom designed glider × 3 custom designed gliders) $ 13,182
Direct labor ($19.50 per direct labor-hour × 26.35 direct labor-hours per
standard model glider × 20 standard model gliders + $19.50 per direct
labor-hour × 28 direct labor-hours per custom designed glider × 3 custom
designed gliders) 11,915
Supporting direct labor ($26 per direct labor-hour × 26.35 direct labor-hours
per standard model glider × 20 standard model gliders + $26 per direct
labor-hour × 28 direct labor-hours per custom designed glider × 3 custom
designed gliders) 15,886
Order processing ($284 per order × 4 orders) 1,136
Custom designing ($186 per custom design × 3 custom designs) 558
Customer service ($379 per customer × 1 customer) 379 43,056
Customer margin $ 1,144
Exercise 8-6 Activity Measures [LO1] Exercise 8-6 Activity Measures [LO1]
Various activities at Ming Corporation, a manufacturing company, are listed below. Each activity Various activities at Ming Corporation, a manufacturing company, are listed below. Each activity
has been classified as a unit-level, batch-level, product-level, or customer-level activity. Complete has been classified as a unit-level, batch-level, product-level, or customer-level activity. Complete
the table by providing an example of an activity measure for each activity. the table by providing an example of an activity measure for each activity.
Level of
Examples of Activity Measures Level of
Activity Activity Examples of Activity Measures
Number of units Activity Activity
a. Direct labor workers assemble a product Unit processed; machine- a. Direct labor workers assemble a product Unit Direct labor-hours
hours (0%) Number of new products
b.
Number of new products Products are designed by engineers Product designed; hours of
b. Products are designed by engineers Product designed; hours of design time
design time (14%) Number of setups; setup
c. Equipment is set up Batch hours
Number of setups; setup
c. Equipment is set up Batch Number of units
hours (14%)
Number of units d. Machines are used to shape and cut materials Unit processed; machine-
d. Machines are used to shape and cut materials Unit processed; machine- hours
hours (14%) Number of bills sent;
Number of bills sent;e. Monthly bills are sent out to regular customers Customer time spent preparing
e. Monthly bills are sent out to regular customers Customer time spent preparing bills
bills (14%) f. Number of loads
Materials are moved from the receiving dock to production lines Batch transferred; time spent
f. Materials are moved from the receiving dock to production lines Batch Number of loads
transferred; time spent moving materials
moving materials (14%) Number of units
Number of units g. All completed units are inspected for defects Unit inspected; Inspection
g. All completed units are inspected for defects Unit inspected; Inspection hours
hours (14%)
Total grade: 0.0×1/7 + 1.0×1/7 + 1.0×1/7 + 1.0×1/7 + 1.0×1/7 + 1.0×1/7 + 1.0×1/7 = 0% + 14% + 14% + 14% + 14% + 14% + 14%
Feedback:
1. In all cases except for direct labor in part (a), two activity measures are listed. The first is a
"transaction driver" and the second is a "duration driver." Transaction drivers are simple counts of
the number of times an activity occurs such as the number of times materials are moved. Duration
drivers are measures of the amount of time required to perform an activity such as the time spent
moving materials. In general, duration drivers are more accurate measures of the consumption of
resources than transaction drivers, but they take more effort to record.

Exercise 8-7 Computing ABC Product Costs [LO3, LO4] Exercise 8-7 Computing ABC Product Costs [LO3, LO4]
Fogerty Company makes two products, titanium Hubs and Sprockets. Data regarding the two Fogerty Company makes two products, titanium Hubs and Sprockets. Data regarding the two
products follow: products follow:
Direct Direct
Labor-Hours Annual Labor-Hours Annual
per Unit Production per Unit Production
Hubs 0.80 10,000 units Hubs 0.80 10,000 units
Sprockets 0.40 40,000 units Sprockets 0.40 40,000 units
Additional information about the company follows: Additional information about the company follows:
a. Hubs require $32 in direct materials per unit, and Sprockets require $18. a. Hubs require $32 in direct materials per unit, and Sprockets require $18.
b. The direct labor wage rate is $15 per hour. b. The direct labor wage rate is $15 per hour.
c. Hubs are more complex to manufacture than Sprockets and they require special processing. c. Hubs are more complex to manufacture than Sprockets and they require special processing.
d. The ABC system has the following activity cost pools: d. The ABC system has the following activity cost pools:
Estimated Activity Estimated Activity

Overhead Overhead
Activity Cost Pool Activity Measure Cost Hubs Sprockets Total Activity Cost Pool Activity Measure Cost Hubs Sprockets Total
Machine setups Number of setups $ 72,000 100 300 400 Machine setups Number of setups $ 72,000 100 300 400
Special processing Machine-hours $ 200,000 5,000 0 5,000 Special processing Machine-hours $ 200,000 5,000 0 5,000
General factory Direct labor-hours $ 816,000 8,000 16,000 24,000 General factory Direct labor-hours $ 816,000 8,000 16,000 24,000
Compute the activity rate for each activity cost pool. (Omit the "$" sign in your response.) Compute the activity rate for each activity cost pool. (Omit the "$" sign in your response.)
Activity Cost Pool Activity Rate Activity Cost Pool Activity Rate
Machine setups $ 180 (33%) per setup Machine setups $ 180 per setup
Special processing $ 40 (33%) per MH Special processing $ 40 per MH
General factory $ 34 (33%) per DLH General factory $ 34 per DLH
Feedback:
Activity rates are computed as follows:
(a)
Estimated (b)
Overhead Expected (a) ÷ (b)
Activity Cost Pool Cost Activity Activity Rate
Machine setups $ 72,000 400 setups $ 180 per setup
Special processing $ 200,000 5,000 MHs $ 40 per MH
General factory $ 816,000 24,000 DLHs $ 34 per DLH

Determine the unit cost of each product according to the ABC system, including direct materials Determine the unit cost of each product according to the ABC system, including direct materials
and direct labor. (Round your answers to 2 decimal places. Omit the "$" sign in your and direct labor. (Round your answers to 2 decimal places. Omit the "$" sign in your
response.) response.)
Hubs Sprockets Hubs Sprockets
Direct materials $ 32 (13%) $ 18 (13%) Direct materials $ 32 $ 18
Direct labor 15.8 (0%) 15.4 (0%) Direct labor 12 6
Overhead 49 (13%) 14.95 (13%) Overhead 49 14.95
Unit cost $ 96.80 (0%) $ 48.35 (0%) Unit cost $ 93 $ 38.95
Total grade: 1.0×1/8 + 1.0×1/8 + 0.0×1/8 + 0.0×1/8 + 1.0×1/8 + 1.0×1/8 + 0.0×1/8 + 0.0×1/8 = 13% + 13% + 0% + 0% + 13% + 13% + 0% + 0%
Feedback:
Overhead is assigned to the two products as follows:
Hubs:
(a) (b) (a) × (b)
Activity Cost Pool Activity Rate Activity ABC Cost
Machine setups $ 180 per setup 100 setups $ 18,000
Special processing $ 40 per MH 5,000 MHs 200,000
General factory $ 34 per DLH 8,000 DLHs 272,000
Total $ 490,000
Sprockets:
(a) (b) (a) × (b)
per
Machine setups $ 180 300 setups $ 54,000
setup
Special processing $ 40 per MH 0 MHs 0
per
General factory $ 34 16,000 DLHs 544,000
DLH
Total $ 598,000
Hubs Sprockets
Direct materials $ 32.00 $ 18.00
Direct labor:
$15 per DLH × 0.80 DLHs per
12.00
unit
$15 per DLH × 0.40 DLHs per 6.00
unit
Overhead:
$490,000 ÷ 10,000 units 49.00
$598,000 ÷ 40,000 units 14.95
Unit cost $ 93.00 $ 38.95
Exercise 8-8 Second-Stage Allocation to an Order [LO4]

Durban Metal Products, Ltd., of the Republic of South Africa makes specialty metal parts used in
Exercise 8-8 Second-Stage Allocation to an Order [LO4] applications ranging from the cutting edges of bulldozer blades to replacement parts for Land Rovers.
Durban Metal Products, Ltd., of the Republic of South Africa makes specialty metal parts used in The company uses an activity-based costing system for internal decision-making purposes. The
applications ranging from the cutting edges of bulldozer blades to replacement parts for Land Rovers. company has four activity cost pools as listed below:
The company uses an activity-based costing system for internal decision-making purposes. The
company has four activity cost pools as listed below: Activity Cost
Activity Measure Activity Rate
Activity Cost Pool
Activity Measure Activity Rate Number of direct labor- per direct labor-
Pool Order size R16.85
Number of direct labor- hours hour
Order size R16.85 per direct labor-hour Customer orders Number of customer orders R320.00 per customer order
hours
Customer orders Number of customer orders R320.00 per customer order Product testing Number of testing hours R89.00 per testing hour
Product testing Number of testing hours R89.00 per testing hour Selling Number of sales calls R1,090.00 per sales call
Selling Number of sales calls R1,090.00 per sales call
Note: The currency in South Africa is the Rand, denoted here by R.
Note: The currency in South Africa is the Rand, denoted here by R.
The managing director of the company would like information concerning the cost of a recently The managing director of the company would like information concerning the cost of a recently
completed order for heavy-duty trailer axles. The order required 200 direct labor-hours, 4 hours of completed order for heavy-duty trailer axles. The order required 200 direct labor-hours, 4 hours of
product testing, and 2 sales calls. product testing, and 2 sales calls.
Required: Required:
Determine the total overhead cost of the order for heavy-duty trailer axles according to the activity Determine the total overhead cost of the order for heavy-duty trailer axles according to the activity
based costing system. (Omit the "R" sign in your response.) based costing system. (Omit the "R" sign in your response.)
Activity Cost Pool ABC cost
ABC
Order size R 3370 (20%) Activity Cost Pool
cost
Customer orders 320 (20%)
Order size R 3370
Product testing 356 (20%)
Customer orders 320
Selling 2180 (20%)
Product testing 356
Total R 6226 (20%)
Selling 2180
Total R 6226
Feedback:
Activity Cost (a) (b) (a) × (b)
Pool Activity Rate Activity ABC Cost
Order size R 16.85 per direct labor-hour 200 direct labor-hours R 3,370
Customer orders R 320.00 per customer order 1 customer order 320
per product testing product testing
Product testing R 89.00 4 356
hour hours
Selling R 1,090.00 per sales call 2 sales calls 2,180
Total R 6,226
According to these calculations, the total overhead cost of the order is R 6,226

Exercise 8-11 Cost Hierarchy [LO1]
CD Express, Inc., provides CD duplicating services to software companies. The customer provides a Exercise 8-11 Cost Hierarchy [LO1]
master CD from which CD Express makes copies. An order from a customer can be for a single copy CD Express, Inc., provides CD duplicating services to software companies. The customer provides a
or for thousands of copies. Most jobs are broken down into batches to allow smaller jobs, with higher master CD from which CD Express makes copies. An order from a customer can be for a single copy
priorities, to have access to the machines. or for thousands of copies. Most jobs are broken down into batches to allow smaller jobs, with higher
priorities, to have access to the machines.
Required:
Classify each of the activities above as either a unit-level, batch-level, product-level, customer-level, Required:
or organization-sustaining activity. An order to duplicate a particular CD is a product-level activity. Classify each of the activities above as either a unit-level, batch-level, product-level, customer-level,
Assume the order is large enough that it must be broken down into batches. or organization-sustaining activity. An order to duplicate a particular CD is a product-level activity.
Activity Activity Level Assume the order is large enough that it must be broken down into batches.
a. Sales representatives' periodic visits to customers to keep them informed Customer-
about the services provided by CD Express. level (11%) Activity Activity Level
Batch- a. Sales representatives' periodic visits to customers to keep them informed Customer-
b. Ordering labels from the printer for a particular CD. about the services provided by CD Express. level
level (0%)
c. Setting up the CD duplicating machine to make copies from a particular Unit- b. Ordering labels from the printer for a particular CD. Product-level
master CD. level (0%) c. Setting up the CD duplicating machine to make copies from a particular
Batch- master CD. Batch-level
d. Loading the automatic labeling machine with labels for a particular CD. Batch-level
level (11%) d. Loading the automatic labeling machine with labels for a particular CD.
e. Visually inspecting CDs and placing them by hand into protective plastic e. Visually inspecting CDs and placing them by hand into protective plastic
cases prior to shipping. Unit-level (11%) cases prior to shipping. Unit-level
Customer- f. Preparation of the shipping documents for the order. Product-level
f. Preparation of the shipping documents for the order.
level (0%) Organization-
Unit- g. Periodic maintenance of equipment. sustaining
g. Periodic maintenance of equipment.
Unit- h. Lighting and heating the company's production facility. sustaining
h. Lighting and heating the company's production facility.
Organization- i. Preparation of quarterly financial reports. sustaining
i. Preparation of quarterly financial reports.
sustaining (11%)
Total grade: 1.0×1/9 + 0.0×1/9 + 0.0×1/9 + 1.0×1/9 + 1.0×1/9 + 0.0×1/9 + 0.0×1/9 + 0.0×1/9 + 1.0×1/9 = 11% + 0% + 0% + 11% + 11% + 0% + 0% + 0% + 11%
Feedback:
The cost of the labels themselves would be part of direct materials.
b. Ordering labels from the printer for a particular CD
d. Loading the automatic labeling machine with labels for a particular CD

Exercise 8-12 Second-Stage Allocations and Margin Calculations [LO4, LO5] Exercise 8-12 Second-Stage Allocations and Margin Calculations [LO4, LO5]
Foam Products, Inc., makes foam seat cushions for the automotive and aerospace industries. The Foam Products, Inc., makes foam seat cushions for the automotive and aerospace industries. The
company's activity-based costing system has four activity cost pools, which are listed below along company's activity-based costing system has four activity cost pools, which are listed below along
with their activity measures and activity rates: with their activity measures and activity rates:
Activity Cost Pool Activity Measure Activity Rate
Number of direct labor- per direct labor- Activity Cost Pool Activity Measure Activity Rate
Supporting direct labor $ 5.55 Supporting direct labor Number of direct labor- $ 5.55 per direct labor-
hours hour
Batch processing Number of batches $ 107.00 per batch hours hour
Order processing Number of orders $ 275.00 per order Batch processing Number of batches $ 107.00 per batch
Customer service Number of customers $ 2,463.00 per customer Order processing Number of orders $ 275.00 per order
Customer service Number of customers $ 2,463.00 per customer
The company just completed a single order from Interstate Trucking for 1,000 custom seat
cushions. The order was produced in two batches. Each seat cushion required 0.25 direct labor-hours.
The selling price was $20 per unit, the direct materials cost was $8.50 per unit, and the direct labor The company just completed a single order from Interstate Trucking for 1,000 custom seat
cost was $6.00 per unit. This was Interstate Trucking's only order during the year. cushions. The order was produced in two batches. Each seat cushion required 0.25 direct labor-hours.
The selling price was $20 per unit, the direct materials cost was $8.50 per unit, and the direct labor
Required: cost was $6.00 per unit. This was Interstate Trucking's only order during the year.
Prepare a report showing the customer margin on sales to Interstate Trucking for the year. (Enter all
amounts as postitive numbers. Round your answers to 2 decimal places. Omit the "$" sign in Required:
your response.) Prepare a report showing the customer margin on sales to Interstate Trucking for the year. (Enter all
amounts as postitive numbers. Round your answers to 2 decimal places. Omit the "$" sign in
Customer Margin—ABC Analysis your response.)
Sales $ 20000 (11%)
Costs: Customer Margin—ABC Analysis
Direct materials $ 8500 (11%) Sales $ 20000
Direct labor 6000 (11%) Costs:
Supporting direct 8500
1387.50 (11%) Direct materials $
labor 6000
Direct labor
Batch processing 214 (11%)
Supporting direct labor 1387.50
Order processing 275 (11%)
Batch processing 214
Customer service
2463 (11%) 18839.50 (11%) Order processing 275
overhead
Customer margin $ 1160.50 (11%) Customer service overhead 2463 18839.50
Customer margin $ 1160.50
Feedback:
Sales (1,000 seats × $20 per unit) = $20,000.00
Direct materials ($8.50 per unit × 1,000 seats) = $8,500.00
Direct labor ($6.00 per unit × 1,000 seats) = 6,000.00
Supporting direct labor ($5.55 per DLH × 0.25 DLH per unit × 1,000 seats) = 1,387.50
Batch processing ($107 per batch × 2 batches) = 214.00
Order processing ($274 per order × 1 order) = 275.00
Customer service overhead ($2,463 per customer × 1 customer) = 2,463.00

Exercise 8-13 Contrasting Traditional and ABC Product Costs [LO1, LO5] Exercise 8-13 Contrasting Traditional and ABC Product Costs [LO1, LO5]
Model X100 sells for $120 per unit whereas Model X200 offers advanced features and sells for Model X100 sells for $120 per unit whereas Model X200 offers advanced features and sells for
$500 per unit. Management expects to sell 50,000 units of Model X100 and 5,000 units of Model $500 per unit. Management expects to sell 50,000 units of Model X100 and 5,000 units of Model
X200 next year. The direct material cost per unit is $50 for Model X100 and $220 for Model X200. X200 next year. The direct material cost per unit is $50 for Model X100 and $220 for Model X200.
The company's total manufacturing overhead for the year is expected to be $1,995,000. A unit of The company's total manufacturing overhead for the year is expected to be $1,995,000. A unit of
Model X100 requires 2 direct labor-hours and a unit of Model X200 requires 5 direct labor-hours. Model X100 requires 2 direct labor-hours and a unit of Model X200 requires 5 direct labor-hours.
The direct labor wage rate is $20 per hour. The direct labor wage rate is $20 per hour.
(a) Calculate the predetermined overhead rate. (Round your answer to 2 decimal places. Omit (a) Calculate the predetermined overhead rate. (Round your answer to 2 decimal places. Omit
the "$" sign in your response.) the "$" sign in your response.)
Predetermined overhead Predetermined overhead rate $ 15.96
$ 36.27 (0%)
rate

Feedback:
Under the traditional direct labor-hour based costing system, manufacturing overhead is applied to
products using the predetermined overhead rate computed as follows:
*50,000 units of Model X100 @ 2.0 DLH per unit + 5,000 units of Model X200 @ 5.0 DLH per
unit = 100,000 DLHs + 25,000 DLHs = 125,000 DLHs

(b) Using this traditional approach, compute the product margins for X100 and X200. (Negative
(b) Using this traditional approach, compute the product margins for X100 and X200. (Negative
amount should be indicated by a minus sign. Omit the "$" sign in your response.)
amount should be indicated by a minus sign. Omit the "$" sign in your response.)
Model
Model X100 Model X200 Total Model X200 Total
- X100
Product -
$ $ 718650 (0%) $ 405150 (0%)
margin 313500 (0%) Product margin $ 96,000 $ 501,000 $ 405,000
Total grade: 0.0×1/3 + 0.0×1/3 + 0.0×1/3 = 0% + 0% + 0%

Feedback:
Consequently, the product margins using the traditional approach would be computed as follows:
Model
Model X100 Total
X200
Sales $ 6,000,000 $ 2,500,000 $ 8,500,000
Direct materials 2,500,000 1,100,000 3,600,000
Direct labor 2,000,000 500,000 2,500,000
Manufacturing overhead applied @ $15.96 per direct
1,596,000 399,000 1,995,000
labor-hour
Total manufacturing cost 6,096,000 1,999,000 8,095,000
Product margin $ (96,000) $ 501,000 $ 405,000
Note that all of the manufacturing overhead cost is applied to the products under the company's
traditional costing system.

Management is considering an activity-based costing system and would like to know what impact Management is considering an activity-based costing system and would like to know what impact
this would have on product costs. Preliminary analysis suggests that under activity-based costing, a this would have on product costs. Preliminary analysis suggests that under activity-based costing, a
total of $1,000,000 in manufacturing overhead cost would be assigned to Model X100 and a total total of $1,000,000 in manufacturing overhead cost would be assigned to Model X100 and a total
of $600,000 would be assigned to Model X200. In addition, a total of $150,000 in of $600,000 would be assigned to Model X200. In addition, a total of $150,000 in
nonmanufacturing overhead would be applied to Model X100 and a total of $350,000 would be nonmanufacturing overhead would be applied to Model X100 and a total of $350,000 would be
applied to Model X200. Using the activity-based costing approach, compute the product margins applied to Model X200. Using the activity-based costing approach, compute the product margins
for X100 and X200. (Negative amount should be indicated by a minus sign. Omit the "$" sign for X100 and X200. (Negative amount should be indicated by a minus sign. Omit the "$" sign
in your response.) in your response.)
Model X100 Model X200 Total Model
Model X100 Total
Product X200
$ -313500 (0%) $ 718650 (0%) $ 405150 (0%)
margin -
Product margin $ 350,000 $ 50,000 $ 300,000
Total grade: 0.0×1/3 + 0.0×1/3 + 0.0×1/3 = 0% + 0% + 0%

Feedback:
Under the activity-based costing system, the product margins would be computed as follows:
Model X100 Model X200 Total
Sales $ 6,000,000 $ 2,500,000 $ 8,500,000
Direct materials 2,500,000 1,100,000 3,600,000
Direct labor 2,000,000 500,000 2,500,000
Manufacturing overhead applied 1,000,000 600,000 1,600,000
Nonmanufacturing overhead
150,000 350,000 500,000
applied
Total cost 5,650,000 2,550,000 8,200,000
Product margin $ 350,000 $ (50,000) $ 300,000

Exercise 8-14 Comprehensive Activity-Based Costing Exercise [LO2, LO3, LO4, LO5] Exercise 8-14 Comprehensive Activity-Based Costing Exercise [LO2, LO3, LO4, LO5]
Advanced Products Corporation has supplied the following data from its activity-based costing Advanced Products Corporation has supplied the following data from its activity-based costing
system: system:
Overhead Costs Overhead Costs
Wages and salaries $ 300,000 Wages and salaries $ 300,000
Other overhead costs 100,000 Other overhead costs 100,000
Total overhead costs $ 400,000 Total overhead costs $ 400,000
Total Activity Total Activity

Activity Cost Pool Activity Measure for the year Activity Cost Pool Activity Measure for the year
Supporting direct labor Number of direct labor-hours 20,000 DLHs Supporting direct labor Number of direct labor-hours 20,000 DLHs
Order processing Number of customer orders 400 orders Order processing Number of customer orders 400 orders
Customer support Number of customers 200 customers Customer support Number of customers 200 customers
Other This is an organization- Not applicable Other This is an organization- Not applicable
sustaining activity sustaining activity

Distribution of Resource Consumption Across Activities Distribution of Resource Consumption Across Activities
Supporting Supporting
Direct Order Customer Direct Order Customer
Labor Processing Support Other Total Labor Processing Support Other Total
Wages and salaries 40% 30% 20% 10% 100% Wages and salaries 40% 30% 20% 10% 100%
Other overhead costs 30% 10% 20% 40% 100% Other overhead costs 30% 10% 20% 40% 100%
During the year, Advanced Products completed one order for a new customer, Shenzhen During the year, Advanced Products completed one order for a new customer, Shenzhen
Enterprises. This customer did not order any other products during the year. Data concerning that Enterprises. This customer did not order any other products during the year. Data concerning that
order follow: order follow:
Data concerning the Shenzhen Enterprises Order Data concerning the Shenzhen Enterprises Order
Units ordered 10 units Units ordered 10 units
Direct labor-hours 2 DLHs per unit Direct labor-hours 2 DLHs per unit
Selling price $ 300 per unit Selling price $ 300 per unit
Direct materials $ 180 per unit Direct materials $ 180 per unit
Direct labor $ 50 per unit Direct labor $ 50 per unit
Prepare a report showing the first-stage allocations of overhead costs to the activity cost pools. Prepare a report showing the first-stage allocations of overhead costs to the activity cost pools.
(Omit the "$" sign in your response.) (Omit the "$" sign in your response.)
Direct Labor Order Customer Direct
Support Processing Support Other Totals Labor Order Customer
Wages and salaries $ 120000 (7%) $ 90000 (7%) $ 60000 (7%) $ 30000 (7%) $ 300000 (7%) Support Processing Support Other Totals
Other overhead Wages and salaries $ 120000 $ 90000 $ 60000 $ 30000 $ 300000
30000 (7%) 10000 (7%) 20000 (7%) 40000 (7%) 100000 (7%) 30000 10000 20000 40000 100000
costs Other overhead costs
Total cost $ 150000 (7%) $ 100000 (7%) $ 80000 (7%) $ 70000 (7%) $ 400000 (7%) Total cost $ 150000 $ 100000 $ 80000 $ 70000 $ 400000

Compute the activity rates for the activity cost pools. (Round the direct labour support to 2 Compute the activity rates for the activity cost pools. (Round the direct labour support to 2
decimal places. Omit the "$" sign in your response.) decimal places. Omit the "$" sign in your response.)
Activity Cost Pools Activity Rate Activity Cost Pools Activity Rate
Supporting direct labor $ 7.5 (33%) per DLH Supporting direct labor $ 7.5 per DLH
Order processing $ 250 (33%) per order Order processing $ 250 per order
Customer support $ 400 (33%) per customer Customer support $ 400 per customer
Feedback:
Computation of activity rates:
(a) (b) (a) ÷ (b)
Activity Cost Pools Total Cost Total Activity Activity Rate
Supporting direct labor $ 150,000 20,000 DLHs $ 7.50 per DLH
Order processing $ 100,000 400 orders $ 250 per order
Customer support $ 80,000 200 customers $ 400 per customer

Determine the overhead costs for the order from Shenzhen Enterprises, including customer support Determine the overhead costs for the order from Shenzhen Enterprises, including customer support
costs. (Omit the "$" sign in your response.) costs. (Omit the "$" sign in your response.)
Activity Cost Pool ABC Cost ABC

Activity Cost Pool
Supporting direct labor $ 150 (25%) Cost
Supporting direct labor $ 150
Order processing 250 (25%)
Order processing 250
Customer support 400 (25%) 400
Customer support
Total $ 800 (25%) Total $ 800
Feedback:
Computation of the overhead costs for the Shenzhen Enterprises order:
(a) x (b)
(a) (b) ABC

Activity Cost Pool Activity Rate Activity Cost
Supporting direct labor $ 7.50 per DLH 20 DLHs* $ 150
Order processing 250 per order 1 order 250
Customer support $ 400 per customer 1 customer 400
Total $ 800
*2 DLHs per unit × 10 units = 20 DLHs

Prepare a report showing the customer margin for Shenzhen Enterprises. (Enter all amounts as Prepare a report showing the customer margin for Shenzhen Enterprises. (Enter all amounts as
postitive numbers. Omit the "$" sign in your response.) postitive numbers. Omit the "$" sign in your response.)
Customer Margin-ABC Analysis Customer Margin-ABC Analysis
Sales (7%) $ 3000 (7%) Sales $ 3000
Costs: Costs:
Direct materials (7%) $ 1800 (7%) Direct materials $ 1800
Direct labor (7%) 500 (7%) Direct labor 500
Supporting direct labor overhead (7%) 150 (7%) Supporting direct labor overhead 150
Order processing overhead (7%) 250 (7%) Order processing overhead 250
Other (0%) 400 (7%) 3100 (7%) Customer support overhead 400 3100
Customer margin Negative (7%) $ 100 (7%) Customer margin Negative $ 100
E8_14_id26 E8_14_id26
E8_14_id28 E8_14_id28
E8_14_id30 E8_14_id30
E8_14_id32 E8_14_id32
E8_14_id34 E8_14_id34
Total grade: 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 0.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 + 1.0×1/15 = 7% + 7% + 7% + 7% + 7% + 7% + 7% + 7% + 7% + 7% + 0% + 7% + 7% +
7% + 7%
Feedback:
Sales (10 units × $300 per unit) = $3,000
Direct materials ($180 per unit × 10 units) = $1,800
Direct labor ($50 per DLH × 10 DLH per unit) = $500

Exercise 8-15 Calculating and Interpreting Activity-Based Costing Data [LO3, LO4]
Hiram's Lakeside is a popular restaurant located on Lake Washington in Seattle. The owner of the Exercise 8-15 Calculating and Interpreting Activity-Based Costing Data [LO3, LO4]
restaurant has been trying to better understand costs at the restaurant and has hired a student intern Hiram's Lakeside is a popular restaurant located on Lake Washington in Seattle. The owner of the
to conduct an activity-based costing study. The intern, in consultation with the owner, identified restaurant has been trying to better understand costs at the restaurant and has hired a student intern
three major activities and then completed the first-stage allocations of costs to the activity cost to conduct an activity-based costing study. The intern, in consultation with the owner, identified
pools. The results appear below. three major activities and then completed the first-stage allocations of costs to the activity cost
pools. The results appear below.
Total
Activity Cost Pool Activity Measure Cost Total Activity Total
Serving a party of diners Number of parties served $ 33,000 6,000 parties Activity Cost Pool Activity Measure Cost Total Activity
Serving a diner Number of diners served $ 138,000 15,000 diners Serving a party of diners Number of parties served $ 33,000 6,000 parties
Serving drinks Number of drinks ordered $ 24,000 10,000 drinks Serving a diner Number of diners served $ 138,000 15,000 diners
Serving drinks Number of drinks ordered $ 24,000 10,000 drinks
The above costs include all of the costs of the restaurant except for organization-sustaining costs
such as rent, property taxes, and top-management salaries. The above costs include all of the costs of the restaurant except for organization-sustaining costs
A group of diners who ask to sit at the same table are counted as a party. Some costs, such as such as rent, property taxes, and top-management salaries.
the costs of cleaning linen, are the same whether one person is at a table or the table is full. Other A group of diners who ask to sit at the same table are counted as a party. Some costs, such as
costs, such as washing dishes, depend on the number of diners served. the costs of cleaning linen, are the same whether one person is at a table or the table is full. Other
costs, such as washing dishes, depend on the number of diners served.
Prior to the activity-based costing study, the owner knew very little about the costs of the
restaurant. She knew that the total cost for the month (including organization-sustaining costs) was Prior to the activity-based costing study, the owner knew very little about the costs of the
$240,000 and that 15,000 diners had been served. Therefore, the average cost per diner was $16. restaurant. She knew that the total cost for the month (including organization-sustaining costs) was
$240,000 and that 15,000 diners had been served. Therefore, the average cost per diner was $16.
Requirement 1:
According to the activity-based costing system, what is the total cost of serving each of the Requirement 1:
following parties of diners? (Round your answers to 1 decimal place. Omit the "$" sign in your According to the activity-based costing system, what is the total cost of serving each of the
response.) following parties of diners? (Round your answers to 1 decimal place. Omit the "$" sign in your
response.)
Activity Cost Pools Activity Rate
Serving parties $ 5.5 (17%) per party Activity Cost Pools Activity Rate
Serving parties $ 5.5 per party
Serving diners $ 9.2 (17%) per diner
Serving diners $ 9.2 per diner
Serving drinks $ 2.4 (17%) per drink 2.4 per drink
Serving drinks $
A party of four diners who order three drinks in

a. $ 49.5 (17%) a. A party of four diners who order three drinks in total. $ 49.5
total.
b. A party of two diners who do not order any drinks. $ 23.9
b. A party of two diners who do not order any drinks. $ 23.9 (17%) c. A lone diner who orders two drinks. $ 19.5
c. A lone diner who orders two drinks. $ 19.5 (17%)
Feedback:
1. The first step is to determine the activity rates:
Activity Cost Pools (a) (b) (a) ÷ (b)

Total Cost Total Activity Activity Rate
per
Serving parties $ 33,000 6,000 parties $ 5.50
party
per
Serving diners $138,000 15,000 diners $ 9.20
diner
per
Serving drinks $ 24,000 10,000 drinks $ 2.40
drink
According to the activity-based costing system, the cost of serving each of the parties can be
computed as follows:
a. Party of 4 persons who order a total of 3 drinks:

(a) (b) (a) × (b)
per
Serving parties $ 5.50 1 party $ 5.50
party
per
Serving diners $ 9.20 4 diners 36.80
diner
per
Serving drinks $ 2.40 3 drinks 7.20
drink
Total $ 49.50
b. Party of 2 persons who order no drinks:
(a) (b) (a) × (b)

Activity Cost Pool
Activity Rate Activity ABC Cost
per
party
per
diner
per
Serving drinks $ 2.40 0 drinks 0
drink
Total $ 23.90
c. Party of 1 person who orders 2 drinks:
(a) (b) (a) × (b)

Activity Cost Pool
Activity Rate Activity ABC Cost
per
party
per
diner
per
Serving drinks $ 2.40 2 drinks 4.80
drink
Total $ 19.50

Convert the total costs you computed in (1) above to costs per diner. In other words, what is the Convert the total costs you computed in (1) above to costs per diner. In other words, what is the
average cost per diner for serving each of the following parties? (Round your answers to 2 average cost per diner for serving each of the following parties? (Round your answers to 2
decimal places. Omit the "$" sign in your response.) decimal places. Omit the "$" sign in your response.)
A party of four diners who order three drinks in per a. A party of four diners who order three drinks in total. $ 12.38 per diner
a. $ 12.38 (33%)
total. diner b. A party of two diners who do not order any drinks. $ 11.95 per diner
A party of two diners who do not order any per c. A lone diner who orders two drinks. $ 19.5 per diner
b. $ 11.95 (33%)
drinks. diner
per
c. A lone diner who orders two drinks. $ 19.5 (33%)
diner
Feedback:
The average cost per diner for each party can be computed by dividing the total cost of the party by
the number of diners in the party as follows:
a. $49.50 ÷ 4 diners = $12.375 per diner
b. $23.90 ÷ 2 diners = $11.95 per diner
c. $19.50 ÷ 1 diner = $19.50 per diner
Requirement 3:
The activity-based costing system itself does not recognize all of the differences in diners' demands
on resources. State whether the statement is true or false.
Your Answer:
Choice Selected
True
False

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Question 1: Score 2.5/5

Your response Correct response

Units in beginning inventory 0

Total grade: 0.0×1/1 = 0%

Direct materials Rp 260

(Rp52,000 ÷ 340 units) 153

Your response Correct response

Direct materials Rp 260

Question 2: Score 2.93/5

Your response Correct response

Units in beginning inventory 0 Units in beginning inventory 0

Sales Rp 191,250 Sales Rp 191,250

Fixed manufacturing Fixed manufacturing overhead Rp 6,000

Total grade: 0.0×1/1 = 0%

Your response Correct response

Sales (7%) Rp 191250 (7%)

Your response Correct response

Total grade: 0.0×1/3 + 0.0×1/3 + 0.0×1/3 = 0% + 0% + 0%

Your response Correct response

Total grade: 1.0×1/2 + 0.0×1/2 = 50% + 0%

Question 4: Score 5/5

Your response Correct response

Variable costs per unit: Variable costs per unit:

Your response Correct response

Sales (10%) $ 1000000 (10%)

Sales (20,000 units × $50 per unit) = $1,000,000

Your response Correct response

Your response Correct response

Sales (6%) $ 1000000 (6%)

Question 5: Score 2.91/5

Your response Correct response

Sales (7%) $ 875000 (7%) Sales $ 875000

Your response Correct response

- Variable costing net operating income (loss) $ 15,000

Total grade: 0.0×1/4 + 1.0×1/4 + 0.0×1/4 + 1.0×1/4 = 0% + 25% + 0% + 25%

Question 6: Score 3.06/5

Your response Correct response

Units in beginning inventory 0 Units in beginning inventory 0

Your response Correct response

Your response Correct response

Selling price per unit $ 210

Question 7: Score 4.59/5

Your response Correct response

Units in beginning inventory 0 Units in beginning inventory 0

Your response Correct response

Sales (10%) $ 3990000 (10%) Sales $ 3990000

Question 8: Score 2.5/5

Your response Correct response

Your response Correct response

Your response Correct response

Question 10: Score 5/5

Your response Correct response

Question 11: Score 5/5

Your response Correct response

Question 12: Score 3.33/5

Your response Correct response