EXERCISE 6

ACC 213

1. Forliche Florist specializes in large floral bouquets for hotels and other commercial spaces. The
company has provided the following data concerning its annual overhead costs and its activity
based costing system:

Overhead costs:
Wages and salaries ................ P 80,000
Other expenses...................... 40,000
Total ....................................... P120,000

Distribution of resource consumption:

Activity Cost Pools
Making
Bouquets Delivery Other Total
Wages and salaries ...... 60% 30% 10% 100%
Other expenses............ 45% 25% 30% 100%

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining
costs.

The amount of activity for the year is as follows:

Activity Cost Pool Activity

Making bouquets......... 40,000 bouquets
Delivery ........................ 5,000 deliveries

a. What would be the total overhead cost per bouquet according to the activity based costing
system? In other words, what would be the overall activity rate for the making bouquets activity
cost pool? (Round to the nearest whole cent.)
b. What would be the total overhead cost per delivery according to the activity based costing
system? In other words, what would be the overall activity rate for the deliveries activity cost
pool? (Round to the nearest whole cent.)

2. Dietz Company uses an activity-based costing system with three activity cost pools. The
company has provided the following data concerning its costs and its activity based costing
system:

Costs:
Manufacturing overhead................................. P440,000
Selling and administrative expenses ............... 240,000
Total ................................................................. P680,000

Distribution of resource consumption:

Activity Cost Pools
Order Customer
Size Support Other Total
Manufacturing overhead........................... 55% 35% 10% 100%
Selling and administrative expenses ......... 30% 50% 20% 100%

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining
costs. You have been asked to complete the first-stage allocation of costs to the activity cost
pools.

a. How much cost, in total, would be allocated in the first-stage allocation to the Order Size activity
cost pool?
b. How much cost, in total, would be allocated in the first-stage allocation to the Customer Support
activity cost pool?
c. How much cost, in total, should NOT be allocated to orders and products in the second stage of
the allocation process if the activity-based costing system is used for internal decision-making?

3. The controller of Hendershot Company estimates the amount of materials handling overhead
cost that should be allocated to the company's two products using the data that are given
below:

Wall Mirrors Specialty Windows

Total expected units produced ....................... 6,000 3,000
Total expected material moves ....................... 500 100
Expected direct labor-hours per unit .............. 6 9

The total materials handling cost for the year is expected to be P6,123.60.

a. If the materials handling cost is allocated on the basis of direct labor-hours, how much of the
total materials handling cost would be allocated to the wall mirrors? (Round off your answer to
the nearest whole peso.)
b. If the materials handling cost is allocated on the basis of material moves, how much of the total
materials handling cost would be allocated to the specialty windows? (Round off your answer to
the nearest whole peso.)

4. Andris Corporation uses activity-based costing to determine product costs for external financial
reports. The company has provided the following data concerning its activity-based costing
system:
Activity Cost Pools(and Activity Measures) Estimated Overhead Cost
Machine related (machine-hours) ..................... P46,400
Batch setup (setups) ........................................... P434,000
General factory (direct labor-hours) .................. P226,500

Expected Activity
Activity Cost Pools Total Product X Product Y
Machine related ............. 4,000 3,000 1,000
Batch setup..................... 7,000 3,000 4,000
General factory ............... 15,000 7,000 8,000

a. The activity rate for the batch setup activity cost pool is closest to:
b. Assuming that actual activity turns out to be the same as expected activity, the total amount of
overhead cost allocated to Product X would be closest to:

5. Nissley Wedding Fantasy Company makes very elaborate wedding cakes to order. The owner of
the company has provided the following data concerning the activity rates in its activity-based
costing system:

Activity Cost Pools Activity Rate

Size-related ......................... P1.13 per guest
Complexity-related ............. P28.22 per tier
Order-related...................... P74.72 per order

The measure of activity for the size-related activity cost pool is the number of planned guests at
the wedding reception. The greater the number of guests, the larger the cake. The measure of
complexity is the number of tiers in the cake. The activity measure for the order-related cost pool
is the number of orders. (Each wedding involves one order.) The activity rates include the costs of
raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the
costs of purchased decorations such as miniature statues and wedding bells, which are accounted
for separately.
Data concerning two recent orders appear below:
 Tijerina Twersky
Wedding Wedding
Number of reception guests............................ 49 126
Number of tiers on the cake............................ 2 4
Cost of purchased decorations for cake .......... P28.60 P54.64

a. Assuming that all of the costs listed above are avoidable costs in the event that an order is turned
down, what amount would the company have to charge for the Tijerina wedding cake to just
break even?
b. Assuming that the company charges P465.39 for the Twersky wedding cake, what would be the
overall margin on the order?