ACC2233 Hand-In Assignment 6v2
Problem One
PLANT-WIDE RATE AND ACTIVITY-BASED COSTING
The comptroller for Douglas Inc. has established the following activity cost pools and
cost drivers.
Budgeted
Overhead
Activity Cost Pool Cost Cost Driver Budgeted
Level for
Cost Driver Machine setups
Material handling
Waste control
Quality control
Other overhead costs Number of setups
160
Weight of material 50,000 kilograms
Weight of chemicals10,000 kilograms
Number of inspections 300
Machine hours
20,000 $200,000
100,000
50,000
75,000
200,000 Each order must be a minimum of 1,000 boxes of film chemicals.
The production requirements for each minimum order are as follows:
Machine setups
Material handling
Waste Control
Quality Control
Other Overhead Costs 5 setups
1,500 kilograms
200 kilograms
5 inspections
500 machine hours Required:
1 Calculate the overhead that should be assigned to each minimum order of film
chemicals using the above data.
2 Calculate the overhead that should be assigned to each minimum order of film
chemicals if Douglas decides to use a single predetermined overhead rate based on
machine hours. Problem Two
PLANT-WIDE RATE AND ACTIVITY-BASED COSTING
Hood Manufacturing Inc. has four categories of overhead. The expected overhead costs
for each of the categories for the next year are as follows: Maintenance
Material handling
Setups
Inspection Costs Cost Driver Expected
Activity $510,000
250,000
60,000
21,000 Machine hours
Material moves
Setups
Inspections 60,000
20,000
3,000
12,000 Currently, the company applies overhead using a predetermined overhead rate based
upon budgeted direct labour hours of 100,000.
The company has been asked to submit a bid on a proposed job. Usually bids are
based upon full manufacturing costs plus a percentage of 10 percent.
Estimates for the proposed job are as follows:
Direct materials
Direct labour
Number of direct labour hours
Number of material moves
Number of inspections
Number of setups
Number of machine hours $30,000
$24,000
8,000
100
120
24
4,000 Required:
1. If the company used activity-based cost drivers to assign overhead, calculate the bid
price of the proposed job.
2. If the company used direct labour hours as the cost driver, calculate the bid price of
the proposed job. Problem Three
NON-VALUE-ADDED COSTS, ACTIVITY COSTS, ACTIVITY COST REDUCTION
Bob Daly, vice president of Dwan Company (a producer of a variety of plastic products),
has been supervising the implementation of an ABC management system. One of Bob’s
objectives is to improve process efficiency by improving the activities that define the
processes. To illustrate the potential of the new system to the president, Bob has
decided to focus on two processes: production and customer service. Within each process, one activity will be selected for improvement: materials usage for
production and sustaining engineering for customer service (sustaining engineers are
responsible for redesigning products based on customer needs and feedback). Valueadded standards are identified for each activity (the level of efficiency so that no waste
exists). For materials usage, the value-added standard calls for six kilograms per unit of
output (although the plastic products differ in shape and function, their size—as
measured by weight—is uniform). The value-added standard is based on the elimination
of all waste due to defective moulds. The standard price of materials is $5 per kilogram.
For sustaining engineering, the standard is 58 percent of current practical activity
capacity. This standard is based on the fact that about 42 percent of the complaints
have to do with design features that could have been avoided or anticipated by the
company.
Current practical capacity (at the end of 2013) is defined by the following requirements:
6,000 engineering hours for each product group that has been on the market or in
development for five years or less and 2,400 hours per product group of more than five
years. Four product groups have less than five years’ experience, and 10 product
groups have more. Each of the 24 engineers is paid a salary of $60,000. Each engineer
can provide 2,000 hours of service per year. No other significant costs are incurred for
the engineering activity.
Actual materials usage for 2014 was 25 percent above the level called for by the Valueadded standard; engineering usage was 46,000 hours. A total of 80,000 units of output
were produced. Bob and the operational managers have selected some improvement
measures that promise to reduce non-value-added activity usage by 40 percent in 2015.
Selected actual results achieved for 2015 are as follows:
Units produced
80,000
Materials used
584,800
Engineering hours 35,400
The actual prices paid for materials and engineering hours are identical to the standard
or budgeted prices.
Required:
1. For 2014, calculate the non-value-added usage and costs for materials usage and
sustaining engineering.
2. Using the budgeted improvements, calculate the expected activity usage levels for
2015. Now, calculate the 2015 usage variances (the difference between the
expected and actual values), expressed in both physical and financial measures, for
materials and engineering. Comment on the company’s ability to achieve its targeted
reductions. In particular, discuss what measures the company must take to capture
any realized reductions in resource usage.
