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activity based costing

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Problem 17-1A
FireOut, Inc. manufactures steel cylinders and nozzles for two models of fire extinguishers: (1) a home fire extinguisher and (2) a commercial fire extinguisher. The home model is a high-volume (54,000 units), half-gallon cylinder that holds 2 1/2 pounds of multipurpose dry chemical at 480 PSI. The commercial model is a low-volume (10,200 units), two-gallon cylinder that holds 10 pounds of multi-purpose dry chemical at 390 PSI. Both products require 1.5 hours of direct labor for completion. Therefore, total annual direct labor hours are 96,300 or [1.5 hrs. x (54,000 + 10,200)]. Expected annual manufacturing overhead is $1,554,580. Thus, the predetermined overhead rate is $16.14 or ($1,554,580 ÷ 96,300) per direct labor hour. The direct materials cost per unit is $18.50 for the home model and $26.50 for the commercial model. The direct labor cost is $19 per unit for both the home and the commercial models.

The company’s managers identified six activity cost pools and related cost drivers and accumulated overhead by cost pool as follows.

Expected Use of
Drivers by Product
Activity Cost Pools
Cost Drivers
Estimated Overhead
Expected Use of
Cost Drivers
Home
Commercial
Receiving Pounds
$67,800
335,000
215,000
120,000
Forming Machine hours
147,000
35,000
27,000
8,000
Assembling Number of parts
411,500
217,000
165,000
52,000
Testing Number of tests
49,900
25,500
15,500
10,000
Painting Gallons
52,580
5,258
3,680
1,578
Packing and shipping Pounds
825,800
335,000
215,000
120,000
$1,554,580

Under traditional product costing, compute the total unit cost of each product. (Round answers to 2 decimal places, e.g. $12.25.)

Home Model
Commercial Model
Total unit cost
$
$

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Under ABC, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver). (Round overhead rate to 2 decimal places, e.g. $12.25.)

Activity Cost Pool
Estimated
Overhead
Expected
Use of Cost Drivers
Activity-Based
Overhead Rate
Receiving
$

Pounds
$
per pound
Forming

Machine hours
$
per machine hour
Assembling

Parts
$
per part
Testing

Tests
$
per test
Painting

Gallons
$
per gallon
Packing and shipping

Pounds
$
per pound
$

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Prepare a schedule assigning each activity’s overhead cost pool to each product based on the use of cost drivers. (Round overhead cost per unit to 2 decimal places, e.g. $12.25 and cost assigned to 0 decimal places, e.g. $2,500.)

Home Model
Commercial Model
Activity Cost Pool
Expected Use of
Drivers
Activity-Based
Overhead Rates
Cost Assigned
Expected Use of
Drivers
Activity-Based
Overhead Rates
Cost Assigned
Receiving

$
$

$
$
Forming

$
$

$
$
Assembling

$
$

$
$
Testing

$
$

$
$
Painting

$
$

$
$
Packing and shipping

$
$

$
$
Total costs assigned (a)
$
$
Units produced (b)

Overhead cost per unit [(a) ÷ (b)]
$
$

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Compute the total cost per unit for each product under ABC. (Round answer to 2 decimal places, e.g. $12.25.)

Home Model
Commercial Model
Total cost per unit
$
$

1

Timely Transport provides local delivery service for a number of downtown and suburban businesses.

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Timely Transport provides local delivery service for a number of downtown and suburban businesses. Delivery charges are based on distance and weight involved for each delivery: 30 cents per pound and 10 cents per mile. Also, there is a $30 handling fee per parcel.

a.

Develop an expression that summarizes delivery charges.

b.

Determine the delivery charge for transporting a 60-pound parcel 20 miles.

1

A production department’s output for the most recent month consisted of

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A production department’s output for the most recent month consisted of 12,500 units completed and transferred to the next stage of production and 12,500 units in ending goods in process inventory. The unit in ending goods in process inventory were 65% complete with respect to both direct material and conversion costs. There were 1,500 units in beginning goods in process inventory, and they were 85% complete with respect to both direct materials and conversion costs. Calculate the equivalent unit of production for the month, assuming the company uses weight average method.

Kindly help me in it.

2

The following were selected from among the transactions completed by Caldemeyer Co. during the current year. Caldemeyer Co. sells and installs home and business security systems.

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The following were selected from among the transactions completed by Caldemeyer Co. during the current year. Caldemeyer Co. sells and installs home and business security systems.
Jan. 3. Loaned $18,000 cash to Trina Gelhaus, receiving a 90-day, 8% note.
Feb. 10. Sold merchandise on account to Bradford & Co., $24,000. The cost of the merchandise sold was $14,400.
13. Sold merchandise on account to Dry Creek Co., $60,000. The cost of merchandise sold was $54,000.
Mar. 12. Accepted a 60-day, 7% note for $24,000 from Bradford & Co. on account.
14. Accepted a 60-day, 9% note for $60,000 from Dry Creek Co. on account.
Apr. 3. Received the interest due from Trina Gelhaus and a new 120-day, 9% note as a renewal of the loan of January 3. (Record both the debit and the credit to the notes receivable account.)
May 11. Received from Bradford & Co. the amount due on the note of March 12.
13. Dry Creek Co. dishonored its note dated March 14.

July 12. Received from Dry Creek Co. the amount owed on the dishonored note, plus interest for 60 days at 12% computed on the maturity value of the note.
Aug. 1. Received from Trina Gelhaus the amount due on her note of April 3.
Oct. 5. Sold merchandise on account to Halloran Co., $13,500, net/30. The cost of the merchandise sold was $8,100.
15. Received from Halloran Co. the amount of the invoice of October 5.
Journalize the entries to record the transactions. Refer to the Chart of Accounts for exact wording of account titles.

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Preprah Engineering Contractors incurred service salaries and wages of

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Preprah Engineering Contractors incurred service salaries and wages of $39,500 ($30,000 direct and $9,500 indirect) on an engineering project. The company applies overhead at a rate of 25% of direct labor.

The company uses Operating Overhead in place of Manufacturing Overhead and it uses Service Contracts in Process in place of Work in Process.

Record the entries to assign service salaries and wages and to apply overhead.

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Wayman Corporation reports the following amounts in its December 31, 2015, income statement.

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Wayman Corporation reports the following amounts in its December 31, 2015, income statement.

Sales revenue $ 397,000 Income tax expense $ 51,000
Interest expense 21,000 Cost of goods sold 131,000
Salaries expense 41,000 Advertising expense 31,000
Utilities expense 51,000

Required:
Prepare a multiple-step income statement.

Please help me in this question. I am almost stuck in it . I knew the Net income is 71,000.

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The Sanding Department of Richards Furniture Company has the following production and manufacturing cost data for March 2014, the first month of operation

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The Sanding Department of Richards Furniture Company has the following production and manufacturing cost data for March 2014, the first month of operation.

Production: 9,470 units finished and transferred out; 2,800 units started that are 100% complete as to materials and 20% complete as to conversion costs.

Manufacturing costs: Materials $33,129; labor $24,180; overhead $40,012.

Prepare a production cost report. (Round unit costs to 2 decimal places, e.g. 2.25.)

RICHARDS FURNITURE COMPANY
Sanding Department
Production Cost Report
For the Month Ended March 31, 2014

Equivalent Units

Quantities

Physical
Units

Materials

Conversion
Costs

Units to be accounted for

Work in process, March 1

Started into production

Total units

Units accounted for

Transferred out

Work in process, March 31

Total units

Costs

Materials

Conversion
Costs

Total

Unit costs

Total Costs

$

$

$

Equivalent units

Unit costs

$

$

$

Costs to be accounted for

Work in process, March 1

$

Started into production

Total costs

$

Cost Reconciliation Schedule

Costs accounted for

Transferred out

$

Work in process, March 31

Materials

$

Conversion costs

Total costs

$

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