E5-22)

1. / a. / Quality-control costs assigned to the Satin Sheen line under the traditional system:
Quality-control costs / = / 14.5%  direct-labor cost
Quality-control
costs assigned to
Satin Sheen line / = / 14.5%  $27,500
= / $3,988 (rounded)
b. / Quality-control costs assigned to the Satin Sheen line under activity-based costing:
Quantity for / Assigned
Activity / Pool Rate / Satin Sheen / Cost
Incoming material inspection.. / $11.50 per type.. / 12 types... / $ 138
In-process inspection...... / .14 per unit.. / 17,500 units. / 2,450
Product certification...... / 77.00 per order. / 25 orders... / 1,925
Total quality-control costs assigned...... / $4,513
2. / The traditional product-costing system undercosts the Satin Sheen product line, with respect to quality-control costs, by $525 ($4,513 – $3,988).

P5-32)

1. Predetermined overhead rate = budgeted overhead ÷ budgeted direct-labor hours

= $800,000 ÷ 25,000* = $32 per direct labor hour

*25,000 budgeted direct-labor hours = (3,000 units of Standard)(3 hrs./unit) +

(4,000 units of Enhanced)(4 hrs./unit)

Standard / Enhanced
Direct material……………. / $ 25 / $ 40
Direct labor:
3 hours x $12………… / 36
4 hours x $12………… / 48
Manufacturing overhead:
3 hours x $32………… / 96
4 hours x $32………… / 128
Total cost…………………. / $157 / $216
  1. Activity-based overhead application rates:

Activity / Cost / Activity Cost Driver / Application
Rate
Order
processing / $150,000 / ÷ / 500 orders
processed (OP) / = / $300 per OP
Machine processing / 560,000 / ÷ / 40,000 machine
hrs. (MH) / = / $14 per MH
Product
inspection / 90,000 / ÷ / 10,000 inspection
hrs. (IH) / = / $9 per IH

Order processing, machine processing, and product inspection costs of a Standard unit and an Enhanced unit:

Activity / Standard / Enhanced
Order processing:
300 OP x $300……………... / $ 90,000
200 OP x $300……………... / $ 60,000
Machine processing:
18,000 MH x $14…………... / 252,000
22,000 MH x $14…………... / 308,000
Product inspection:
2,000 IH x $9……………….. / 18,000
8,000 IH x $9………………. / 72,000
Total / $360,000 / $440,000
Production volume (units) / 3,000 / 4,000
Cost per unit / $120* / $110**

* $360,000 ÷ 3,000 units = $120

** $440,000 ÷ 4,000 units = $110

The manufactured cost of a Standard unit is $181, and the manufactured cost of an Enhanced unit is $198:

Standard / Enhanced
Direct material………………………………. / $ 25 / $ 40
Direct labor:
3 hours x $12…………………………… / 36
4 hours x $12…………………………… / 48
Order processing, machine processing, and product inspection……………….. / 120 / 110
Total cost……………………………………. / $181 / $198

3.a.The Enhanced product is overcosted by the traditional product-costing system. The labor-hour application base resulted in a $216 unit cost; in contrast, the more accurate ABC approach yielded a lower unit cost of $198. The opposite situation occurs with the Standard product, which is undercosted by the traditional approach ($157 vs. $181 under ABC).

  1. Yes, especially since the company’s selling prices are based heavily on cost. An overcosted product will result in an inflated selling price, which could prove detrimental in a highly competitive marketplace. Customers will be turned off and will go elsewhere, which hurts profitability. With undercosted products, selling prices may be too low to adequately cover a product’s more accurate (higher) cost. This situation is also troublesome and will result in a lower income being reported for the company.

P5-38)

1.Unit cost calculation:

(a) / Overhead assigned to photographic plates:
Activity Cost
Pool /
Pool
Rate /
Level of
Cost Driver / Assigned Overhead Cost
Machine setups / $2,000 per setup /  / 3 setups / $ 6,000
Material handling / $2 per pound /  / 900 pounds / 1,800
Hazardous waste control / $5 per pound /  / 300 pounds / 1,500
Quality control / $75 per inspection /  / 3 inspections / 225
Other overhead costs / $10 per machine hour /  / 50 machine hours / 500
Total / $10,025
(b) / Unit cost per plate:
Direct material...... / $120.00
Direct labor...... / 40.00
Manufacturing overhead..... / 100.25
Total cost per plate...... / $260.25

2)

Unit Cost:
DM / $120
DL / $40
Manufacturing Overhead / $132.50
Total / $292.50

E6-27)

1)

Trend Analysis
Customer Related Cost Item / Year 1 / Year 2 / Year 3 / Year 4 / Year 5
Cost of Engineering Changes / 1.1 / 1.9 / 1.1 / 1.1 / 12.0
Special Packaging / 11.0% / 11.5% / 13.0% / 12.0% / 12.0%

2)

Conclusions:

The cost of engineering changes for customer number 614, which remained consistently low for four years, spiked to a very high level in year 5. Something unusual must have occurred in year 5, and this should be investigated by management.

Special packaging costs, although consistent across the five-year period, are quite high. This may be necessary, due to the special needs of customer number 614, but this consistently high cost should be investigated by management. There may be a way to cut this cost, possibly with the cooperation of the customer.

P6-33)

1. / If Kelifo Electric Vehicle Company (KEVCO) implements a "demand pull" production philosophy, both its planning and operating processes could experience the following effects.
Planning
  • Production planning will change from a centralized batch function process to a more decentralized activity. In some cases, production teams will be responsible for the entire production process of a product.

  • The method and timing of how the company prepares its production schedule (including capacity requirements) will change to parallel the "demand pull" approach as opposed to the "production push" approach.

  • The Purchasing Department will need to plan to have high-quality, reliable, and flexible suppliers who can quickly deliver orders of varying sizes as needed.

Operations
  • Change-over time (set-up time) will reduce lead times significantly.

  • A kanban-like system will have to be implemented. A triggering device such as a kanban card is necessary so that the department or cell knows when to begin production.

  • Greater employee participation will result from cell production team arrangements.

2. / Five benefits to KEVCO in changing to a "demand pull" production operating philosophy are as follows:
  • Less rework and fewer defective units because of cell-level accountability and control and product problem solving at the cell level.

  • A lower cash investment in inventory and plant space. Handling, storage, insurance, breakage, and obsolescence all will be lower.

  • More satisfied customers should result because of shorter lead times and higher quality.

  • Improved labor productivity as a result of rearranging the production process and the creation of manufacturing cell teams.

  • A reduction of the number of suppliers, leading to improved relationships and communication.

3. / Some of the behavioral effects of the proposed change at KEVCO on team participation in planning and production include the following:
  • Higher team morale and motivation, since each cell team is responsible for all cell production and will, therefore, have more control over their work and an increased sense of ownership.

  • Higher individual satisfaction, development, and motivation, as management will encourage participation, training, and input on how to improve the product and production process.

  • A possible resistance to change by those employees who may feel insecure or threatened by the change.

  • A sense of partnership with management in achieving the goals and objectives of the organization.

P6-35)

1.Activity-based management refers to the use of activity-based costing to improve operations and eliminate non-value-added costs. These costs arise from non-value-added activities—operations that are either (a) unnecessary and dispensable or (b) necessary but inefficient and improvable. Put simply, such activities can be eliminated without harming overall quality, performance, or perceived value.

2.Cost of non-value-added activities:

Warehousing: 550 moves x $40a…………………. / $22,000
Outgoing shipments: 250 shipments x $15b…… / 3,750
Total……………………………………………… / $25,750

aWarehousing: $360,000  9,000 inventory moves = $40 per move

bOutgoing shipments: $225,000  15,000 shipments = $15 per shipment

3.Extra inventory moves in the warehouse may be caused by books being shelved (i.e., stocked) incorrectly, poor planning for the arrival and subsequent placement/stocking of new titles, and other similar situations. Extra shipments would likely be the result of errors in order entry and order filling, goods lost in transit, or damaged merchandise being sent to customers.

4.As the following figures show, the elimination of non-value-added activities allows BookNet.Com to achieve the target-cost percentage for software only.

Activity / Cost-Driver
Quantity / % Books / % Software / Cost-Driver
Quantity: Books / Cost-Driver
Quantity: Software
Incoming receipts……. / 2,000 / 70% / 30% / 1,400 / 600
Warehousing…. / 9,000 / 80% / 20% / 6,650* / 1,800
Outgoing shipments… / 15,000 / 25% / 75% / 3,750 / 11,000**
* (9,000 moves x 80%) – 550
** (15,000 shipments x 75%) – 250
Books / Software
Incoming receipts:
1,400 purchase orders x $150*.... / $210,000
600 purchase orders x $150…………. / $ 90,000
Warehousing:
6,650 moves x $40……………………... / 266,000
1,800 moves x $40……………………... / 72,000
Outgoing shipments:
3,750 shipments x $15………………… / 56,250
11,000 shipments x $15………………. / 165,000
Total cost……………………………………. / $532,250 / $327,000
Cost as a percentage of sales:
$532,250  $3,900,000………………… / 13.65%
$327,000  $2,600,000………………… / 12.58%

Incoming receipts:

$300,000  2,000 purchase orders = $150 per purchase order

Additional cost cutting of $25,250 is needed for books to achieve the 13% target of $507,000 ($3,900,000 x 13%). Tools that the company might use include customer-profitability analysis, target costing, value engineering, kaizen costing, benchmarking, and reengineering.

E17-15)

Easton Pump Company
Inventory Calculations (units)
Finished Goods Inventory, January 1 / 2,000
Add: Units Produced / 20000
Less: Units Sold / 21,000
Finished Goods Inventory, December 31 / 1,000
1) Variable Costing:
Inventoriable Costs Under Variable Costing:
Direct Materials Used / $600,000
Direct Labor Incurred / $300,000
Variable Manufacturing Overhead / $420,000
Total / $1,320,000
Cost per Unit Produced / $66
Ending Inventory / $66,000
2) Absorption Costing:
Predetermined Fixed Overhead Rate / $21
Difference in Fixed OH Expensed Under Absorption & Variable Costing / $21,000

E17-19)

Absorption Costing:
Direct Materials Used / $340,000
Direct Labor / $160,000
Variable Manufacturing Overhead / $75,000
Fixed Manufacturing Overhead / $125,000
Variable Selling & Administrative Costs / $70,000
Fixed Selling & Administrative Costs / $37,000
Total / $807,000
Absorption Costing:
Direct Materials Used / $340,000
Direct Labor / $160,000
Variable Manufacturing Overhead / $75,000
Total / $575,000

P17-28)

1) Total cost:

Direct material (10,000 units x $12)…………... / $120,000
Direct labor……………………………………….. / 45,000
Variable manufacturing overhead……………. / 65,000
Fixed manufacturing overhead……………….. / 220,000
Variable selling and administrative costs (9,600 units x $8)…………………………….. / 76,800
Fixed selling and administrative costs……… / 118,000
Total……………………………………………. / $644,800

2) The cost of the year-end inventory of 400 units (10,000 units produced – 9,600 units sold) is computed as follows:

(1)
Absorption
Costing / (2)
Variable
Costing / (3)
Throughput
Costing
Direct material………………………….. / $120,000 / $120,000 / $120,000
Direct labor……………………………… / 45,000 / 45,000
Variable manufacturing overhead….. / 65,000 / 65,000
Fixed manufacturing overhead……… / 220,000
Total product cost………………… / $450,000 / $230,000 / $120,000
Cost per unit (total ÷ 10,000 units)… / $45 / $23 / $12
Year-end inventory (400 units x cost per unit)……………………………... / $18,000 / $9,200 / $4,800

3) The total costs would be allocated between the current period’s income statement and the year-end inventory on the balance sheet. Thus:

(1) Absorption costing: $644,800 - $18,000 = $626,800

(2) Variable costing: $644,800 - $9,200 = $635,600

(3) Throughput costing: $644,800 - $4,800 = $640,000

Alternatively, these amounts can be derived as follows:

Absorption
Costing / Variable
Costing / Throughput
Costing
Cost of goods sold:
9,600 units x $45………………………
9,600 units x $23………………………
9,600 units x $12……………………… / $432,000 / $220,800 / $115,200
Direct labor………………………………… / 45,000
Variable manufacturing overhead…….. / 65,000
Fixed manufacturing overhead………… / 220,000 / 220,000
Variable selling and administrative costs…………………………………….. / 76,800 / 76,800 / 76,800
Fixed selling and administrative costs.. / 118,000 / 118,000 / 118,000
Total……………………………………... / $626,800 / $635,600 / $640,000

d.Throughput-costing income statement:

Sales revenue (9,600 units x $72)……………….. / $691,200
Less: Cost of goods sold ………………………... / 115,200
Throughput……………………………………….. / $576,000
Less: Operating costs:
Direct labor …………………………………….. / $ 45,000
Variable manufacturing overhead …………. / 65,000
Fixed manufacturing overhead……………… / 220,000
Variable selling and administrative costs ... / 76,800
Fixed selling and administrative costs……. / 118,000
Total operating costs…………………….. / $524,800
Net income………………………………………….. / $51,200

E18-15)

1)
Academic Departments Using Services
Liberal Arts / Sciences
Provider of Service / Cost to Be Allocated / Proportion / Amount / Proportion / Amount
Library / $600,000 / 0.6 / $360,000 / 0.4 / $240,000
Computing Services / $240,000 / 0.3 / $72,000 / 0.5 / $120,000
Total / $840,000 / 0.9 / $432,000 / 0.9 / $360,000
2)
Academic Departments Using Services
Liberal Arts / Sciences
Provider of Service / Cost to Be Allocated / Proportion / Amount / Proportion / Amount
Library / $590,000 / 0.6 / $354,000 / 0.4 / $236,000
Computing Services / $280,000 / 0.3 / $84,000 / 0.5 / $140,000
Total / $870,000 / 0.9 / $438,000 / 0.9 / $376,000

P18-29)

Please see the attached excel sheet

P-18-31)