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Chapter 19: Q. 19-3SE (page 1064)
Activity-based costing requires four steps. List the four steps in the order they are performed.
The four steps in ABC are identifying activities, estimating their amount and allocation base, computing predetermined rate, and allocating overhead costs.
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Question:High Mountain produces fleece jackets. The company uses JIT costing for its JIT production system.
High Mountain has two inventory accounts: Raw and In-Process Inventory and
Finished Goods Inventory. On April 1, 2018, the account balances were Raw and In-Process Inventory, \(10,000; Finished Goods Inventory, \)2,100.
The standard cost of a jacket is \(33, composed of \)12 direct materials plus \(21
conversion costs. Data for April’s activities follow:
Number of jackets completed 19,000
Number of jackets sold (on account for \)50 each) 18,600
Direct materials purchased (on account) \( 220,500
Conversion costs incurred \) 500,000
Requirements
1. What are the major features of a JIT production system such as that of High Mountain?
2. Prepare summary journal entries for April. Underallocated or overallocated
conversion costs are adjusted to Cost of Goods Sold monthly.
3. Use a T-account to determine the April 30, 2018, balance of Raw and In-ProcessInventory.
Why are some quality costs hard to measure?
Rennie Plant Service completed a special landscaping job for Brenton Company. rennie uses ABC and has the following predetermined overhead allocation rates:
Activity Predetermined
Allocation Base Overhead Allocation Rate
Designing Number of designs \( 290 per design
Planting Number of plants \) 20 per plant
The Rennie job included \(1,500 in plants; \)800 in direct labor; one design; and 30 plants.
Requirements
2. If Brenton paid $3,690 for the job, what is the operating income or loss?
Turbo Champs Corp. uses activity-based costing to account for its motorcycle manufacturing process. Company managers have identified three supporting manufacturing activities: inspection, machine setup, and machine maintenance. The budgeted activity costs for 2018 and their allocation bases are as follows:
Activity Total Budgeted Cost Allocation Base
Inspections \( 5,700 Number of inspections
Machine setup 22,000 Number of setups
Machine maintenance 6,000 Finishing of machine hours
Total \) 33,700
Turbo Champs expects to produce 20 custom-built motorcycles for the year. The motorcycles are expected to require 100 inspections, 40 setups, and 100 machine hours.
Requirements
1. Compute the predetermined overhead allocation rate for each activity.
The Oakman Company (see Short Exercise S19-1) has refined its allocation system by separating manufacturing overhead costs into two cost pools—one for each department. The estimated costs for the Mixing Department, \(510,000, will be allocated based on direct labor hours, and the estimated direct labor hours for the year are 170,000. The estimated costs for the Packaging Department, \)300,000, will be allocated based on machine hours, and the estimated machine hours for the year are 40,000. In October, the company incurred 38,000 direct labor hours in the Mixing Department and 10,000 machine hours in the Packaging Department.
Requirements
2. Determine the total amount of overhead allocated in October.
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