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Chapter 19: Q2RQ (page 1063)
How is the predetermined overhead allocation rate used to allocate overhead?
Estimated overhead costs are distributed among goods and services using the specified overhead rate.
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Bubba and Danny are college friends planning a skiing trip to Killington before the New Year. They estimated the following for the trip:
Estimated Activity Allocation
Costs Allocation Base Bubba Danny
Food \( 400 Pounds of food eaten 24 26
Skiing 300 Number of lift tickets 2 0
Lodging 280 Number of nights 2 2
\) 980
Requirements
1. Bubba suggests that the costs be shared equally. Calculate the amount each person would pay.
Jaunkas Corp. manufactures mid-fi and hi-fi stereo receivers. The following data have been summarized:
Mid-Fi Hi-Fi
Direct materials cost per unit \( 400 \) 1,800
Direct labor cost per unit 600 400
Indirect manufacturing cost per unit ? ?
Indirect manufacturing cost information includes the following:
Activity | Predetermined Overhead Allocation Rate | Mid-Fi | Hi-Fi |
Setup | \( 1,400 per setup | 36 setups | 36 setups |
Inspection | \) 700 per inspection hour | 35 inspection hours | 20 inspection hours |
Machine maintenance | $ 13 per machine hour | 1,900 machine hours | 1,150 machine hours |
The company plans to manufacture 125 units of the mid-fi receivers and 250 units of the hi-fi receivers. Calculate the product cost per unit for both products using activity-based costing.
PetSmart, Inc. is a large specialty pet retailer of services and solutions for the needs of pets. In addition to selling pet food and pet products, PetSmart also offers dog grooming services including bath, nail trim, teeth brushing, aromatherapy to reduce everyday stress, and nail polish and stickers. PetSmart even offers a Top Dog service that includes a premium shampoo, milk bath conditioner, scented cologne spritz, teeth brushing, and bandana or bow.
Assume PetSmart, Inc. expects to incur \(380,000 of indirect costs this year. The company allocates indirect costs based on the following activities:
___________________________________________________________________
Activity Estimated Allocation Base Estimated Quantity
Cost of Allocation
Base____
Admission \) 60,000 Number of admissions 20,000
Cleaning 240,000 Cleaning direct labor hours 100,000
Grooming 80,000 Grooming direct labor hours 4,000
Total indirect costs \( 380,000________________________________________
Requirements.
2. Assume a customer brought in Sophie, a beagle, for Top Dog service. PetSmart used the following resources:
_____________________________________________
Allocation Base Sophie, Beagle
Number of admissions 1
Cleaning direct labor hours 1
Grooming direct labor hours 0.5______
Determine the total cost of the Top Dog service for Sophie assuming the total direct materials cost was \)3.50 and the total direct labor cost was $12 per DLHr.
The Alright Manufacturing Company in Rochester, Minnesota, assembles and tests electronic components used in smartphones. Consider the following data regarding component T24 (amounts are per unit):
Direct materials cost \( 80.00
Direct labor cost 20.00
Activity-based costs allocated ?
Total manufacturing product cost ?
The activities required to build the component follow:
Activity Allocation Base Cost Allocated to Each Unit
Start station Number of raw component chassis 4 * \) 1.50 = \( 6.00
Dip insertion Number of dip insertions ? * 0.30 = 9.60
Manual insertion Number of manual insertions 10 * 0.50 = ?
Wave solder Number of components soldered 4 * 1.90 = 7.60
Backload Number of backload insertions 7 * ? = 4.20
Test Number of testing hours 0.43 * 90.00 = ?
Defect analysis Number of defect analysis hours 0.15 * ? = 12.00
Total activity-based costs \) ?
Requirements
2. Why might managers favor this ABC system instead of Alright’s older system, which allocated all manufacturing overhead costs on the basis of direct labor hours?
Koehler makes handheld calculators in two models: basic and professional. Koehler estimated $721,000 of manufacturing overhead and 515,000 machine hours for the year. The basic model actually consumed 230,000 machine hours, and the professional model consumed 285,000 machine hours.
Compute the predetermined overhead allocation rate using machine hours (MHr) as the allocation base. How much overhead is allocated to the basic model? To the professional model?
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