Reference no: EM132224007

Objective

To understand and solidify introductory financial accounting course concepts and techniques

Description

Managerial Accounting focuses heavily on finding solutions to numerical problems. With that in mind, most units will include a number of problems. For each problem, you will need to provide more than a simple numerical response. Your solutions should thoroughly address the issue and present the findings in a meaningful format similar to those developed within the chapters and as part of the review exercises solutions. Part value may be assigned for incorrect responses.

Instructions

At the end of each chapter is a series of Unit Exercises. Students are to complete the exercises in Word (or some other compatible word processor) and submit.

Question 1
Speed Racer, Inc. makes jet skis and other personal watercrafts for sale through specialty sporting goods stores. The company has a standard jet-ski model, but also makes custom-designed models. Management has designed an activity-based costing system with the following activity cost pools and activity rates:

Activity Cost Pool	Activity Rates
Supporting manufacturing	$22 per direct labour-hours
Order processing	$212 per order
Customer design processing	$243 per custom design
Customer service	$307 per customer

Management would like an analysis of the profitability of a particular customer, WaveRider, which has ordered the following products over the last 12 months:

	Standard Model	Custom Design
Number of jet skis	16	3
Number of orders	2	3
Number of custom designs	0	3
Direct labour-hours per jet ski	24.5	28.0
Selling price per jet ski	$10,600	$13,200
Direct materials cost per jet ski	$7,950	$9,240

The company's direct labour rate is $24 per hour.
Using the company's activity-based costing system, compute the customer margin of WaveRider.

Question 2
Brookfield Property Management is a property management service company for small shopping malls and uses activity-based costing to estimate costs for pricing and other purposes. The proprietor of the company believes that costs are driven primarily by the area of outdoor maintenance (parking lots, sidewalks, and gardens), area of indoor tenant space in the shopping mall, distance to travel to the shopping mall, and number of shopping malls managed. In addition, the costs of managing the indoor tenant space depend on whether the tenants are located on the main level or other levels of the mall. Accordingly, the company uses the five activity cost pools listed below:

Activity Cost Pool	Activity Measure
Management of outdoor areas	Square meters of outdoor areas
Management of indoor mall space - main level	Square meters of main level mall space
Management of indoor mall space - other levels	Square meters of non-main level mall space
Travel to jobs	Kilometers
Customer billing and service	Number of shopping malls

The company has already carried out its first-stage allocations of costs. The company's annual costs and activities are summarized as follows:

Activity Cost Pool	Estimated Overhead Cost	Expected Activity
Management of outdoor areas	$69,850	127,000 square meters of outdoor areas
Management of indoor mall space - main level	$114,400	104,000 square meters of main level mall space
Management of indoor mall space - other levels	$307,500	246,000 square meters of non-main level mall space
Travel to jobs	$6,600	22,000 kilometers
Customer billing and service	$13,800	8 shopping malls

Compute the activity rate for each of the activity cost pools.

Question 3

Go Pro Corporation makes golf carts that it sells directly to golf courses throughout the world.

Several basic models are available, which are modified to suit the needs of each particular golf course. A golf course located in British Columbia, for example, would typically specify that its golf carts come equipped with retractable rain-proof covers. In addition, each customer (i.e., golf course) customizes its golf carts with its own colour scheme and logo. The company typically makes all of the golf carts for a customer before starting work on the next customer's golf carts.

Classify each of the costs or activities above as unit-level, batch-level, product-level, customer-level, or organization-sustaining. In this case, customers are golf courses, products are the various models of the golf cart, a batch is a specific order from a customer, and units are individual golf carts.

Below are listed a number of activities and costs at Go Pro Corporation:

Activity	Level
The purchasing department orders the specific colour of paint specified by the customer from the company's supplier.
A steering wheel is installed in a golf cart.
The company's paint shop makes a stencil for a customer's logo.
Completed golf carts are individually tested on the company's test track.
The accounts receivable department prepares the bill for a completed order.
An outside lawyer draws up a new generic sales contract for the company, limiting Go Pro's liability in case of accidents that involve its golf carts.
Electricity is used to heat and light the factory and the administrative offices.
A golf cart is painted.
A sales representative visits a previous customer to check on how the company's golf carts are working out and to try to make a new sale.
A new model golf cart is shipped to the leading golfing trade magazine to be evaluated for the magazine's annual rating of golf carts.
The company's engineer modifies the design of a model to eliminate a potential safety problem.
The marketing department has a catalogue printed and then mails copies to golf course managers.

Question 4

Wild Wild West Co. manufactures two products: Stirrups and Saddles. The company estimated it would incur $160,790 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labour hours. Data concerning the current period's operations appear below:

	Stirrups	Saddles
Estimated volume	3,400 units	4,800 units
Direct labour hours per unit	1.40 hour	1.90 hours
Direct materials cost per unit	$7.40	$12.70
Direct labour cost per unit	$14.00	$19.00

Compute the predetermined overhead rate under the current method, and determine the unit product cost of each product for the current year.

The company is considering using an activity-based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labour hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below:

Activity Cost Pool	Estimated Overhead Costs	Expected Activity: Stirrups	Expected Activity: Saddles	Total
Machine setups	$12,190	80	150	230
Purchase orders	79,200	730	920	1,650
General factory	69,400	4,760	9,120	13,880
Total	$160,790

Determine the unit product cost of each product for the current period using the activity-based costing approach.