Reference no: EM133065773
Question 1
Activity Based Costing
Kestral manufacturing Ltd has estimated the following activity costs and activity drivers for the current period.
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Activities
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Total activity costs
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Cost driver
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Total activity level
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Machine set up
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$40 000
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No. of set-ups
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400
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Materials handling
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160 000
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No. of material removals
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16000
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Product design
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100 000
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Design hours
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2000
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Inspection
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260 000
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No. of inspections
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13000
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Total cost
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$560 000
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|
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Information for a particular job (job no. 42) completed during the period is as follows:
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Direct materials
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$10 000
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Direct labour
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$4 000
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Units completed
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200
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No. of set-ups
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2
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No. of material removals
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60
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No. of inspections
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40
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No. of design hours
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20
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Required:
1) Calculate the activity rate for each of the four manufacturing activities;
2) Calculate the total costs for job 42;
3) Calculate the cost per unit for job 42.
Question 2
The Nadel Corporation previously used a conventional product costing system in which there were two direct cost categories: direct material and direct labour. Manufacturing overhead was allocated based on the number of direct labour hours ($115 per hour).
The company now considers using ABC for two particular jobs, job 200 and 201. The direct material costs (per job) are $9,700 for job 200 and $59,900 for job 201. The direct labour costs (per job) are $750 for job 200 and $11,250 for job 201. Additional information are also identified as follows (next slide):
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Activity Area
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activity driver
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Activity rate
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Material handling
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No. of parts
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$0.60
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Lathe work
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No. of turns
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$0.30
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Milling
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No. of machine hours
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$12.50
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Grinding
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No of parts
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$0.80
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Testing (all units tested)
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No. of units tested
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$18.00
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|
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Job 200
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Job201
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Labour hours per job
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25
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375
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Parts per job
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500
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2,000
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Turns per job
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20,000
|
60,000
|
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Machine hours per job
|
150
|
1,050
|
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Units per job
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10
|
300
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Required:
1) Compute the cost per unit of producing each job under the conventional costing system.
2) Compute the cost per unit of each job using activity based costing.
3) Comment on the differences in the costs calculated using the two product costing systems. What are the implications for Nadel Corporation?
Question 3
Pitney Corporation manufactures two types of transponders (i.e. No. 156 and No. 157) and applies manufacturing overhead to all units at the rate of $76.50 per machine hour. Production information follows.
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No.156
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No.157
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Anticipated volume (units)
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6000
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14000
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Direct material cost /unit
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$40
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$65
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Direct labour cost /unit
|
25
|
25
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The controller, who is studying the use of activity-based costing, has determined that the firm's overhead can be identified with three activities: manufacturing setups, machine processing, and product shipping. Data on the number of setups, machine hours worked and outgoing shipments, the activities' three respective cost drivers are provided as follows (both budgeted and actual)
The firm's total overhead is subdivided as follows: manufacturing setups, $260,000; machine processing, $2,400,000; and product shipping, $400,000.
Required:
A. Compute the overhead rates that would be used for manufacturing setups, machine processing, and product shipping in an ABC system;
B. Assuming using ABC, compute the unit overhead costs for No.156 and 157 if the expected manufacturing volume is attained;
C. Assuming using ABC, compute the total cost per unit of product No. 156;
D. If the company's selling price is based heavily on cost, would a switch to ABC from the current traditional system result in a price increase or decrease for product No. 156? Show computations.