Reference no: EM13942896

Question 1- Spud, Inc. a manufacturer of gourmet potato chips, employs activity-based costing. The budgeted data for each of the activity cost pools is provided below for the year 2017.

Activity Cost Pools	Estimated Overhead	Expected Use of Cost Drivers per Activity
Ordering and receiving	$84,000	12,000 orders
Food processing	480,000	60,000 machine hours
Packaging	1,760,000	440,000 labor hours

For 2017, the company had 11,000 orders and used 50,000 machine hours, and labor hours totaled 500,000. What is the total overhead applied?

Question 2- Spin Cycle Architecture uses three activity pools to apply overhead to its projects. Each activity has a cost driver used to allocate the overhead costs to the projects. The activities and related overhead costs are as follows: initial concept formation $40,000, design $300,000, and construction oversight $100,000. The cost drivers and expected use are as follows.

Activities	Cost Drivers	Expected Use of Cost Drivers per Activity
Initail concept formation	Number of project changes	20
Design	Square feet	150,000
Construction oversight	Number of months	100

(a) Compute the predetermined overhead rate for each activity.

(b) Classify each of these activities as unit-level, product-level, or facility-level.

Question 3- Saddle Inc. has two types of handbags: standard and custom. The controller has decided to use a plantwide overhead rate based on direct labor costs. The president has heard of activity-based costing and wants to see how the results would differ if this system were used. IWO activity cost pools were developed: machining and machine setup. Presented below is information related to the company's operations.

	Standard	Custom
Direct labor costs	$50,000	$100,000
Machine hours	1,000	1,000
Setup hours	100	400

Total estimated overhead costs are $240,000. Overhead cost allocated to the machining activity cost pool is $140,000, and $100,000 is allocated to the machine setup activity cost pool.

Instructions-

(a) Compute the overhead rate using the traditional (plantwide) approach.

(b) Compute the overhead rates using the activity-based costing approach.

(c) Determine the difference in allocation between the two approaches.

Question 4- Santana Corporation manufactures snowmobiles in its Blue Mountain, Wisconsin, plant. The following costs are budgeted for the first quartet's operations.

Machine setup, indirect materials	$4,000
Inspections	16,000
Tests	4,000
Insurance, plant	110,000
Engineering design	140,000
Depreciation, machinery	520,000
Machine setup, indirect labor	20,000
Property taxes	29,000
Oil, heating	19,000
Electricity, palnt lighting	21,000
Engineering prototypes	60,000
Depreciation, plant	210,000
Electricity machinery	36,000
Machine maintenance wages	19,000

Instructions-

Classify the above costs of Santana Corporation into activity cost pools using the following: engineering, machinery, machine setup, quality control, factory utilities, and maintenance. Next, identify a cost driver that may be used to assign each cost pool to each line of snowmobiles.

Question 5- Venus Creations sells window treatments (shades, blinds, and awnings) to both commercial and residential customers. The following information relates to its budgeted operations for the current year.

	Commercial		Residential
Revenues		$300,000		$480,000
Direct material costs	$30,000		$50,000
Direct labor costs	100,000		300,000
Overhead costs	85,000	215,000	150,000	500,000
Operating income (loss)		$85,000		$20,000

The controller, Peggy Kingman, is concerned about the residential product line. She cannot understand why this line is not more profitable given that the installations of window coverings are less complex for residential customers. In addition, the residential client base resides in close proximity to the company office, so travel costs are not as expensive on a per client visit for residential customers. As a result, she has decided to take a closer look at the overhead costs assigned to the two product lines to determine whether a more accurate product costing model can be developed. Here are the three activity cost pools and related information she developed:

Activity Cost Pools	Estimated Overhead	Cost Drivers
Scheduling and travel	$85,000	Hours of travel
Setup time	90,000	Number of setups
Supervision	60,000	Direct labor cost
Expected Use of Cost Drivers per Product
	Commercial	Residential
Scheduling and travel	750	500
Setup time	350	250

Instructions-

(a) Compute the activity-based overhead rates for each of the three cost pools, and determine the overhead cost assigned to each product line.

(b) Compute the operating income for each product line, using the activity-based overhead rates.

(c) What do you believe Peggy Kingman should do?