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Question 1: Score 2.5/5

Your response Exercise 7-1 Variable and Absorption Costing Unit Product Costs [LO1] Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The sounding bars are cast from brass and handfiled to attain just the right sound. The bars are then mounted on an intricately hand-carved wooden base. The gamelans are sold for 850 (thousand) rupiahs. (The currency in Indonesia is the rupiah, which is denoted by Rp.) Selected data for the company's operations last year follow (all currency values are in thousands of rupiahs): Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs: Fixed manufacturing overhead Fixed selling and administrative 0 340 295 45 Rp Rp Rp Rp 260 370 62 24

Correct response Exercise 7-1 Variable and Absorption Costing Unit Product Costs [LO1] Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The sounding bars are cast from brass and handfiled to attain just the right sound. The bars are then mounted on an intricately hand-carved wooden base. The gamelans are sold for 850 (thousand) rupiahs. (The currency in Indonesia is the rupiah, which is denoted by Rp.) Selected data for the company's operations last year follow (all currency values are in thousands of rupiahs): Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs: Fixed manufacturing overhead Fixed selling and administrative 0 340 295 45 Rp Rp Rp Rp 260 370 62 24

Rp 52,000 Rp 39,000

Rp 52,000 Rp 39,000

Requirement 1: Assume that the company uses absorption costing. Compute the unit product cost for one gamelan. (Omit the "Rp" sign in your response. Round your answer to the nearest whole number.) Unit product cost Rp 1105 (0%)

Requirement 1: Assume that the company uses absorption costing. Compute the unit product cost for one gamelan. (Omit the "Rp" sign in your response. Round your answer to the nearest whole number.) Unit product cost Rp 845

Total grade: 0.01/1 = 0% Feedback: Under absorption costing, all manufacturing costs (variable and fixed) are included in product costs. (All currency values are in thousands of rupiah, denoted by Rp.) Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead (Rp52,000 340 units) Absorption costing unit product cost Rp 260 370 62

153 Rp 845

Your response Requirement 2: Assume that the company uses variable costing. Compute the unit product cost for one gamelan. (Omit the "Rp" sign in your response.)

Correct response Requirement 2: Assume that the company uses variable costing. Compute the unit product cost for one gamelan. (Omit the "Rp" sign in your response.)

Unit product cost

Rp 692 (100%)

Unit product cost

Rp 692

Feedback: Under variable costing, only the variable manufacturing costs are included in product costs. (All currency values are in thousands of rupiah, denoted by Rp.) Direct materials Direct labor Variable manufacturing overhead Variable costing unit product cost Rp 260 370 62 Rp 692

Note that selling and administrative expenses are not treated as product costs under either absorption or variable costing. These expenses are always treated as period costs and are charged against the current period's revenue.

Question 2: Score 2.93/5

Your response Exercise 7-2 Variable Costing Income Statement; Explanation of Difference in Net Operating Income [LO2] Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The sounding bars are cast from brass and handfiled to attain just the right sound. The bars are then mounted on an intricately hand-carved wooden base. The gamelans are sold for 850 (thousand) rupiahs. (The currency in Indonesia is the rupiah, which is denoted by Rp.) Selected data for the company's operations last year follow (all currency values are in thousands of rupiahs):

Correct response Exercise 7-2 Variable Costing Income Statement; Explanation of Difference in Net Operating Income [LO2] Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The sounding bars are cast from brass and handfiled to attain just the right sound. The bars are then mounted on an intricately hand-carved wooden base. The gamelans are sold for 850 (thousand) rupiahs. (The currency in Indonesia is the rupiah, which is denoted by Rp.) Selected data for the company's operations last year follow (all currency values are in thousands of rupiahs):

Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs: Fixed manufacturing overhead Fixed selling and administrative

0 250 225 25 Rp Rp Rp Rp 100 320 40 20

Rp 60,000 Rp 20,000

Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs: Fixed manufacturing overhead Fixed selling and administrative

0 250 225 25 Rp Rp Rp Rp 100 320 40 20

Rp 60,000 Rp 20,000

The absorption costing income statement prepared by the company's accountant for last year appears below (all currency values are in thousands of rupiahs):

The absorption costing income statement prepared by the company's accountant for last year appears below (all currency values are in thousands of rupiahs):

Sales Cost of goods sold Gross margin Selling and administrative expenses

Rp 191,250 157,500 33,750 24,500

Sales Cost of goods sold Gross margin Selling and administrative expenses

Rp 191,250 157,500 33,750 24,500

Net operating income

Rp

9,250

Net operating income

Rp

9,250

Requirement 1: Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period. (Omit the "Rp" sign in your response.) Fixed manufacturing overhead Rp 60000 (0%)

Requirement 1: Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period. (Omit the "Rp" sign in your response.) Fixed manufacturing overhead Rp 6,000

Total grade: 0.01/1 = 0% Feedback: 25 units in ending inventory Rp 240 per unit fixed manufacturing overhead per unit = Rp 6,000

Your response Requirement 2: Prepare an income statement for the year using the variable costing method. (Input all amounts as positive values. Omit the "Rp" sign in your response.) Sales (7%) Variable expenses: Variable cost of goods sold (7%) Variable selling and administrative expenses (7%) Contribution margin Fixed expenses: Fixed manufacturing overhead (7%) Fixed selling and administrative expenses (7%) Net operating income (7%) Rp Rp 103500 (7%) 5000 (0%) 108500 82750 60000 (7%) 20000 (7%) Rp 80000 (7%) 2750 (0%) (0%) (0%) 191250 (7%)

Correct response Requirement 2: Prepare an income statement for the year using the variable costing method. (Input all amounts as positive values. Omit the "Rp" sign in your response.) Sales Variable expenses: Variable selling and administrative expenses Variable cost of goods sold Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative expenses Net operating income Rp Rp 4,500 103500 60000 20000 Rp 80000 3,250 108,000 83,250 191250

E7_2_id5 E7_2_id7 E7_2_id11 E7_2_id13

E7_2_id5 E7_2_id7 E7_2_id11 E7_2_id13

Total grade: 1.01/15 + 1.01/15 + 1.01/15 + 0.01/15 + 1.01/15 + 1.01/15 + 0.01/15 + 0.01/15 + 1.01/15 + 1.01/15 + 1.01/15 + 1.01/15 + 1.01/15 + 1.01/15 + 0.01/15 = 7% + 7% + 7% + 0% + 7% + 7% + 0% + 0% + 7% + 7% + 7% + 7% + 7% + 7% + 0% Feedback: Variable cost of goods sold (225 units sold Rp460 per unit) Variable selling and administrative expenses (225 units Rp20 per unit) Rp 103,500 Rp 4,500

Question 3: Score 2.5/5

Your response Exercise 7-3 Reconciliation of Absorption and Variable Costing Net Operating Incomes [LO3] Jorgansen Lighting, Inc., manufactures heavy-duty street lighting systems for municipalities. The company uses variable costing for internal management reports and absorption costing for external reports to shareholders, creditors, and the government. The company has provided the following data: Year 1 Inventories: Beginning (units) Ending (units) Variable costing net operating income 200 170 $ 1,080,400 Year 2 170 180 $ 1,032,400 Year 3 180 220 $ 996,400 Inventories: Beginning (units) Ending (units) Variable costing net operating income

Correct response Exercise 7-3 Reconciliation of Absorption and Variable Costing Net Operating Incomes [LO3] Jorgansen Lighting, Inc., manufactures heavy-duty street lighting systems for municipalities. The company uses variable costing for internal management reports and absorption costing for external reports to shareholders, creditors, and the government. The company has provided the following data: Year 1 200 170 $ 1,080,400 Year 2 170 180 $ 1,032,400 Year 3 180 220 $ 996,400

The company's fixed manufacturing overhead per unit was constant at $560 for all three years. Requirement 1: Determine each year's absorption costing net operating income. (Omit the "$" sign in your response.) Year 1 Absorption costing net operating income $ 16800 (0%) $ Year 2 5600 (0%) $ Year 3 16800 (0%)

The company's fixed manufacturing overhead per unit was constant at $560 for all three years. Requirement 1: Determine each year's absorption costing net operating income. (Omit the "$" sign in your response.) Absorption costing net operating income Year 1 $ 1,063,600 Year 2 $ 1,038,000 Year 3 $ 1,018,800

Total grade: 0.01/3 + 0.01/3 + 0.01/3 = 0% + 0% + 0% Feedback: Beginning inventories Ending inventories Change in inventories Fixed manufacturing overhead in beginning inventories (@$560 per unit) Fixed manufacturing overhead in ending inventories (@$560 per unit) Fixed manufacturing overhead deferred in (released from) inventories (@$560 per unit) Variable costing net operating income Add (deduct) fixed manufacturing overhead cost deferred in (released from) inventory under absorption costing Absorption costing net operating income Year 1 200 170 (30) $ 112,000 95,200 $ (16,800) $ 1,080,400 $ Year 2 170 180 10 95,200 100,800 $ 5,600 $ 1,032,400 Year 3 180 220 40 $ 100,800 123,200 $ 22,400 $ 996,400

(16,800) $ 1,063,600

5,600 $ 1,038,000

22,400 $ 1,018,800

Requirement 2: In Year 4, the company's variable costing net operating income was $984,400 and its absorption costing net operating income was $1,012,400. (a) Did inventories increase or decrease during Year 4? Your Answer: Choice Selecte

d Increase Decreas e Feedback: Because absorption costing net operating income was greater than variable costing net operating income in Year 4, inventories must have increased during the year.

Your response (b) How much fixed manufacturing overhead cost was deferred or released from inventory during Year 4? (Omit the "$" sign in your response.) Deferred (50%) fixed manufacturing overhead cost $ 16800 (0%)

Correct response (b) How much fixed manufacturing overhead cost was deferred or released from inventory during Year 4? (Omit the "$" sign in your response.) Deferred fixed manufacturing overhead cost $ 28,000

Total grade: 1.01/2 + 0.01/2 = 50% + 0% Feedback: Because inventories increased in year 4, fixed manufacturing overhead was deferred in inventories. The amount of the deferral is the difference between the two net operating incomes, or $28,000 = $1,012,400 $984,400.

Question 4: Score 5/5

Your response Exercise 7-5 Variable and Absorption Costing Unit Product Costs and Income Statements [LO1, LO2] Lynch Company manufactures and sells a single product. The following costs were incurred during the company's first year of operations: Variable costs per unit: Manufacturing: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative

Correct response Exercise 7-5 Variable and Absorption Costing Unit Product Costs and Income Statements [LO1, LO2] Lynch Company manufactures and sells a single product. The following costs were incurred during the company's first year of operations: Variable costs per unit: Manufacturing: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative

$ $ $ $

6 9 3 4

$ $ $ $

6 9 3 4

$ 300,000 $ 190,000

$ 300,000 $ 190,000

During the year, the company produced 25,000 units and sold 20,000 units. The selling price of the company's product is $50 per unit. Requirement 1: Assume that the company uses absorption costing: (a) Compute the unit product cost. (Omit the "$" sign in your response.) Unit product cost $ 30 (100%)

During the year, the company produced 25,000 units and sold 20,000 units. The selling price of the company's product is $50 per unit. Requirement 1: Assume that the company uses absorption costing: (a) Compute the unit product cost. (Omit the "$" sign in your response.) Unit product cost $ 30

Feedback: The unit product cost under absorption costing would be: Direct materials Direct labor Variable manufacturing overhead Total variable costs Fixed manufacturing overhead ($300,000 25,000 units) Absorption costing unit product cost $ 6 9 3 18 12 $ 30

Your response (b) Prepare an income statement for the year.(Input all amounts as positive values. Omit the "$" sign in your response.) Sales (10%) Cost of goods sold (10%) Gross profit (10%) Selling and administrative expenses (10%) Net operating income (10%) Feedback: The absorption costing income statement: Sales (20,000 units $50 per unit) = $1,000,000 Cost of goods sold (20,000 units $30 per unit) = $600,000 Selling and administrative expenses = $270,000 * *(20,000 units $4 per unit) + $190,000 = $270,000. $ 1000000 (10%) 600000 (10%) 400000 (10%) 270000 (10%) $ 130000 (10%)

Correct response (b) Prepare an income statement for the year.(Input all amounts as positive values. Omit the "$" sign in your response.) Sales Cost of goods sold Gross profit Selling and administrative expenses Net operating income $ 1000000 600000 400000 270000 $ 130000

Your response Requirement 2: Assume that the company uses variable costing: (a) Compute the unit product cost. (Omit the "$" sign in your response.) Unit product cost $ 18 (100%)

Correct response Requirement 2: Assume that the company uses variable costing: (a) Compute the unit product cost. (Omit the "$" sign in your response.) Unit product cost $ 18

Feedback: The unit product cost under variable costing would be: Direct materials Direct labor Variable manufacturing overhead Variable costing unit product cost $ 6 9 3 $ 18

Your response

Correct response

(b) Prepare an income statement for the year. (Input all amounts as positive values. Omit the "$" sign in your response.) Sales (6%) Variable expenses: Variable cost of goods sold (6%) Variable selling and administrative (6%) Contribution margin (6%) Fixed expenses: Fixed manufacturing overhead (6%) Fixed selling and administrative expense (6%) Net operating income (6%) $ 1000000 (6%) $ 360000 (6%) 80000 (6%) 440000 (6%) 560000 (6%) 300000 (6%) 190000 (6%) $ 490000 (6%) 70000 (6%)

(b) Prepare an income statement for the year. (Input all amounts as positive values. Omit the "$" sign in your response.) Sales Variable expenses: Variable cost of goods sold Variable selling and administrative Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative expense Net operating income $ $ 360000 80000 300000 190000 $ 490000 70000 1000000 440000 560000

E7_5_id16 E7_5_id18 E7_5_id23 E7_5_id25

E7_5_id16 E7_5_id18 E7_5_id23 E7_5_id25

Feedback: The variable costing income statement: Sales (20,000 units $50 per unit) = $1,000,000 Variable cost of goods sold (20,000 units $18 per unit) = $360,000 Variable selling expense (20,000 units $4 per unit) = $80,000

Question 5: Score 2.91/5

Your response Exercise 7-7 Variable Costing Income Statement; Reconciliation [LO2, LO3] Whitman Company has just completed its first year of operations. The company's absorption costing income statement for the year appears below: Whitman Company Income Statement Sales (35,000 units $25 per unit) Cost of goods sold (35,000 units $16 per unit) Gross margin Selling and administrative expenses Net operating income

Correct response Exercise 7-7 Variable Costing Income Statement; Reconciliation [LO2, LO3] Whitman Company has just completed its first year of operations. The company's absorption costing income statement for the year appears below: Whitman Company Income Statement Sales (35,000 units $25 per unit) Cost of goods sold (35,000 units $16 per unit) Gross margin Selling and administrative expenses Net operating income

$ 875,000 560,000 315,000 280,000 $ 35,000

$ 875,000 560,000 315,000 280,000 $ 35,000

The company's selling and administrative expenses consist of $210,000 per year in fixed expenses and $2 per unit sold in variable expenses. The $16 per unit product cost given above is computed as follows:

The company's selling and administrative expenses consist of $210,000 per year in fixed expenses and $2 per unit sold in variable expenses. The $16 per unit product cost given above is computed as follows:

Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($160,000 40,000 units) Absorption costing unit product cost

$ 5 6 1 4 $ 16

Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($160,000 40,000 units) Absorption costing unit product cost

$ 5 6 1 4 $ 16

Requirement 1: Redo the company's income statement in the contribution format using variable costing. (Input all amounts as positive values. Omit the "$" sign in your response.) Sales (7%) Variable expenses: Variable cost of goods sold (7%) Variable selling and administrative expenses (7%) Contribution margin Fixed expenses: Fixed manufacturing overhead (7%) Fixed selling and administrative expenses (7%) Net operating loss (0%) $ $ 490000 (0%) 560000 315000 160000 (7%) 210000 (7%) $ 370000 (7%) 55000 (0%) (0%) (0%) 875000 (7%)

Requirement 1: Redo the company's income statement in the contribution format using variable costing. (Input all amounts as positive values. Omit the "$" sign in your response.) Sales Variable expenses: Variable cost of goods sold Variable selling and administrative expenses Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative expenses Net operating income $ $ 420,000 70000 490,000 385,000 160000 210000 $ 370000 15,000 875000

70000 (7%)

Total grade: 1.01/15 + 1.01/15 + 1.01/15 + 0.01/15 + 1.01/15 + 1.01/15 + 0.01/15 + 0.01/15 + 1.01/15 + 1.01/15 + 1.01/15 + 1.01/15 + 1.01/15 + 0.01/15 + 0.01/15 = 7% + 7% + 7% + 0% + 7% + 7% + 0% + 0% + 7% + 7% + 7% + 7% + 7% + 0% + 0% Feedback: Variable cost of goods sold (35,000 units $12 per unit*) = $420,000 Variable selling and administrative expenses (35,000 units $2 per unit) = $70,000

*Direct materials Direct labor Variable manufacturing overhead Total variable manufacturing cost

$ 5 6 1 $ 12

Your response Requirement 2: Reconcile any difference between the net operating income on your variable costing income statement and the net operating income on the absorption costing income statement above. (Omit the "$" sign in your response.) (0%) (0%)

Correct response Requirement 2: Reconcile any difference between the net operating income on your variable costing income statement and the net operating income on the absorption costing income statement above. (Omit the "$" sign in your response.) Variable costing net operating income (loss) Add: Fixed manufacturing overhead cost deferred Absorption costing net operating income (loss) $ $ 15,000 20,000 35000

Variable costing net operating income (loss) Add (25%): Fixed manufacturing overhead cost deferred

55000 80000

Absorption costing net operating income (loss)

35000 (25%) E7_7_id4

E7_7_id4 E7_7_id6 E7_7_id6 E7_7_id10 E7_7_id10 E7_7_id12 E7_7_id12

Total grade: 0.01/4 + 1.01/4 + 0.01/4 + 1.01/4 = 0% + 25% + 0% + 25% Feedback: Fixed manufacturing overhead cost deferred in inventory under absorption costing (5,000 units $4 per unit in fixed manufacturing cost) = $20,000

Question 6: Score 3.06/5

Your response Exercise 7-8 Variable Costing Unit Product Cost and Income Statement; Break-Even [LO1, LO2] Chuck Wagon Grills, Inc., makes a single producta handmade specialty barbecue grill that it sells for $210. Data for last year's operations follow: Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Total variable cost per unit Fixed costs: Fixed manufacturing overhead Fixed selling and administrative Total fixed costs 0 20,000 19,000 1,000 $ 50 80 20 10 160

Correct response Exercise 7-8 Variable Costing Unit Product Cost and Income Statement; Break-Even [LO1, LO2] Chuck Wagon Grills, Inc., makes a single producta handmade specialty barbecue grill that it sells for $210. Data for last year's operations follow: Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Total variable cost per unit Fixed costs: Fixed manufacturing overhead Fixed selling and administrative Total fixed costs 0 20,000 19,000 1,000 $ 50 80 20 10 160

$ 700,000 285,000 $ 985,000

$ 700,000 285,000 $ 985,000

Requirement 1: Assume that the company uses variable costing. Compute the unit product cost for one barbecue grill. (Omit the "$" sign in your response.) Unit product cost $ 150 (100%)

Requirement 1: Assume that the company uses variable costing. Compute the unit product cost for one barbecue grill. (Omit the "$" sign in your response.) Unit product cost $ 150

Feedback: Under variable costing, only the variable manufacturing costs are included in product costs.

Direct materials Direct labor Variable manufacturing overhead Variable costing unit product cost

$ 50 80 20 $ 150

Note that selling and administrative expenses are not treated as product costs; that is, they are not included in the costs that are inventoried. These expenses are always treated as period costs.

Your response Requirement 2: Assume that the company uses variable costing. Prepare a contribution format income statement for the year. (Input all amounts as positive values. Omit the "$" sign in your response.) Sales (6%) Variable expenses: Variable cost of goods sold (6%) Variable selling and administrative expenses (6%) Contribution margin (6%) Fixed expenses: Fixed manufacturing overhead (6%) Fixed selling and administrative expenses (6%) Net operating income (0%) $ $ 2850000 (6%) 19010 (0%) 2869010 1120990 700000 (6%) 285000 (6%) $ 985000 (6%) 135990 (0%) (0%) (0%) 3990000 (6%)

Correct response

Requirement 2: Assume that the company uses variable costing. Prepare a contribution format income statement for the year. (Input all amounts as positive values. Omit the "$" sign in your response.) Sales Variable expenses: Variable cost of goods sold Variable selling and administrative expenses Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative expenses Net operating loss $ $ 2850000 190,000 3,040,000 950,000 700000 285000 $ 985000 35,000 3990000

Total grade: 1.01/16 + 1.01/16 + 1.01/16 + 1.01/16 + 1.01/16 + 0.01/16 + 0.01/16 + 1.01/16 + 0.01/16 + 1.01/16 + 1.01/16 + 1.01/16 + 1.01/16 + 1.01/16 + 0.01/16 + 0.01/16 = 6% + 6% + 6% + 6% + 6% + 0% + 0% + 6% + 0% + 6% + 6% + 6% + 6% + 6% + 0% + 0% Feedback: Variable cost of goods sold (19,000 units $150 per unit) = $2,850,000 Variable selling and administrative expenses (19,000 units = $190,000 $10 per unit)

Your response Requirement 3: What is the company's break-even point in terms of the number of barbecue grills sold? Break-even point E7_8_id5 E7_8_id7 E7_8_id12 E7_8_id14 18352 (0%) units

Correct response Requirement 3: What is the company's break-even point in terms of the number of barbecue grills sold? Break-even point E7_8_id5 E7_8_id7 E7_8_id12 E7_8_id14 19,700 units

Total grade: 0.01/1 = 0% Feedback: The break-even point in units sold can be computed using the contribution margin per unit as follows: Selling price per unit Variable cost per unit Contribution margin per unit $ 210 160 $ 50

Question 7: Score 4.59/5

Your response Exercise 7-9 Absorption Costing Unit Product Cost and Income Statement [LO1 , LO2] Chuck Wagon Grills, Inc., makes a single producta handmade specialty barbecue grill that it sells for $210. Data for last year's operations follow: Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Total variable cost per unit Fixed costs: Fixed manufacturing overhead Fixed selling and administrative Total fixed costs 0 20,000 19,000 1,000 $ 50 80 20 10 160

Correct response Exercise 7-9 Absorption Costing Unit Product Cost and Income Statement [LO1 , LO2] Chuck Wagon Grills, Inc., makes a single producta handmade specialty barbecue grill that it sells for $210. Data for last year's operations follow: Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Total variable cost per unit Fixed costs: Fixed manufacturing overhead Fixed selling and administrative Total fixed costs 0 20,000 19,000 1,000 $ 50 80 20 10 160

$ 700,000 285,000 $ 985,000

$ 700,000 285,000 $ 985,000

Assume that the company uses absorption costing. Requirement 1: Compute the unit product cost for one barbecue grill. (Omit the "$" sign in your response.) Unit product cost $ 185 (100%)

Assume that the company uses absorption costing. Requirement 1: Compute the unit product cost for one barbecue grill. (Omit the "$" sign in your response.) Unit product cost $ 185

Feedback: Under absorption costing, all manufacturing costs (variable and fixed) are included in product

costs. Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($700,000 20,000 units) Absorption costing unit product cost $ 50 80 20 35 $ 185

Your response Requirement 2: Prepare an income statement. (Leave no cells blank - be certain to enter "0" wherever required. Input all amounts as positive values. Omit the "$" sign in your response.) Sales (10%) Cost of goods sold (10%) Gross profit (10%) Selling and administrative expenses (10%) Net operating loss (0%) $ 3990000 (10%) 3515000 (10%) 475000 (10%) 475000 (10%) 0 (10%) $

Correct response Requirement 2: Prepare an income statement. (Leave no cells blank - be certain to enter "0" wherever required. Input all amounts as positive values. Omit the "$" sign in your response.) Sales Cost of goods sold Gross profit Selling and administrative expenses Net operating income $ 3990000 3515000 475000 475000 0 $

Total grade: 1.01/10 + 1.01/10 + 1.01/10 + 1.01/10 + 1.01/10 + 1.01/10 + 1.01/10 + 1.01/10 + 0.01/10 + 1.01/10 = 10% + 10% + 10% + 10% + 10% + 10% + 10% + 10% + 0% + 10% Feedback: Sales (19,000 units $210 per unit) = $3,990,000 Cost of goods sold (19,000 units $185 per unit) = $3,515,000 Selling and administrative expenses ($285,000 + 19,000 units $10 per unit) = $475,000

Question 8: Score 2.5/5 Your response Exercise 8-1 ABC Cost Hierarchy [LO1] Classify each of the activities as either a unit-level, batch-level, product-level, or organization sustaining activity. a. Receive raw materials from suppliers. b. Manage parts inventories. c. Do rough milling work on products. d. Interview and process new employees in the personnel department. e. Design new products. f. Perform periodic preventive maintenance on general-use equipment. g. Use the general factory building. h. Issue purchase orders for a job. Batch-level (13%) Organizationsustaining (0%) Batch-level (0%) Productlevel (0%) Product-level (13%) Organizationsustaining (13%) Unit-level (0%) Batch-level (13%) Correct response Exercise 8-1 ABC Cost Hierarchy [LO1] Classify each of the activities as either a unit-level, batch-level, product-level, or organization sustaining activity. a. Receive raw materials from suppliers. b. Manage parts inventories. c. Do rough milling work on products. d. Interview and process new employees in the personnel department. e. Design new products. f. Perform periodic preventive maintenance on general-use equipment. g. Use the general factory building. h. Issue purchase orders for a job. Batch-level Product-level Unit-level Organizationsustaining Product-level Organizationsustaining Organizationsustaining Batch-level

Total grade: 1.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 1.01/8 + 1.01/8 + 0.01/8 + 1.01/8 = 13% + 0% + 0% + 0% + 13% + 13% + 0% + 13%

Question 9: Score 4.58/5

Your response Problem 7-11 Variable Costing Income Statement; Reconciliation [LO2, LO3] During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows: Sales (@ $25 per unit) Cost of goods sold (@ $18 per unit) Gross margin Selling and administrative expenses* Net operating income Year 1 $ 1,000,000 720,000 280,000 210,000 $ 70,000 Year 2 $ 1,250,000 900,000 350,000 230,000 $ 120,000

Correct response Problem 7-11 Variable Costing Income Statement; Reconciliation [LO2, LO3] During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows: Sales (@ $25 per unit) Cost of goods sold (@ $18 per unit) Gross margin Selling and administrative expenses* Net operating income Year 1 $ 1,000,000 720,000 280,000 210,000 $ 70,000 Year 2 $ 1,250,000 900,000 350,000 230,000 $ 120,000

*$2 per unit variable; $130,000 fixed each year. The company's $18 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($270,000 45,000 units) Absorption costing unit product cost $ 4 7 1 6 $ 18

*$2 per unit variable; $130,000 fixed each year. The company's $18 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($270,000 45,000 units) Absorption costing unit product cost $ 4 7 1 6 $ 18

Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on production equipment and buildings. Production and cost data for the two years are: Year 1 Units produced Units sold 45,000 40,000 Year 2 45,000 50,000

Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on production equipment and buildings. Production and cost data for the two years are: Year 1 Units produced Units sold 45,000 40,000 Year 2 45,000 50,000

Requirement 1: Prepare a variable costing contribution format income statement for each year. (Input all amounts as positive values. Omit the "$" sign in your response.) Sales (4%) Variable expenses: Variable cost of goods sold (4%) Variable selling and administrative expenses (4%) Total variable expenses Contribution margin (4%) Fixed expenses: Fixed manufacturing overhead (4%) Fixed selling and administrative expenses (4%) Total fixed expenses Net Operating income (4%) Year 1 $ 1000000 (4%) 480000 (4%) 80000 (4%) 560000 (4%) 440000 (4%) 270000 (4%) 130000 (4%) 400000 (4%) $ 40000 (4%) Year 2 $ 1250000 (4%) 600000 (4%) 100000 (4%) 700000 (4%) 550000 (4%) 270000 (4%) 130000 (4%) 400000 (4%) $ 150000 (4%)

Requirement 1: Prepare a variable costing contribution format income statement for each year. (Input all amounts as positive values. Omit the "$" sign in your response.) Sales Variable expenses: Variable cost of goods sold Variable selling and administrative expenses Total variable expenses Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative expenses Total fixed expenses Net Operating income $ Year 1 1000000 480000 80000 560000 440000 270000 130000 400000 40000 $ Year 2 1250000 600000 100000 700000 550000 270000 130000 400000 150000

Feedback: The unit product cost under the variable costing is computed as follows:

Direct materials Direct labor Variable manufacturing overhead Variable costing unit product cost

$ 4 7 1 $ 12

Variable cost of goods sold (@ $12 per unit) Variable selling and administrative expenses (@ $2 per unit)

Year 1 480,000 80,000

Year 2 600,000 100,000

Your response Requirement 2: Determine the absorption costing and variable costing net operating income figures for each year. (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.) Variable costing net operating income Add/(deduct): Fixed manufacturing overhead deferred in inventory under absorption costing Absorption costing net operating income Year 1 $ 40000 (17%) 30000 (17%) $ 70000 (17%) $ Year 2 150000 (17%) 30000 (0%) 120000 (17%)

Correct response Requirement 2: Determine the absorption costing and variable costing net operating income figures for each year. (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.) Variable costing net operating income Add/(deduct): Fixed manufacturing overhead deferred in inventory under absorption costing Absorption costing net operating income $ Year 1 40000 30000 70000 $ Year 2 150000

-30,000 $ 120000

P7_11_id5 P7_11_id8 P7_11_id16 P7_11_id19

P7_11_id5 P7_11_id8 P7_11_id16 P7_11_id19

Total grade: 1.01/6 + 1.01/6 + 1.01/6 + 0.01/6 + 1.01/6 + 1.01/6 = 17% + 17% + 17% + 0% + 17% + 17% Feedback: Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing (5,000 units $6 per unit in Year 1; 5,000 units $6 per unit in Year 2)

Question 10: Score 5/5 Your response Exercise 8-2 First-Stage Allocation [LO2] SecuriCorp operates a fleet of armored cars that make scheduled pickups and deliveries in the Los Angeles area. The company is implementing an activity-based costing system that has four activity cost pools: Travel, Pickup and Delivery, Customer Service, and Other. The activity measures are miles for the Travel cost pool, number of pickups and deliveries for the Pickup and Delivery cost pool, and number of customers for the Customer Service cost pool. The Other cost pool has no activity measure because it is an organization-sustaining activity. The following costs will be assigned using the activity-based costing system: Correct response Exercise 8-2 First-Stage Allocation [LO2] SecuriCorp operates a fleet of armored cars that make scheduled pickups and deliveries in the Los Angeles area. The company is implementing an activity-based costing system that has four activity cost pools: Travel, Pickup and Delivery, Customer Service, and Other. The activity measures are miles for the Travel cost pool, number of pickups and deliveries for the Pickup and Delivery cost pool, and number of customers for the Customer Service cost pool. The Other cost pool has no activity measure because it is an organization-sustaining activity. The following costs will be assigned using the activity-based costing system:

Driver and guard wages Vehicle operating expense Vehicle depreciation Customer representative salaries and expenses Office expenses Administrative expenses Total cost

$ 720,000 280,000 120,000 160,000 30,000 320,000 $ 1,630,000

Driver and guard wages Vehicle operating expense Vehicle depreciation Customer representative salaries and expenses Office expenses Administrative expenses Total cost

720,000 280,000 120,000 160,000 30,000 320,000 $ 1,630,000

The distribution of resource consumption across the activity cost pools is as follows: Travel 50 % 70 % 60 % 0% 0% 0% Pickup and Delivery 35 % 5% 15 % 0% 20 % 5% Customer Service 10 % 0% 0% 90 % 30 % 60 % Other 5% 25 % 25 % 10 % 50 % 35 % Totals 100 % 100 % 100 % 100 % 100 % 100 % The distribution of resource consumption across the activity cost pools is as follows: Travel 50 % 70 % 60 % 0% 0% 0% Pickup and Delivery 35 % 5% 15 % 0% 20 % 5% Customer Service 10 % 0% 0% 90 % 30 % 60 % Other 5% 25 % 25 % 10 % 50 % 35 % Totals 100 % 100 % 100 % 100 % 100 % 100 %

Driver and guard wages Vehicle operating expense Vehicle depreciation Customer representative salaries and expenses Office expenses Administrative expenses

Required: Complete the first-stage allocations of costs to activity cost pools. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.) Travel $ 360000 (3%) 196000 (3%) 72000 (3%) 0 (3%) 0 (3%) 0 (3%) $ 628000 (3%) Pickup and Delivery $ 252000 (3%) 14000 (3%) 18000 (3%) 0 (3%) 6000 (3%) 16000 (3%) $ 306000 (3%) Customer Service $ 72000 (3%) 0 (3%) 0 (3%) 144000 (3%) 9000 (3%) 192000 (3%) $ 417000 (3%) Other $ 36000 (3%) 70000 (3%) 30000 (3%) 16000 (3%) 15000 (3%) 112000 (3%) $ 279000 (3%) Totals $ 720000 (3%) 280000 (3%) 120000 (3%) 160000 (3%) 30000 (3%) 320000 (3%) $ 1630000 (3%)

Driver and guard wages Vehicle operating expense Vehicle depreciation Customer representative salaries and expenses Office expenses Administrative expenses

Driver and guard wages Vehicle operating expense Vehicle depreciation Customer representative salaries and expenses Office expenses Administrative expenses Total cost

Required: Complete the first-stage allocations of costs to activity cost pools. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.) Travel $ 360000 196000 72000 0 0 0 $ 628000 Pickup and Delivery $ 252000 14000 18000 0 6000 16000 $ 306000 Customer Service $ 72000 0 0 144000 9000 192000 $ 417000 Other 36000 70000 30000 Totals $ 720000 280000 120000 160000 30000 320000 $ 1630000

Driver and guard wages Vehicle operating expense Vehicle depreciation Customer representative salaries and expenses Office expenses Administrative expenses Total cost

16000 15000 112000 $ 279000

Feedback: Each entry in the table is derived by multiplying the total cost for the cost category by the percentage taken from the table above that shows the distribution of resource consumption.

Question 11: Score 5/5

Your response Exercise 8-3 Compute Activity Rates [LO3] Green Thumb Gardening is a small gardening service that 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 size of customer lawns, the size of customer garden beds, the distance to travel to

Correct response Exercise 8-3 Compute Activity Rates [LO3] Green Thumb Gardening is a small gardening service that 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 size of customer lawns, the size of customer garden beds, the distance to travel to

customers, and the number of customers. In addition, the costs of maintaining garden beds depends on whether the beds are low maintenance beds (mainly ordinary trees and shrubs) or high maintenance beds (mainly flowers and exotic plants). Accordingly, the company uses the five activity cost pools listed below: Activity Cost Pool Caring for lawn Caring for garden bedslow maintenance Caring for garden bedshigh maintenance Travel to jobs Customer billing and service Activity Measure Square feet of lawn Square feet of low maintenance beds Square feet of high maintenance beds Miles Number of customers

customers, and the number of customers. In addition, the costs of maintaining garden beds depends on whether the beds are low maintenance beds (mainly ordinary trees and shrubs) or high maintenance beds (mainly flowers and exotic plants). Accordingly, the company uses the five activity cost pools listed below: Activity Cost Pool Caring for lawn Caring for garden bedslow maintenance Caring for garden bedshigh maintenance Travel to jobs Customer billing and service Activity Measure Square feet of lawn Square feet of low maintenance beds Square feet of high maintenance beds Miles Number of customers

The company has already completed its first stage allocations of costs and has summarized its annual costs and activity as follows: Estimated Overhead Cost $ 72,000 $ 26,400 $ 41,400 $ 3,250 $ 8,750

The company has already completed its first stage allocations of costs and has summarized its annual costs and activity as follows: Estimated Overhead Cost $ 72,000 $ 26,400 $ 41,400 $ 3,250 $ 8,750

Activity cost Pool Caring for lawn Caring for garden bedslow maintenance Caring for garden bedshigh maintenance Travel to jobs Customer billing and service

Expected Activity 150,000 square feet of lawn 20,000 square feet of low maintenance beds square feet of high maintenance beds 12,500 miles 25 customers 15,000

Activity cost Pool Caring for lawn Caring for garden bedslow maintenance Caring for garden bedshigh maintenance Travel to jobs Customer billing and service

Expected Activity 150,000 square feet of lawn 20,000 square feet of low maintenance beds square feet of high maintenance beds 12,500 miles 25 customers 15,000

Required: Compute the activity rate for each of the activity cost pools. (Round your answers to 2 decimal places. Omit the "$" sign in your response.) Activity Cost Pool Caring for lawn Caring for garden bedslow maintenance Caring for garden bedshigh maintenance Travel to jobs Customer billing and service $ $ $ .48 (20%) 1.32 (20%) Activity Rate per square foot of lawn per square foot of low maintenance beds per square foot of high maintenance beds per mile per customer

Required: Compute the activity rate for each of the activity cost pools. (Round your answers to 2 decimal places. Omit the "$" sign in your response.) Activity Cost Pool Caring for lawn Caring for garden bedslow maintenance Caring for garden bedshigh maintenance Travel to jobs Customer billing and service $ $ $ $ $ Activity Rate .48 per square foot of lawn per square foot of low maintenance 1.32 beds per square foot of high maintenance 2.76 beds .26 per mile 350 per customer

2.76 (20%) $ .26 (20%) $ 350 (20%)

Feedback: Estimated Overhead cost $ 72,000 $ 26,400

Activity Cost Pool Caring for lawn Caring for garden beds low maintenance Caring for garden beds high maintenance Travel to jobs Customer billing and service

Expected Activity 150,000 square feet of lawn 20,000 square feet of low maintenance beds square feet of high maintenance beds

Activity Rate per square foot of $ 0.48 lawn $ 1.32 per square foot of low maintenance beds $ 2.76 per square foot of high maintenance beds $ 0.26 per miles $ 350 per Customer

$ 41,400

15,000

$ $

3,250 8,750

12,500 miles 25 customers

The activity rate for each activity cost pool is computed by dividing its estimated overhead cost by its expected activity.

Question 12: Score 3.33/5 Your response Correct response Exercise 8-5 Product and Customer Profitability Analysis [LO4, LO5] Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management has designed an activity-based costing system with the following activity cost pools and activity rates: Activity Cost Pool Supporting direct labor Order processing Custom designing processing Customer service Activity Rate per direct labor-hour per order per custom design per customer

Exercise 8-5 Product and Customer Profitability Analysis [LO4, LO5] Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management has designed an activity-based costing system with the following activity cost pools and activity rates: Activity Cost Pool Supporting direct labor Order processing Custom designing processing Customer service Activity Rate $ 26 per direct labor-hour $ 284 per order $ 186 per custom design $ 379 per customer

$ $ $ $

26 284 186 379

Management would like an analysis of the profitability of a particular customer, Big Sky Outfitters, which has ordered the following products over the last 12 months: Standard Model 20 1 0 26.35 $ 1,850 $ 564 Custom Design 3 3 3 28.0 $ 2,400 $ 634

Management would like an analysis of the profitability of a particular customer, Big Sky Outfitters, which has ordered the following products over the last 12 months: Standard Model 20 1 0 26.35 $ 1,850 $ 564 Custom Design 3 3 3 28.0 $ 2,400 $ 634

Number of gliders Number of orders Number of custom designs Direct labor-hours per glider Selling price per glider Direct materials cost per glider

Number of gliders Number of orders Number of custom designs Direct labor-hours per glider Selling price per glider Direct materials cost per glider

The company's direct labor rate is $19.50 per hour. Required: Using the company's activity-based costing system, compute the customer margin of Big Sky Outfitters. (Round your answers to the nearest dollar amount. Omit the "$" sign in your response.) Sales Costs: Direct materials Direct labor Supporting direct labor Order processing Custom designing Customer service Customer margin $ $ 35742 (0%) 11915 (11%) 15886 (11%) 1136 (11%) 558 (11%) 379 (11%) $ 44200 (11%)

The company's direct labor rate is $19.50 per hour. Required: Using the company's activity-based costing system, compute the customer margin of Big Sky Outfitters. (Round your answers to the nearest dollar amount. Omit the "$" sign in your response.) 44200

65616 21416

(0%) (0%)

Sales Costs: Direct materials Direct labor Supporting direct labor Order processing Custom designing Customer service

$ $ 13,182 11915 15886 1136 558 379

Customer margin

43,056 with a tolerance of 0.5 1,144 $ with a

tolerance of 0.5

Total grade: 1.01/9 + 0.01/9 + 1.01/9 + 1.01/9 + 1.01/9 + 1.01/9 + 1.01/9 + 0.01/9 + 0.01/9 = 11% + 0% + 11% + 11% + 11% + 11% + 11% + 0% + 0% Feedback: Sales ($1,850 per standard model glider 20 standard model gliders + $2,400 per custom designed glider 3 custom designed gliders) Costs: Direct materials ($564 per standard model glider 20 standard model gliders + $634 per custom designed glider 3 custom designed gliders) Direct labor ($19.50 per direct labor-hour 26.35 direct labor-hours per standard model glider 20 standard model gliders + $19.50 per direct labor-hour 28 direct labor-hours per custom designed glider 3 custom designed gliders) Supporting direct labor ($26 per direct labor-hour 26.35 direct labor-hours per standard model glider 20 standard model gliders + $26 per direct labor-hour 28 direct labor-hours per custom designed glider 3 custom designed gliders) Order processing ($284 per order 4 orders) Custom designing ($186 per custom design 3 custom designs) Customer service ($379 per customer 1 customer) Customer margin

$ 44,200

$ 13,182

11,915

15,886 1,136 558 379

43,056 $ 1,144

Question 13: Score 4.28/5 Your response Correct response

Exercise 8-6 Activity Measures [LO1] Various activities at Ming Corporation, a manufacturing company, are listed below. Each activity has been classified as a unit-level, batch-level, product-level, or customer-level activity. Complete the table by providing an example of an activity measure for each activity. Level of Activity Unit

Exercise 8-6 Activity Measures [LO1] Various activities at Ming Corporation, a manufacturing company, are listed below. Each activity has been classified as a unit-level, batch-level, product-level, or customer-level activity. Complete the table by providing an example of an activity measure for each activity. Examples of Activity Measures Number of units processed; machine- a. hours (0%) b. Number of new products designed; hours of design time (14%) c. Number of setups; setup hours (14%) d. Number of units processed; machinehours (14%) Number of bills sent;e. time spent preparing f. bills (14%) Number of loads Activity Direct labor workers assemble a product Products are designed by engineers Equipment is set up Machines are used to shape and cut materials Level of Activity Unit Product Batch Unit Examples of Activity Measures Direct labor-hours Number of new products designed; hours of design time Number of setups; setup hours Number of units processed; machinehours Number of bills sent; time spent preparing bills Number of loads transferred; time spent

Activity a. Direct labor workers assemble a product

b. Products are designed by engineers c. Equipment is set up d. Machines are used to shape and cut materials

Product Batch Unit

Monthly bills are sent out to regular customers Materials are moved from the receiving dock to production lines

Customer Batch

e. Monthly bills are sent out to regular customers f. Materials are moved from the receiving dock to production lines

Customer Batch

g. All completed units are inspected for defects

Unit

transferred; time spent moving materials (14%) Number of units g. All completed units are inspected for defects inspected; Inspection hours (14%)

Unit

moving materials Number of units inspected; Inspection hours

Total grade: 0.01/7 + 1.01/7 + 1.01/7 + 1.01/7 + 1.01/7 + 1.01/7 + 1.01/7 = 0% + 14% + 14% + 14% + 14% + 14% + 14% Feedback: 1. In all cases except for direct labor in part (a), two activity measures are listed. The first is a "transaction driver" and the second is a "duration driver." Transaction drivers are simple counts of the number of times an activity occurs such as the number of times materials are moved. Duration drivers are measures of the amount of time required to perform an activity such as the time spent moving materials. In general, duration drivers are more accurate measures of the consumption of resources than transaction drivers, but they take more effort to record.

Question 14: Score 3.75/5

Your response Exercise 8-7 Computing ABC Product Costs [LO3, LO4] Fogerty Company makes two products, titanium Hubs and Sprockets. Data regarding the two products follow: Direct Labor-Hours per Unit 0.80 0.40 Annual Production 10,000 units 40,000 units

Correct response Exercise 8-7 Computing ABC Product Costs [LO3, LO4] Fogerty Company makes two products, titanium Hubs and Sprockets. Data regarding the two products follow: Direct Labor-Hours per Unit 0.80 0.40 Annual Production 10,000 units 40,000 units

Hubs Sprockets

Hubs Sprockets

Additional information about the company follows: a. Hubs require $32 in direct materials per unit, and Sprockets require $18. b. The direct labor wage rate is $15 per hour. c. Hubs are more complex to manufacture than Sprockets and they require special processing. d. The ABC system has the following activity cost pools: Estimated Overhead Cost $ 72,000 $ 200,000 $ 816,000 Activity Hubs Sprockets 100 300 5,000 0 8,000 16,000 Total 400 5,000 24,000

Additional information about the company follows: a. Hubs require $32 in direct materials per unit, and Sprockets require $18. b. The direct labor wage rate is $15 per hour. c. Hubs are more complex to manufacture than Sprockets and they require special processing. d. The ABC system has the following activity cost pools: Estimated Overhead Cost $ 72,000 $ 200,000 $ 816,000 Activity Hubs Sprockets 100 300 5,000 0 8,000 16,000 Total 400 5,000 24,000

Activity Cost Pool Machine setups Special processing General factory

Activity Measure Number of setups Machine-hours Direct labor-hours

Activity Cost Pool Machine setups Special processing General factory

Activity Measure Number of setups Machine-hours Direct labor-hours

Requirement 1: Compute the activity rate for each activity cost pool. (Omit the "$" sign in your response.) Activity Cost Pool Machine setups Special processing General factory Activity Rate $ 180 (33%) per setup $ 40 (33%) per MH $ 34 (33%) per DLH

Requirement 1: Compute the activity rate for each activity cost pool. (Omit the "$" sign in your response.) Activity Cost Pool Machine setups Special processing General factory $ $ $ Activity Rate 180 per setup 40 per MH 34 per DLH

Feedback: Activity rates are computed as follows: (a) Estimated Overhead Cost $ 72,000 $ 200,000 $ 816,000 (b) Expected Activity 400 setups 5,000 MHs 24,000 DLHs

Activity Cost Pool Machine setups Special processing General factory

(a) (b) Activity Rate $ 180 per setup $ 40 per MH $ 34 per DLH

Your response Requirement 2: Determine the unit cost of each product according to the ABC system, including direct materials and direct labor. (Round your answers to 2 decimal places. Omit the "$" sign in your response.) Direct materials Direct labor Overhead Unit cost $ Hubs 32 (13%) 15.8 (0%) 49 (13%) 96.80 (0%) $ Sprockets 18 (13%) 15.4 (0%) 14.95 (13%) 48.35 (0%)

Correct response Requirement 2: Determine the unit cost of each product according to the ABC system, including direct materials and direct labor. (Round your answers to 2 decimal places. Omit the "$" sign in your response.) Direct materials Direct labor Overhead Unit cost Hubs $ 32 12 49 $ 93 Sprockets 18 $ 6 14.95 $ 38.95

Total grade: 1.01/8 + 1.01/8 + 0.01/8 + 0.01/8 + 1.01/8 + 1.01/8 + 0.01/8 + 0.01/8 = 13% + 13% + 0% + 0% + 13% + 13% + 0% + 0% Feedback: Overhead is assigned to the two products as follows: Hubs: Activity Cost Pool Machine setups Special processing General factory Total (a) Activity Rate $ 180 per setup $ 40 per MH $ 34 per DLH (b) Activity 100 setups 5,000 MHs 8,000 DLHs (a) (b) ABC Cost $ 18,000 200,000 272,000 $ 490,000

Sprockets: Activity Cost Pool Machine setups Special processing General factory Total (a) Activity Rate per $ 180 setup $ 40 per MH per $ 34 DLH (b) Activity 300 setups 0 MHs 16,000 DLHs (a) (b) ABC Cost $ 54,000 0 544,000 $ 598,000

Direct materials Direct labor: $15 per DLH 0.80 DLHs per unit $15 per DLH 0.40 DLHs per

Hubs $ 32.00 12.00

Sprockets $ 18.00

6.00

unit Overhead: $490,000 10,000 units $598,000 40,000 units Unit cost

49.00 $ 93.00 14.95 $ 38.95

Question 15: Score 5/5 Your response Correct response Exercise 8-8 Second-Stage Allocation to an Order [LO4] Durban Metal Products, Ltd., of the Republic of South Africa makes specialty metal parts used in applications ranging from the cutting edges of bulldozer blades to replacement parts for Land Rovers. The company uses an activity-based costing system for internal decision-making purposes. The company has four activity cost pools as listed below: Activity Cost Pool Order size R16.85 per direct labor-hour R320.00 per customer order R89.00 per testing hour R1,090.00 per sales call Customer orders Product testing Selling Activity Measure Activity Rate per direct laborhour per customer order per testing hour per sales call

Exercise 8-8 Second-Stage Allocation to an Order [LO4] Durban Metal Products, Ltd., of the Republic of South Africa makes specialty metal parts used in applications ranging from the cutting edges of bulldozer blades to replacement parts for Land Rovers. The company uses an activity-based costing system for internal decision-making purposes. The company has four activity cost pools as listed below: Activity Cost Pool Order size Customer orders Product testing Selling Activity Measure Number of direct laborhours Number of customer orders Number of testing hours Number of sales calls Activity Rate

Number of direct laborR16.85 hours Number of customer orders R320.00 Number of testing hours R89.00 Number of sales calls R1,090.00

Note: The currency in South Africa is the Rand, denoted here by R. The managing director of the company would like information concerning the cost of a recently completed order for heavy-duty trailer axles. The order required 200 direct labor-hours, 4 hours of product testing, and 2 sales calls. Required: Determine the total overhead cost of the order for heavy-duty trailer axles according to the activity based costing system. (Omit the "R" sign in your response.) Activity Cost Pool Order size Customer orders Product testing Selling Total ABC cost 3370 (20%) R 320 (20%) 356 (20%) 2180 (20%) R 6226 (20%)

Note: The currency in South Africa is the Rand, denoted here by R. The managing director of the company would like information concerning the cost of a recently completed order for heavy-duty trailer axles. The order required 200 direct labor-hours, 4 hours of product testing, and 2 sales calls. Required: Determine the total overhead cost of the order for heavy-duty trailer axles according to the activity based costing system. (Omit the "R" sign in your response.) Activity Cost Pool Order size Customer orders Product testing Selling Total ABC cost R 3370 320 356 2180 R 6226

Feedback: Activity Cost Pool Order size Customer orders Product testing Selling Total (a) Activity Rate R 16.85 per direct labor-hour R 320.00 per customer order per product testing R 89.00 hour R 1,090.00 per sales call (b) Activity direct labor-hours customer order product testing hours sales calls (a) (b) ABC Cost R 3,370 320 356 2,180 R 6,226

200 1 4 2

According to these calculations, the total overhead cost of the order is R 6,226

Question 16: Score 2.22/5 Your response Exercise 8-11 Cost Hierarchy [LO1] CD Express, Inc., provides CD duplicating services to software companies. The customer provides a master CD from which CD Express makes copies. An order from a customer can be for a single copy or for thousands of copies. Most jobs are broken down into batches to allow smaller jobs, with higher priorities, to have access to the machines. Required: Classify each of the activities above as either a unit-level, batch-level, product-level, customer-level, or organization-sustaining activity. An order to duplicate a particular CD is a product-level activity. Assume the order is large enough that it must be broken down into batches. Activity a. Sales representatives' periodic visits to customers to keep them informed about the services provided by CD Express. b. Ordering labels from the printer for a particular CD. c. Setting up the CD duplicating machine to make copies from a particular master CD. d. Loading the automatic labeling machine with labels for a particular CD. e. Visually inspecting CDs and placing them by hand into protective plastic cases prior to shipping. f. Preparation of the shipping documents for the order. g. Periodic maintenance of equipment. h. Lighting and heating the company's production facility. i. Preparation of quarterly financial reports. Activity Level Customerlevel (11%) Batchlevel (0%) Unitlevel (0%) Batchlevel (11%) Unit-level (11%) Customerlevel (0%) Unitlevel (0%) Unitlevel (0%) Organizationsustaining (11%) Correct response Exercise 8-11 Cost Hierarchy [LO1] CD Express, Inc., provides CD duplicating services to software companies. The customer provides a master CD from which CD Express makes copies. An order from a customer can be for a single copy or for thousands of copies. Most jobs are broken down into batches to allow smaller jobs, with higher priorities, to have access to the machines. Required: Classify each of the activities above as either a unit-level, batch-level, product-level, customer-level, or organization-sustaining activity. An order to duplicate a particular CD is a product-level activity. Assume the order is large enough that it must be broken down into batches. Activity Sales representatives' periodic visits to customers to keep them informed about the services provided by CD Express. Ordering labels from the printer for a particular CD. Setting up the CD duplicating machine to make copies from a particular master CD. Loading the automatic labeling machine with labels for a particular CD. Visually inspecting CDs and placing them by hand into protective plastic cases prior to shipping. Preparation of the shipping documents for the order. Activity Level Customerlevel Product-level Batch-level Batch-level Unit-level Product-level Organizationsustaining Organizationsustaining Organizationsustaining

a. b. c. d. e. f.

g. Periodic maintenance of equipment. h. Lighting and heating the company's production facility. i. Preparation of quarterly financial reports.

Total grade: 1.01/9 + 0.01/9 + 0.01/9 + 1.01/9 + 1.01/9 + 0.01/9 + 0.01/9 + 0.01/9 + 1.01/9 = 11% + 0% + 0% + 11% + 11% + 0% + 0% + 0% + 11% Feedback: The cost of the labels themselves would be part of direct materials. b. Ordering labels from the printer for a particular CD d. Loading the automatic labeling machine with labels for a particular CD

Question 17: Score 5/5 Your response Exercise 8-12 Second-Stage Allocations and Margin Calculations [LO4, LO5] Foam Products, Inc., makes foam seat cushions for the automotive and aerospace industries. The company's activity-based costing system has four activity cost pools, which are listed below along with their activity measures and activity rates: Activity Cost Pool Supporting direct labor Activity Measure Number of direct laborhours Activity Rate per direct labor5.55 hour Correct response Exercise 8-12 Second-Stage Allocations and Margin Calculations [LO4, LO5] Foam Products, Inc., makes foam seat cushions for the automotive and aerospace industries. The company's activity-based costing system has four activity cost pools, which are listed below along with their activity measures and activity rates: Activity Cost Pool Supporting direct labor Activity Measure Number of direct laborActivity Rate 5.55 per direct labor-

Batch processing Order processing Customer service

Number of batches Number of orders Number of customers

$ 107.00 per batch $ 275.00 per order $ 2,463.00 per customer

The company just completed a single order from Interstate Trucking for 1,000 custom seat cushions. The order was produced in two batches. Each seat cushion required 0.25 direct labor-hours. The selling price was $20 per unit, the direct materials cost was $8.50 per unit, and the direct labor cost was $6.00 per unit. This was Interstate Trucking's only order during the year. Required: Prepare a report showing the customer margin on sales to Interstate Trucking for the year. (Enter all amounts as postitive numbers. Round your answers to 2 decimal places. Omit the "$" sign in your response.) Customer MarginABC Analysis 20000 (11%) Sales $ Costs: 8500 (11%) Direct materials $ 6000 (11%) Direct labor Supporting direct 1387.50 (11%) labor 214 (11%) Batch processing 275 (11%) Order processing Customer service 2463 (11%) 18839.50 (11%) overhead Customer margin $ 1160.50 (11%)

Batch processing Order processing Customer service

hours Number of batches Number of orders Number of customers

hour $ 107.00 per batch $ 275.00 per order $ 2,463.00 per customer

The company just completed a single order from Interstate Trucking for 1,000 custom seat cushions. The order was produced in two batches. Each seat cushion required 0.25 direct labor-hours. The selling price was $20 per unit, the direct materials cost was $8.50 per unit, and the direct labor cost was $6.00 per unit. This was Interstate Trucking's only order during the year. Required: Prepare a report showing the customer margin on sales to Interstate Trucking for the year. (Enter all amounts as postitive numbers. Round your answers to 2 decimal places. Omit the "$" sign in your response.) Customer MarginABC Analysis Sales Costs: 8500 Direct materials $ 6000 Direct labor 1387.50 Supporting direct labor 214 Batch processing 275 Order processing 2463 Customer service overhead Customer margin

20000

18839.50 $ 1160.50

Feedback: Sales (1,000 seats $20 per unit) = $20,000.00 Direct materials ($8.50 per unit 1,000 seats) = $8,500.00 Direct labor ($6.00 per unit 1,000 seats) = 6,000.00 Supporting direct labor ($5.55 per DLH 0.25 DLH per unit 1,000 seats) = 1,387.50 Batch processing ($107 per batch 2 batches) = 214.00 Order processing ($274 per order 1 order) = 275.00 Customer service overhead ($2,463 per customer 1 customer) = 2,463.00

Question 18: Score 0/5

Your response Exercise 8-13 Contrasting Traditional and ABC Product Costs [LO1, LO5] Model X100 sells for $120 per unit whereas Model X200 offers advanced features and sells for $500 per unit. Management expects to sell 50,000 units of Model X100 and 5,000 units of Model X200 next year. The direct material cost per unit is $50 for Model X100 and $220 for Model X200. The company's total manufacturing overhead for the year is expected to be $1,995,000. A unit of Model X100 requires 2 direct labor-hours and a unit of Model X200 requires 5 direct labor-hours. The direct labor wage rate is $20 per hour. Requirement 1: (a) Calculate the predetermined overhead rate. (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Correct response Exercise 8-13 Contrasting Traditional and ABC Product Costs [LO1, LO5] Model X100 sells for $120 per unit whereas Model X200 offers advanced features and sells for $500 per unit. Management expects to sell 50,000 units of Model X100 and 5,000 units of Model X200 next year. The direct material cost per unit is $50 for Model X100 and $220 for Model X200. The company's total manufacturing overhead for the year is expected to be $1,995,000. A unit of Model X100 requires 2 direct labor-hours and a unit of Model X200 requires 5 direct labor-hours. The direct labor wage rate is $20 per hour. Requirement 1: (a) Calculate the predetermined overhead rate. (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Predetermined overhead rate

36.27

(0%)

Predetermined overhead rate

$ 15.96

Total grade: 0.01/1 = 0% Feedback: Under the traditional direct labor-hour based costing system, manufacturing overhead is applied to products using the predetermined overhead rate computed as follows:

*50,000 units of Model X100 @ 2.0 DLH per unit + 5,000 units of Model X200 @ 5.0 DLH per unit = 100,000 DLHs + 25,000 DLHs = 125,000 DLHs

Your response (b) Using this traditional approach, compute the product margins for X100 and X200. (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.) Model X100 Product margin $ 313500 (0%) $ Model X200 718650 (0%) $ Total 405150 (0%) Product margin

Correct response (b) Using this traditional approach, compute the product margins for X100 and X200. (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.) Model X100 $ 96,000 Model X200 $ 501,000 Total $ 405,000

Total grade: 0.01/3 + 0.01/3 + 0.01/3 = 0% + 0% + 0% Feedback: Consequently, the product margins using the traditional approach would be computed as follows: Model X100 Sales Direct materials Direct labor Manufacturing overhead applied @ $15.96 per direct labor-hour Total manufacturing cost Product margin $ 6,000,000 2,500,000 2,000,000 1,596,000 $ 6,096,000 (96,000) Model X200 $ 2,500,000 1,100,000 500,000 399,000 1,999,000 $ 501,000 Total $ 8,500,000 3,600,000 2,500,000 1,995,000 8,095,000 $ 405,000

Note that all of the manufacturing overhead cost is applied to the products under the company's traditional costing system.

Your response Requirement 2: Management is considering an activity-based costing system and would like to know what impact this would have on product costs. Preliminary analysis suggests that under activity-based costing, a

Correct response Requirement 2: Management is considering an activity-based costing system and would like to know what impact this would have on product costs. Preliminary analysis suggests that under activity-based costing, a

total of $1,000,000 in manufacturing overhead cost would be assigned to Model X100 and a total of $600,000 would be assigned to Model X200. In addition, a total of $150,000 in nonmanufacturing overhead would be applied to Model X100 and a total of $350,000 would be applied to Model X200. Using the activity-based costing approach, compute the product margins for X100 and X200. (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.) Model X100 Product margin $ -313500 (0%) $ Model X200 718650 (0%) $ Total 405150 (0%)

total of $1,000,000 in manufacturing overhead cost would be assigned to Model X100 and a total of $600,000 would be assigned to Model X200. In addition, a total of $150,000 in nonmanufacturing overhead would be applied to Model X100 and a total of $350,000 would be applied to Model X200. Using the activity-based costing approach, compute the product margins for X100 and X200. (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.) Model X100 Product margin $ 350,000 Model X200 $ 50,000 Total $ 300,000

Total grade: 0.01/3 + 0.01/3 + 0.01/3 = 0% + 0% + 0% Feedback: Under the activity-based costing system, the product margins would be computed as follows: Sales Direct materials Direct labor Manufacturing overhead applied Nonmanufacturing overhead applied Total cost Product margin Model X100 Model X200 Total $ 6,000,000 $ 2,500,000 $ 8,500,000 2,500,000 1,100,000 3,600,000 2,000,000 500,000 2,500,000 1,000,000 600,000 1,600,000 150,000 350,000 500,000 8,200,000 $ 300,000

5,650,000 2,550,000 $ 350,000 $ (50,000)

Question 19: Score 4.91/5

Your response Exercise 8-14 Comprehensive Activity-Based Costing Exercise [LO2, LO3, LO4, LO5] Advanced Products Corporation has supplied the following data from its activity-based costing system: Overhead Costs Wages and salaries Other overhead costs Total overhead costs $ 300,000 100,000 $ 400,000

Correct response Exercise 8-14 Comprehensive Activity-Based Costing Exercise [LO2, LO3, LO4, LO5] Advanced Products Corporation has supplied the following data from its activity-based costing system: Overhead Costs Wages and salaries Other overhead costs Total overhead costs $ 300,000 100,000 $ 400,000

Activity Cost Pool Supporting direct labor Order processing Customer support Other

Activity Measure Number of direct labor-hours Number of customer orders Number of customers This is an organizationsustaining activity

Total Activity for the year 20,000 DLHs 400 orders 200 customers Not applicable

Activity Cost Pool Supporting direct labor Order processing Customer support Other

Activity Measure Number of direct labor-hours Number of customer orders Number of customers This is an organizationsustaining activity

Total Activity for the year 20,000 DLHs 400 orders 200 customers Not applicable

Distribution of Resource Consumption Across Activities Supporting Direct Order Customer Labor Processing Support Wages and salaries 40% 30% 20% Other overhead costs 30% 10% 20%

Other 10% 40%

Total 100% 100%

Distribution of Resource Consumption Across Activities Supporting Direct Order Customer Labor Processing Support Wages and salaries 40% 30% 20% Other overhead costs 30% 10% 20%

Other 10% 40%

Total 100% 100%

During the year, Advanced Products completed one order for a new customer, Shenzhen Enterprises. This customer did not order any other products during the year. Data concerning that order follow: Data concerning the Shenzhen Enterprises Order Units ordered 10 units Direct labor-hours 2 DLHs per unit Selling price $ 300 per unit Direct materials $ 180 per unit Direct labor $ 50 per unit

During the year, Advanced Products completed one order for a new customer, Shenzhen Enterprises. This customer did not order any other products during the year. Data concerning that order follow: Data concerning the Shenzhen Enterprises Order Units ordered 10 units Direct labor-hours 2 DLHs per unit Selling price $ 300 per unit Direct materials $ 180 per unit Direct labor $ 50 per unit

Requirement 1: Prepare a report showing the first-stage allocations of overhead costs to the activity cost pools. (Omit the "$" sign in your response.) Direct Labor Support $ 120000 (7%) 30000 (7%) $ 150000 (7%) Order Processing $ 90000 (7%) 10000 (7%) $ 100000 (7%) Customer Support $ 60000 (7%) 20000 (7%) $ 80000 (7%) Other $ 30000 (7%) 40000 (7%) $ 70000 (7%) Totals $ 300000 (7%) 100000 (7%) $ 400000 (7%)

Requirement 1: Prepare a report showing the first-stage allocations of overhead costs to the activity cost pools. (Omit the "$" sign in your response.) Direct Labor Support $ 120000 30000 $ 150000 Order Customer Processing Support $ 90000 $ 60000 10000 20000 $ 100000 $ 80000

Wages and salaries Other overhead costs Total cost

Wages and salaries Other overhead costs Total cost

Other $ 30000 40000 $ 70000

Totals $ 300000 100000 $ 400000

Your response Requirement 2: Compute the activity rates for the activity cost pools. (Round the direct labour support to 2 decimal places. Omit the "$" sign in your response.) Activity Cost Pools Supporting direct labor Order processing Customer support Feedback: Computation of activity rates: Activity Cost Pools Supporting direct labor Order processing Customer support (a) Total Cost $ 150,000 $ 100,000 $ 80,000 (b) Total Activity 20,000 DLHs 400 orders 200 customers (a) (b) Activity Rate $ 7.50 per DLH $ 250 per order $ 400 per customer Activity Rate $ 7.5 (33%) per DLH $ 250 (33%) per order $ 400 (33%) per customer

Correct response Requirement 2: Compute the activity rates for the activity cost pools. (Round the direct labour support to 2 decimal places. Omit the "$" sign in your response.) Activity Cost Pools Supporting direct labor Order processing Customer support $ $ $ Activity Rate 7.5 per DLH 250 per order 400 per customer

Your response

Correct response

Requirement 3: Determine the overhead costs for the order from Shenzhen Enterprises, including customer support costs. (Omit the "$" sign in your response.) Activity Cost Pool Supporting direct labor Order processing Customer support Total ABC Cost $ 150 (25%) 250 (25%) 400 (25%) $ 800 (25%)

Requirement 3: Determine the overhead costs for the order from Shenzhen Enterprises, including customer support costs. (Omit the "$" sign in your response.) Activity Cost Pool Supporting direct labor Order processing Customer support Total ABC Cost $ 150 250 400 $ 800

Feedback: Computation of the overhead costs for the Shenzhen Enterprises order: (a) x (b) (a) Activity Rate $ 7.50 per DLH 250 per order $ 400 per customer (b) Activity 20 DLHs* 1 order 1 customer ABC Cost $ 150 250 400 $ 800

Activity Cost Pool Supporting direct labor Order processing Customer support Total

*2 DLHs per unit 10 units = 20 DLHs

Your response Requirement 4: Prepare a report showing the customer margin for Shenzhen Enterprises. (Enter all amounts as postitive numbers. Omit the "$" sign in your response.) Customer Margin-ABC Analysis Sales (7%) Costs: Direct materials (7%) $ 1800 (7%) Direct labor (7%) 500 (7%) Supporting direct labor overhead (7%) 150 (7%) Order processing overhead (7%) 250 (7%) Other (0%) 400 (7%) Customer margin Negative (7%) $ 3000 (7%)

Correct response Requirement 4: Prepare a report showing the customer margin for Shenzhen Enterprises. (Enter all amounts as postitive numbers. Omit the "$" sign in your response.) Customer Margin-ABC Analysis Sales Costs: Direct materials $ Direct labor Supporting direct labor overhead Order processing overhead Customer support overhead Customer margin Negative $ 1800 500 150 250 400 $ 3000

3100 (7%) $ 100 (7%)

3100 100

E8_14_id26 E8_14_id28 E8_14_id30 E8_14_id32 E8_14_id34

E8_14_id26 E8_14_id28 E8_14_id30 E8_14_id32 E8_14_id34

Total grade: 1.01/15 + 1.01/15 + 1.01/15 + 1.01/15 + 1.01/15 + 1.01/15 + 1.01/15 + 1.01/15 + 1.01/15 + 1.01/15 + 0.01/15 + 1.01/15 + 1.01/15 + 1.01/15 + 1.01/15 = 7% + 7% + 7% + 7% + 7% + 7% + 7% + 7% + 7% + 7% + 0% + 7% + 7% +

7% + 7% Feedback: Sales (10 units $300 per unit) = $3,000 Direct materials ($180 per unit 10 units) = $1,800 Direct labor ($50 per DLH 10 DLH per unit) = $500

Question 20: Score 5/5

Your response Exercise 8-15 Calculating and Interpreting Activity-Based Costing Data [LO3, LO4] Hiram's Lakeside is a popular restaurant located on Lake Washington in Seattle. The owner of the restaurant has been trying to better understand costs at the restaurant and has hired a student intern to conduct an activity-based costing study. The intern, in consultation with the owner, identified three major activities and then completed the first-stage allocations of costs to the activity cost pools. The results appear below. Activity Cost Pool Serving a party of diners Serving a diner Serving drinks Activity Measure Number of parties served Number of diners served Number of drinks ordered Total Cost $ 33,000 $ 138,000 $ 24,000 Total Activity 6,000 parties 15,000 diners 10,000 drinks

Correct response Exercise 8-15 Calculating and Interpreting Activity-Based Costing Data [LO3, LO4] Hiram's Lakeside is a popular restaurant located on Lake Washington in Seattle. The owner of the restaurant has been trying to better understand costs at the restaurant and has hired a student intern to conduct an activity-based costing study. The intern, in consultation with the owner, identified three major activities and then completed the first-stage allocations of costs to the activity cost pools. The results appear below. Activity Cost Pool Serving a party of diners Serving a diner Serving drinks Activity Measure Number of parties served Number of diners served Number of drinks ordered Total Cost $ 33,000 $ 138,000 $ 24,000 Total Activity 6,000 parties 15,000 diners 10,000 drinks

The above costs include all of the costs of the restaurant except for organization-sustaining costs such as rent, property taxes, and top-management salaries. A group of diners who ask to sit at the same table are counted as a party. Some costs, such as the costs of cleaning linen, are the same whether one person is at a table or the table is full. Other costs, such as washing dishes, depend on the number of diners served. Prior to the activity-based costing study, the owner knew very little about the costs of the restaurant. She knew that the total cost for the month (including organization-sustaining costs) was $240,000 and that 15,000 diners had been served. Therefore, the average cost per diner was $16. Requirement 1: According to the activity-based costing system, what is the total cost of serving each of the following parties of diners? (Round your answers to 1 decimal place. Omit the "$" sign in your response.) Activity Cost Pools Serving parties Serving diners Serving drinks Activity Rate $ 5.5 (17%) per party $ 9.2 (17%) per diner $ 2.4 (17%) per drink

The above costs include all of the costs of the restaurant except for organization-sustaining costs such as rent, property taxes, and top-management salaries. A group of diners who ask to sit at the same table are counted as a party. Some costs, such as the costs of cleaning linen, are the same whether one person is at a table or the table is full. Other costs, such as washing dishes, depend on the number of diners served. Prior to the activity-based costing study, the owner knew very little about the costs of the restaurant. She knew that the total cost for the month (including organization-sustaining costs) was $240,000 and that 15,000 diners had been served. Therefore, the average cost per diner was $16. Requirement 1: According to the activity-based costing system, what is the total cost of serving each of the following parties of diners? (Round your answers to 1 decimal place. Omit the "$" sign in your response.) Activity Cost Pools Serving parties Serving diners Serving drinks $ $ $ Activity Rate 5.5 per party 9.2 per diner 2.4 per drink

A party of four diners who order three drinks in total. b. A party of two diners who do not order any drinks. c. A lone diner who orders two drinks. a. Feedback: 1. The first step is to determine the activity rates: Activity Cost Pools (a) (b)

$ 49.5 (17%) $ 23.9 (17%) $ 19.5 (17%)

a. A party of four diners who order three drinks in total. b. A party of two diners who do not order any drinks. c. A lone diner who orders two drinks.

$ 49.5 $ 23.9 $ 19.5

(a) (b)

Total Cost Total Activity Serving parties Serving diners Serving drinks $ 33,000 $138,000 $ 24,000 6,000 parties 15,000 diners 10,000 drinks

Activity Rate per $ 5.50 party per $ 9.20 diner per $ 2.40 drink

According to the activity-based costing system, the cost of serving each of the parties can be computed as follows: a. Party of 4 persons who order a total of 3 drinks: Activity Cost Pool Serving parties Serving diners Serving drinks Total (a) Activity Rate per $ 5.50 party per $ 9.20 diner per $ 2.40 drink (b) (a) (b) Activity ABC Cost 1 party 4 diners 3 drinks $ 5.50 36.80 7.20 $ 49.50

b. Party of 2 persons who order no drinks: Activity Cost Pool Serving parties Serving diners Serving drinks Total (a) Activity Rate per $ 5.50 party per $ 9.20 diner per $ 2.40 drink (b) (a) (b) Activity ABC Cost 1 party 2 diners 0 drinks $ 5.50 18.40 0 $ 23.90

c. Party of 1 person who orders 2 drinks: Activity Cost Pool Serving parties Serving diners Serving drinks Total (a) Activity Rate per $ 5.50 party per $ 9.20 diner per $ 2.40 drink (b) (a) (b) Activity ABC Cost 1 party 1 diners 2 drinks $ 5.50 9.20 4.80 $ 19.50

Your response Requirement 2: Convert the total costs you computed in (1) above to costs per diner. In other words, what is the average cost per diner for serving each of the following parties? (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

Correct response Requirement 2: Convert the total costs you computed in (1) above to costs per diner. In other words, what is the average cost per diner for serving each of the following parties? (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

A party of four diners who order three drinks in total. A party of two diners who do not order any b. drinks. a. c. A lone diner who orders two drinks.

per diner per $ 11.95 (33%) diner per $ 19.5 (33%) diner $ 12.38 (33%)

a. A party of four diners who order three drinks in total. b. A party of two diners who do not order any drinks. c. A lone diner who orders two drinks.

$ 12.38 per diner $ 11.95 per diner $ 19.5 per diner

Feedback: The average cost per diner for each party can be computed by dividing the total cost of the party by the number of diners in the party as follows: a. $49.50 4 diners = $12.375 per diner b. $23.90 2 diners = $11.95 per diner c. $19.50 1 diner = $19.50 per diner Requirement 3: The activity-based costing system itself does not recognize all of the differences in diners' demands on resources. State whether the statement is true or false. Your Answer: Choice Selected True False