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ACCT 311 - Exam 3 Review Ch 7 -9

1. Roskam Housecleaning provides housecleaning services to its clients. The company uses an activity-based
costing system for its overhead costs. The company has provided the following data from its activity-based
costing system.

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
One particular client, the Haan family, requested 49 jobs during the year that required a total of 245 hours of
housecleaning. For this service, the client was charged $2,500.

Required:

a. Compute the activity rates (i.e., cost per unit of activity) for the activity cost pools. Round off all calculations
to the nearest whole cent.
b. Using the activity-based costing system, compute the customer margin for the Haan family. Round off all
calculations to the nearest whole cent.
c. Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to
customers on the basis of cleaning hours. Compute the margin for the Haan family. Round off all calculations to
the nearest whole cent.
2. Wehr Inc. is preparing its cash budget for April. The budgeted beginning cash balance is $19,000. Budgeted
cash receipts total $105,000 and budgeted cash disbursements total $98,000. The desired ending cash balance is
$50,000. The company can borrow up to $120,000 at any time from a local bank, with interest not due until the
following month.

Required:

Prepare the company's cash budget for April in good form. Make sure to indicate what borrowing, if any, would
be needed to attain the desired ending cash balance.

3. Capati Corporation is working on its direct labor budget for the next two months. Each unit of output requires
0.41 direct labor-hours. The direct labor rate is $8.50 per direct labor-hour. The production budget calls for
producing 2,300 units in August and 2,200 units in September. The company guarantees its direct labor workers
a 40-hour paid work week. With the number of workers currently employed, that means that the company is
committed to paying its direct labor work force for at least 960 hours in total each month even if there is not
enough work to keep them busy.

Required:

Construct the direct labor budget for the next two months.
Exam 3 Review Key
1. Roskam Housecleaning provides housecleaning services to its clients. The company uses an activity-based
costing system for its overhead costs. The company has provided the following data from its activity-based
costing system.

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
One particular client, the Haan family, requested 49 jobs during the year that required a total of 245 hours of
housecleaning. For this service, the client was charged $2,500.

Required:

a. Compute the activity rates (i.e., cost per unit of activity) for the activity cost pools. Round off all calculations
to the nearest whole cent.
b. Using the activity-based costing system, compute the customer margin for the Haan family. Round off all
calculations to the nearest whole cent.
c. Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to
customers on the basis of cleaning hours. Compute the margin for the Haan family. Round off all calculations to
the nearest whole cent.
a. The computation of the activity rates follow:

b. The overhead cost charged to the family is:

The customer margin for the family is computed as follows:

c. The margin if all costs are allocated on the basis of cleaning hours:
Predetermined overhead rate = Estimated total overhead cost Estimated total amount of the allocation base =
$564,213 44,900 hours = $12.57 per hour

2. Wehr Inc. is preparing its cash budget for April. The budgeted beginning cash balance is $19,000. Budgeted
cash receipts total $105,000 and budgeted cash disbursements total $98,000. The desired ending cash balance is
$50,000. The company can borrow up to $120,000 at any time from a local bank, with interest not due until the
following month.

Required:

Prepare the company's cash budget for April in good form. Make sure to indicate what borrowing, if any, would
be needed to attain the desired ending cash balance.
3. Capati Corporation is working on its direct labor budget for the next two months. Each unit of output requires
0.41 direct labor-hours. The direct labor rate is $8.50 per direct labor-hour. The production budget calls for
producing 2,300 units in August and 2,200 units in September. The company guarantees its direct labor workers
a 40-hour paid work week. With the number of workers currently employed, that means that the company is
committed to paying its direct labor work force for at least 960 hours in total each month even if there is not
enough work to keep them busy.

Required:

Construct the direct labor budget for the next two months.