Assignment on Activity Based Costing Q.

1 The controller of Delphi Automotive Systems Ltd decides to interview key managers of the Design, Engineering, and Production departments. Each manager is to indicate the consensus choice among department personnel of the cost driver of variable manufacturing overhead costs for his or her department. Summary data are


D Variable Manufacturing Overhead ep ar t m en t Rs 78,000 59,200 4,80,000 6,17,200

Cost Driver

Engineering Production

CAD designhours Engineeringhours Machine-hours

Details pertaining to usage of these cost drivers for each of the three contracts are: Department Cost Driver Design Engineering Production Tata Motors design- 220 140 240 Maruti Udyog 400 120 5,600 Hyundai Motors 160 480 2,160

CAD hours Engineeringhours Machine-hours

1. What is the variable manufacturing overhead rate for each department in current year? 2. What is the variable manufacturing overhead allocated to each contract in current year using department variable manufacturing overhead rates? 3. Compare your answer in requirement 2 to that in requirement 2 of Exercise 5-21. Comment on the results. Q. 2

has recommended that Samsonite use department overhead rates. Aditya. The maintenance Department and Power Department provide services to the three manufacturing departments. locks.200 71.500 Rs 2.000 32.000 73.400 1.000 45.000 42. . component. and effort are required for each of the various cases.400 25 320 1.700 10 120 Estimated costs are Rs 8. manufactures a complete line of fiberglass suitcases. They are presented (in thousands) by department in the following table: Particulars Department operating data Direct manufacturing labor-hours Machine-hours Department costs Direct manufacturing materials Direct manufacturing labor Manufacturing overhead Total department costs Uses of support departments Estimated usage of maintenance resources in laborhours for coming year Estimated usage of power (in kilowatt-hours) for coming year Manufacturing department Molding Component Assembly 500 875 Rs 24. and assembly) and two support departments (maintenance and power).32. hinges. time. Varying amounts of materials.000 40.000 for the Maintenance Department and Rs 36.The Samsonite Ltd. The budgeted rate is calculated dividing the company’s total budgeted manufacturing overhead cost by the total budgeted direct manufacturing labor-hours to be worked in the three manufacturing departments.000 125 60. Direct manufacturing labor-hours are used to allocate the overhead to each product.500 24. manager of Cost Accounting. Samsonite has three manufacturing departments (molding. and so forth are manufactured in the Component Department.800 for the Power Department.800 7. Aditya has projected operating costs and production levels for the coming year. The frames. The sides of the cases are manufactured in the Molding Department. Samsonite has always used a plantwide manufacturing overhead rate. The cases are completed in the Assembly Department.800 90 360 2.

000. however. Calculate department overhead rates for the three manufacturing departments using a machine-hour allocation based for the Molding Department and a direct manufacturing labor-hour allocation base for the Component Department and Assembly Department. Follow these steps in developing the department rates: a. (BCL) buys coffee beans from around the world and roasts. Some of the coffees are very popular and sell in large volumes. Aditya has been asked to develop department overhead rates for comparison with the plantwide rate. The budgeted direct costs for one-kg bags of two of the company’s products are Direct materials Indian Rs 42 Malaysian Rs 32 . plus a markup on cost of 30 per cent. 2.1. for the coming year using the same method as used in the past.3 Should the Samsonite Ltd. use a plantwide rate or department rates to allocate overhead cost to its products? Explain your answer. Q. The budget direct-labor cost for current year totals Rs 6. 4. and packages them for resale. 3.00. including allocated overhead. there is substantial manufacturing overhead in the predominantly automated roasting and packing process. Required Calculate the plantwide overhead rate for Samsonite Ltd. further subdivide the department cost pools into activity-cost pools? Basista Coffee Ltd. which has been allocated on the basis of each product’s budgeted direct-labor cost. purchases and use of materials (mostly coffee beans) are budgeted to total Rs 60. b.00. Data for the current year budget include manufacturing overhead of Rs 30.000. Allocate the Maintenance Department and Power Department costs to the three manufacturing departments.000. Under what conditions should Samsonite Ltd. whereas a few of the newer blends sell in very low volumes (BCL) prices its coffee at budgeted cost. The major cost is direct materials.00. blends. The company uses relatively little direct labor.

000 500 100 Malaysian 2. . Particulars Expected sales Purchase orders Batches Setups Roasting-hours Blending-hours Packaging-hours Indian 1. 2. She has developed an activity-based analysis of current year budgeted manufacturing overhead costs shown in the following table.400 100 100 100 Data regarding the current year production of the Indian and Malaysian coffee follow. Activity Purchasing Materials handling Quality control Roasting Blending Packaging Cost driver Purchase orders Setups Batches Roasting-hours Blending-hours Packaging-hours Cost driver rate Rs 5.000 2. Determine the current year budgeted costs and selling prices of 1 kg of Indian coffee and 1 kg of Malaysian coffee.000 kgs 4 10 30 1. b.000 4.000 kg of Indian and the 2.000 kgs 4 4 12 20 10 2 Required 1. Indian coffee b.00. Use the controller’s activity-based approach to estimate the current year budgeted cost for 1 kg of a.Direct labor 3 3 BCL’s controller believes the existing costing system may be providing misleading cost information. Compare the results with those in requirement 1. Determine the company’s current year budgeted manufacturing overhead rate using direct-labor cost as the single allocation base.000 kg of Malaysian.00. Using BCL’s existing costing system: a. There will be no beginning or ending materials inventory for either of these coffees. Malaysian coffee Allocate all costs to the 1.

. Examine the implications of your answers to requirement 2 for BCL’s pricing and product-mix strategy.3.

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