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Systems Design: Activity-Based Costing and Management: Management Accounting (Volume I) - Solutions Manual
Systems Design: Activity-Based Costing and Management: Management Accounting (Volume I) - Solutions Manual
CHAPTER 11
I. Questions
1. The three levels available are: Level 1, in which a company uses a
plantwide overhead rate; Level 2, in which a company uses departmental
overhead rates; and Level 3, in which a company uses activity-based
costing.
2. New approaches to costing are needed because events of the last few
decades have made drastic changes in many organizations. Automation
has greatly decreased the amount of direct labor required to manufacture
products; product diversity has increased in that companies are
manufacturing a wider range of products and these products differ
substantially in volume, lot size, and complexity of design; and total
overhead cost has increased to the point in some companies that a
correlation no longer exists between it and direct labor.
3. The departmental approach to assigning overhead cost to products relies
solely on volume as an assignment base. Where diversity exists between
products (that is, where products differ in terms of number of units
produced, lot size, or complexity of production), volume alone is not
adequate for overhead costing. Overhead costing based on volume will
systematically overcost high-volume products and undercost low-volume
products.
4. Process value analysis (PVA) is a systematic approach to gaining an
understanding of the steps associated with a product or service. It
identifies all resource-consuming activities involved in the production
process and labels these activities as being either value-added or non-
value-added. Thus, it is the beginning point in designing an activity-based
costing system since management must know what activities are involved
with each product before activity centers can be designated and cost
drivers established. Also, PVA helps management to eliminate any non-
value-added activities and thereby streamline operations and minimize
costs.
5. The four general levels of activities are:
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Chapter 11 Systems Design: Activity-Based Costing and Management
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Systems Design: Activity-Based Costing and Management Chapter 11
III. Exercises
Exercise 1
Examples of Examples of
Activity Traceable Cost
Activity Classification Costs Drivers
a. Materials are moved Batch-level Labor cost; Number of
from the receiving depreciation receipts;
dock to product flow of equipment; pounds handled
lines by a material- space cost
handling crew
b. Direct labor workers Unit-level Direct labor Direct labor-
assemble various cost; indirect hours
products labor cost;
labor benefits
c. Ongoing training is Facility-level* Space cost; Hours of
provided to all training costs; training time;
employees in the administration number trained
company costs
d. A product is Product-level Space cost; Hours of
designed by a supplies used; design time;
specialized design depreciation of number of
team design engineering
equipment change orders
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Chapter 11 Systems Design: Activity-Based Costing and Management
Exercise 2
IV. Problems
Problem 1
Requirement 1
(a)
Total overhead = P200,000 + P32,000 + P100,000 + P120,000
= P452,000
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Systems Design: Activity-Based Costing and Management Chapter 11
Requirement 2
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Chapter 11 Systems Design: Activity-Based Costing and Management
1. A 11. B 21. D
2. D 12. D 21. A
3. C 13. C 22. B
4. B 14. A 23. A
5. A 15. C 24. B
6. D 16. D 25. D
7. A 17. D 26. B
8. B 18. C 27. C
9. D 19. B 28. A
10. C 20. A 29. C
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