Accounting Integration Part 2 Activity Based Costing

ACTG-INT02.B.
2020 Page 1 of 19
ICCT Colleges Foundation Inc.
V.V Soliven Ave. II, Cainta, Rizal
College of Business and Accountancy
ACCOUNTING INTEGRATION PART 2 RBR BACAY, CPA, MBA,FRIAcc,CB
I. ACTIVITY BASED COSTING
1. Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1

Level: Medium
2. Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1

Level: Medium
3. Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1

Level: Medium

Level: Hard

Level: Medium
6. Ans: C LO: 1 Level: Medium
7. Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 8A

LO: 6 Level: Medium
8. Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3

Level: Medium
Solution:
Total Fabrication Cost:

Wages and salaries: 20% × $320,000........... $ 64,000
Depreciation: 15% × $220,000....................... 33,000
Occupancy: 5% × $120,000........................... 6,000
Total............................................................... $103,000
(a) ÷ (b)
(a) (b)
Activity Cost Pool Total Cost Total Activity Activity Rate
Fabrication $103,000 10,000 machine-hours $10.30 per machine-hour

Level: Medium
Solution:
Total Order Processing Cost:

Wages and salaries: 40% × $360,000........... $144,000
Depreciation: 55% × $140,000....................... 77,000
Occupancy: 45% × $160,000......................... 72,000
Total............................................................... $293,000
(a) ÷ (b)
(a) (b)
Order Processing $293,000 200 orders $1,465 per order

Level: Medium
Solution:
Total Assembly Cost:

Depreciation: 15% × $120,000....................... 18,000
Rent: 35% × $180,000................................... 63,000
Total............................................................... $171,000
ACTG-INT02.B.2020 Page 2 of 19
(a) ÷ (b)
(a) (b)
Assembly $171,000 60,000 labor-hours $2.85 per labor-hour
11. Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3

Level: Medium
Solution:

Depreciation: 45% × $120,000....................... 54,000
Rent: 30% × $140,000................................... 42,000
Total............................................................... $215,000
(a) ÷ (b)
(a) (b)
Order Processing $215,000 500 orders $430 per order

Level: Medium
Solution:
Total Assembly Cost:

Depreciation: 15% × $180,000....................... 27,000
Utilities: 5% × $200,000................................. 10,000
Total............................................................... $105,000
13. Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2

Level: Medium
Solution:
Total Setting Up Cost:

Depreciation: 55% × $160,000....................... 88,000
Utilities: 50% × $240,000............................... 120,000
Total............................................................... $336,000

Level: Medium
Solution:
Total Other Cost:

Depreciation: 35% × $180,000....................... 63,000
Utilities: 30% × $240,000............................... 72,000
Total............................................................... $210,000

Level: Medium
Solution:
Total Fabricating Cost:

Depreciation: 5% × $240,000......................... 12,000
Occupancy: 30% × $220,000......................... 66,000
Total............................................................... $120,000

Level: Medium
Solution:
Depreciation: 35% × $200,000....................... 70,000
Occupancy: 50% × $100,000......................... 50,000
Total............................................................... $336,000

Level: Medium
Solution:
Total Other Cost:

Depreciation: 45% × $100,000....................... 45,000
Occupancy: 35% × $120,000......................... 42,000
Total............................................................... $123,000
18. Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4,5

Level: Medium
Solution:
(a) (b) (a) ÷ (b)

Assembly $1,137,360 84,000 machine- $13.54 per
hours machine-hour
Processing Orders 28,479 1,100 orders $25.89 per order
Inspection 97,155 1,270 inspection- $76.50 per inspection-
hours hour
Calculation of Overhead Costs:

(a) (b) (a) × (b)
Activity Cost Pool Activity Rate Total Activity ABC Cost
Assembly $13.54 per MH 660 MHs $8,936.40
Processing Orders $25.89 per order 50 orders $1,294.50
Inspection $76.50 per IH 40 IHs $3,060.00
Sales................................................................................... $55,460.00
Costs:
...........................................Direct materials$18,941.00(470 × $40.30)
.................................................Direct labor (470 19,843.40
× $42.22)
............................................................................
8,936.40
..........................................................................
1,294.50
...........................................................................
3,060.00 52,075.30
Product margin.................................................................... $ 3,384.70
19. Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4,5

Level: Medium
Solution:
(a) (b) (a) ÷ (b)

Assembly $613,250 55,000 machine- $11.15 per
hours machine-hour
hours hour
Calculation of Overhead Costs:

(a) (b) (a) × (b)
Assembly $11.15 per MH 1,040 MHs $11,596.00
Processing Orders $30.78 per order 60 orders $1,846.80
Inspection $76.90 per IH 30 IHs $2,307.00
Sales (360 × $113.70)........................................................ $40,932.00

Costs:
...........................................Direct materials$17,330.40(360 × $48.14)
.................................................Direct labor (360 4,183.20
× $11.62)
............................................................................
11,596.00
..........................................................................
1,846.80
...........................................................................
2,307.00 37,263.40
Product margin.................................................................... $ 3,668.60

Level: Medium
Solution:
(a) (b) (a) ÷ (b)

hours machine-hour
hours hour
Average Cost of Product D28K:

Direct materials................................................ $48.96
Direct labor...................................................... 25.36
Assembly [($12.67 × 460) ÷ 420]..................... 13.88
Processing orders [($28.39 × 80) ÷ 420]......... 5.40
Inspection [($73.00 × 10) ÷ 420]...................... 1.74
$95.34

Level: Medium
Solution:
(a) (b) (a) ÷ (b)

hours machine-hour
hours hour
Average Cost of Product Q79Y:

Direct materials................................................ $ 44.00
Direct labor...................................................... 41.03
Assembly [($16.27 × 1,080) ÷ 450].................. 39.05
Processing orders [($37.68 × 70) ÷ 450]......... 5.86
Inspection [($75.30 × 20) ÷ 450]...................... 3.35
$133.29

Level: Easy
Solution:
(a) (b) (a) ÷ (b)
Designing Products $1,372,448 7,798 PDHs $176 per PDH
23. 1 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3

Level: Easy
Solution:
(a) (b) (a) ÷ (b)
Meeting with clients $1,182,239 7,253 meeting $163 per meeting
hours hour
24. 1 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4

Level: Easy
Solution:
(a) (b) (a) × (b)
Setting up batches $59.06 per batch 84 batches $4,961.04
Processing customer orders $72.66 per order 32 orders 2,325.12
Assembling products $3.75 per AH 483 AHs 1,811.25
$9,097.41
25. 1 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4

Level: Easy
Solution:
(a) (b) (a) × (b)
Assembling products $8.90 per AH 389 AHs $3,462.10
Processing customer orders $31.23 per order 53 orders 1,655.19
Setting up batches $43.72 per batch 61 batches 2,666.92
$7,784.21

Level: Easy
Solution:
(a) (b) (a) × (b)
Processing customer orders $31.62 per order 9 orders $ 284.58
Assembling products $2.86 per AH 666 AHs 1,904.76
Setting up batches $46.61 per batch 77 batches 3,588.97
$5,778.31
Use the following to answer questions 27-28:
Weldon Corporation has provided the following data from its activity-based costing accounting system:
Indirect factory wages.................................. $340,000

Factory equipment depreciation................... $240,000
Distribution of Resource Consumption across Activity Cost Pools:
Activity Cost Pools

Customer Product
Orders Processing Other Total
Indirect factory wages......................... 25% 65% 10% 100%
Factory equipment depreciation.......... 40% 40% 20% 100%
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not
assigned to products.
27. Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2

Level: Easy
Solution:
Customer Orders Cost:

Indirect factory wages: 25% × $340,000..................................................... $ 85,000
Factory equipment depreciation: 40% × $240,000...................................... 96,000
Total............................................................................................................
$181,000

Level: Easy
Solution:
Other Cost:
Indirect factory wages: 10% × $340,000..................................................... $34,000
Factory equipment depreciation: 20% × $240,000...................................... 48,000
Total............................................................................................................
$82,000
Tomasini Corporation has provided the following data from its activity-based costing accounting system:
Supervisory wages................. $660,000
Factory supplies..................... $280,000
Activity Cost Pools

Unit
Batch Processing Processing Other Total
Supervisory wages....... 20% 70% 10% 100%
Factory supplies........... 45% 35% 20% 100%
29. Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2

Level: Easy
Solution:
Batch Processing Cost:

Supervisory wages: 20% × $660,000.......................................................... $132,000
Factory supplies: 45% × $280,000.............................................................. 126,000
Total............................................................................................................
$258,000

Level: Easy
Solution:
Other Cost:
Supervisory wages: 10% × $660,000.......................................................... $ 66,000
Factory supplies: 20% × $280,000.............................................................. 56,000
Total............................................................................................................
$122,000
The following data have been provided by Letze Corporation from its activity-based costing accounting system:
Factory supervision................ $460,000

Indirect factory labor.............. $220,000

Activity Cost Pools
Batch Set-Up Expediting Other Total
Factory supervision................ 55% 35% 10% 100%
Indirect factory labor.............. 60% 20% 20% 100%

Level: Easy
Solution:
Batch Set-Up Cost:

Factory supervision: 55% × $460,000......................................................... $253,000
Indirect factory labor: 60% × $220,000....................................................... 132,000
Total............................................................................................................
$385,000

Level: Easy
Solution:
Other Cost:
Factory supervision: 10% × $460,000......................................................... $46,000
Indirect factory labor: 20% × $220,000....................................................... 44,000
Total............................................................................................................
$90,000
Forliche Florist specializes in large floral bouquets for hotels and other commercial spaces. The company has provided
the following data concerning its annual overhead costs and its activity based costing system:
Overhead costs:
Wages and salaries............... $ 80,000
Other expenses...................... 40,000
Total....................................... $120,000
Distribution of resource consumption:

Activity Cost Pools
Making
Bouquets Delivery Other Total
Wages and salaries...... 60% 30% 10% 100%
Other expenses............ 45% 25% 30% 100%
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
The amount of activity for the year is as follows:
Activity Cost Pool Activity

Making bouquets.......... 40,000 bouquets
Delivery........................ 5,000 deliveries

Level: Medium
Solution:
Making Bouquets Cost:

Wages and salaries: 60% × $80,000.......................................................... $48,000
Other expenses: 45% × $40,000................................................................. 18,000
Total............................................................................................................
$66,000
(a) (b) (a) ÷ (b)

Making Bouquets $66,000 40,000 bouquets $1.65 per bouquet

Level: Medium
Solution:
Delivery Cost:
Wages and salaries: 30% × $80,000..........................................................
$24,000
Other expenses: 25% × $40,000.................................................................
10,000
Total............................................................................................................
$34,000
(a) (b) (a) ÷ (b)

Delivery $34,000 5,000 deliveries $6.80 per delivery
Dietz Company uses an activity-based costing system with three activity cost pools. The company has provided the
following data concerning its costs and its activity based costing system:
Costs:
Manufacturing overhead.................................. $440,000
Selling and administrative expenses............... 240,000
Total................................................................ $680,000

Activity Cost Pools
Order Customer
Size Support Other Total
Manufacturing overhead............................ 55% 35% 10% 100%
Selling and administrative expenses......... 30% 50% 20% 100%
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs. You have been
asked to complete the first-stage allocation of costs to the activity cost pools.

Level: Easy
Solution:
Order Size Cost:

Manufacturing overhead: 55% × $440,000................................................. $242,000
Selling and administrative expenses: 30% × $240,000...............................72,000
Total............................................................................................................
$314,000

Level: Easy
Solution:
Customer Support Cost:

Selling and administrative expenses: 50% × $240,000............................... 120,000
Total............................................................................................................
$274,000

Level: Medium
Solution:
Other Cost:
Selling and administrative expenses: 20% × $240,000...............................48,000
Total............................................................................................................
$92,000
The controller of Hendershot Company estimates the amount of materials handling overhead cost that should be
allocated to the company's two products using the data that are given below:
Wall Mirrors Specialty Windows

Total expected units produced......................... 6,000 3,000
Total expected material moves........................ 500 100
Expected direct labor-hours per unit................ 6 9
The total materials handling cost for the year is expected to be $6,123.60.

Level: Easy Source: CMA, adapted
Solution:
Total Direct Labor-Hours

Wall Mirrors: 6,000 units × 6 DLHs per unit................................................ 36,000 DLHs
Specialty Mirrors: 3,000 units × 9 DLHs per unit......................................... 27,000 DLHs
Total............................................................................................................
63,000 DLHs
(a) (b) (a) ÷ (b)

Direct labor-hours $6,123.60 63,000 DLHs $.0972 per DLH
Materials Handling Cost for Wall Mirrors:
(a) (b) (a) × (b)

Direct labor-hours $.0972 per DLH 36,000 DLHs $3,499

Solution:
(a) (b) (a) ÷ (b)
Material moves $6,123.60 600 moves* $10.206 per move
*500 + 100 = 600 moves
Materials Handling Cost for Specialty Mirrors:
(a) (b) (a) × (b)

Material moves $10.206 per move 100 moves $1,021
Swimm Company allocates materials handling cost to the company's two products using the below data:
Modular Homes Prefab Barns

Total expected units produced.................. 3,000 4,000
Total expected material moves................. 400 100
Expected direct labor-hours per unit......... 700 200
The total materials handling cost for the year is expected to be $72,065.

Solution:

Modular Homes: 3,000 units × 700 DLHs per unit...................................... 2,100,000 DLHs
Prefab Barns: 4,000 units × 200 DLHs per unit........................................... 800,000 DLHs
Total............................................................................................................
2,900,000 DLHs
(a) (b) (a) ÷ (b)

Direct labor-hours $72,065 2,900,000 DLHs $.02485 per DLH
Materials Handling Cost for Prefab Barns:
(a) (b) (a) × (b)

Direct labor-hours $.02485 per DLH 800,000 DLHs $19,880

Solution:
(a) (b) (a) ÷ (b)
Material moves $72,065 500 moves* $144.13 per move
*400 + 100 = 500 moves
Materials Handling Cost for Modular Homes:

(a) (b) (a) × (b)
Material moves $144.13 per move 400 moves $57,652
Abel Company uses activity-based costing. The company has two products: A and B. The annual production and sales
of Product A is 200 units and of Product B is 400 units. There are three activity cost pools, with estimated costs and
expected activity as follows:
Expected Activity
Estimated
Activity Cost Pool Cost Product A Product B Total
Activity 1.................... $16,660 600 100 700
Activity 2.................... $18,450 1,100 700 1,800
Activity 3.................... $9,731 60 160 220
Level: Medium
Solution:
(a) (b) (a) ÷ (b)
Activity 2 $18,450 1,800 $10.25

Level: Hard
Solution:
(a) (b) (a) ÷ (b)

Activity 1 $16,660 700 $23.80
Activity 2 $18,450 1,800 $10.25
Activity 3 $9,731 220 $44.23
Total Cost of Product B:

(a) (b) (a) × (b)
Activity 1 $23.80 100 $ 2,380.00
Activity 2 $10.25 700 7,175.00
Activity 3 $44.23 160 7,076.80
$16,631.80
Cost per unit of Product B = $16,631.80 ÷ 400 units = $41.58 per unit
Andris Corporation uses activity-based costing to determine product costs for external financial reports. The company
has provided the following data concerning its activity-based costing system:
Activity Cost Pools(and Activity Measures) Estimated Overhead Cost
Machine related (machine-hours)....................... $46,400
Batch setup (setups)........................................... $434,000
General factory (direct labor-hours).................... $226,500
Expected Activity
Activity Cost Pools Total Product X Product Y
Machine related............... 4,000 3,000 1,000
Batch setup..................... 7,000 3,000 4,000
General factory................ 15,000 7,000 8,000

Level: Medium
Solution:
(a) (b) (a) ÷ (b)
Batch setup $434,000 7,000 $62.00

Level: Medium
Solution:
(a) (b) (a) ÷ (b)
Machine related $46,400 4,000 $11.60
Batch setup $434,000 7,000 $62.00
General factory $226,500 15,000 $15.10
Total Overhead Cost Allocated to Product X:
(a) (b) (a) × (b)

Machine related $11.60 3,000 $ 34,800
Batch setup $62.00 3,000 186,000
General factory $15.10 7,000 105,700
$326,500
Nissley Wedding Fantasy Company makes very elaborate wedding cakes to order. The owner of the company has
provided the following data concerning the activity rates in its activity-based costing system:
Activity Cost Pools Activity Rate

Size-related........................ $1.13 per guest
Complexity-related.............. $28.22 per tier
Order-related...................... $74.72 per order
The measure of activity for the size-related activity cost pool is the number of planned guests at the wedding reception.
The greater the number of guests, the larger the cake. The measure of complexity is the number of tiers in the cake.
The activity measure for the order-related cost pool is the number of orders. (Each wedding involves one order.) The
activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not
include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for
separately.
Data concerning two recent orders appear below:
Tijerina Twersky
Wedding Wedding
Number of reception guests............................. 49 126
Number of tiers on the cake............................. 2 4
Cost of purchased decorations for cake.......... $28.60 $54.64

Level: Medium
Solution:
Total Cost for Tijerina Wedding Cake Order:

(a) (b) (a) × (b)
Size-related $1.13 per guest 49 guests $ 55.37
Complexity-related $28.22 per tier 2 tiers 56.44
Order-related $74.72 per order 1 order 74.72
Cost of purchased decorations for cake.................................... 28.60
..................................................................................................
Total cost................................................................................... $215.13

Level: Medium
Solution:
(a) (b) (a) × (b)

Size-related $1.13 per guest 126 guests $142.38
..................................................................................................
Total cost................................................................................... $384.62
Sales................................... $465.39
Total cost............................ 384.62
Margin on order.................. $ 80.77

Level: Medium
Meade Nuptial Bakery makes very elaborate wedding cakes to order. The company has an activity-based costing
system with three activity cost pools. The activity rate for the Size-Related activity cost pool is $1.13 per guest. (The
greater the number of guests, the larger the cake.) The activity rate for the Complexity-Related cost pool is $43.52 per
tier. (Cakes with more tiers are more complex.) Finally, the activity rate for the Order-Related activity cost pool is
$61.44 per order. (Each wedding involves one order for a cake.) The activity rates include the costs of raw ingredients
such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such
as miniature statues and wedding bells, which are accounted for separately.
Data concerning two recent orders appear below:

Ericson Wedding Haupt Wedding
Number of reception guests........................... 60 162
Number of tiers on the cake........................... 4 3
Cost of purchased decorations for cake......... $16.89 $38.61

Level: Medium
Solution:
Total Cost for Ericson Wedding Cake Order:

(a) (b) (a) × (b)
Size-related $1.13 per guest 60 guests $ 67.80
..................................................................................................
Total cost................................................................................... $320.21

Level: Medium
Solution:
(a) (b) (a) × (b)
Size-related $1.13 per guest 162 guests $183.06
..................................................................................................
Total cost................................................................................... $413.67
Sales................................... $500.54
Total cost............................ 413.67
Margin on order.................. $ 86.87
(Appendix 8A) Espinoza Company is a wholesale distributor that uses activity-based costing for all of its overhead
costs. The company has provided the following data concerning its annual overhead costs and its activity based
costing system:
Overhead costs:
Wages and salaries...... $220,000

Other expenses............ 160,000
Total............................. $380,000
Filling Customer
Activity Cost Pools Orders Support Other Total
Wages and salaries......... 35% 55% 10% 100%
Other expenses............... 15% 65% 20% 100%
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
The amount of activity for the year is as follows:
Activity Cost Pool Activity
Filling orders.................... 4,000 orders
Customer support............ 20 customers

Level: Medium
Solution:
Filling Orders Cost:

Other expenses: 15% × $160,000.................. 24,000
Total............................................................... $101,000
(a) (b) (a) ÷ (b)

Filling orders $101,000 4,000 order $25.25 per order

Level: Medium
Solution:
Customer Support Cost:

Other expenses: 65% × $160,000.................. 104,000
Total............................................................... $225,000
(a) (b) (a) ÷ (b)

Customer support $225,000 20 customers $11,250 per customer

Level: Hard
Solution:
Wages and Salaries Cost:

Allocated to Filling Orders: 35% × $220,000...............................................
$77,000
Allocated to Customer Support: 55% × $220,000....................................... $121,000
(a) (b) (a) ÷ (b)

Filling orders $77,000 4,000 orders $19.25 per order
Customer support $121,000 20 customers $6,050 per customer
(a) (b) (a) × (b)

Filling orders $19.25 per order 6 orders $ 116
Customer support $6,050 per customer 1 customer 6,050
$6,166
(Appendix 8A) Groats Catering uses activity-based costing for its overhead costs. The company has provided the
following data concerning the activity rates in its activity-based costing system:
Activity Cost Pools Preparing Meals Arranging Functions

Wages.......................... $1.15 $180.00
Supplies....................... $0.40 $320.00
Other expenses............ $0.15 $130.00
The number of meals served is the measure of activity for the Preparing Meals activity cost pool. The number of
functions catered is used as the activity measure for the Arranging Functions activity cost pool.
Management would like to know whether the company made any money on a recent function at which 150 meals were
served. The company catered the function for a fixed price of $18.00 per meal. The cost of the raw ingredients for the
meals was $12.40 per meal. This cost is in addition to the costs of wages, supplies, and other expenses detailed
above.
For the purposes of preparing action analyses, management has assigned ease of adjustment codes to the costs as
follows: wages are classified as a Yellow cost; supplies and raw ingredients as a Green cost; and other expenses as a
Red cost.

Level: Medium
Solution:
Cost of preparing meals [($1.15 + $0.40 + $0.15) ×

150].............................................................................................................
$ 255
Cost of arranging functions ($180 + $320 + $130)...................................... 630
Cost of raw ingredients ($12.40 × 150)....................................................... 1,860
Total............................................................................................................
$2,745

Level: Hard
Solution:
Sales ($18.00 × 150).......................................................... $2,700.00

Green costs:
............................Supplies−Preparing meals ($0.40 × 150) $ 60.00
.............................................Supplies−Arranging functions 320.00
..........................................Raw ingredients ($12.40 × 150) 1,860.00 2,240.00
Green margin...................................................................... 460.00
Yellow costs:
..............................Wages−Preparing meals ($1.15 × 150) 172.50
................................................Wages−Arranging functions 180.00 352.50
Yellow margin..................................................................... 107.50
Red costs:
................Other expenses−Preparing meals ($0.15 × 150) 22.50
..................................Other expenses−Arranging functions 130.00 152.50
Red margin......................................................................... $(45.00)

Level: Hard
Solution:
Sales ($18.00 × 150).......................................................... $2,700

Green costs:
............................Supplies−Preparing meals ($0.40 × 150) $ 60
.............................................Supplies−Arranging functions 320
..........................................Raw ingredients ($12.40 × 150) 1,860 2,240
Green margin...................................................................... 460
Yellow costs:
..............................Wages−Preparing meals ($1.15 × 150) 173
................................................Wages−Arranging functions 180 353
Yellow margin..................................................................... $ 108
(Appendix 8B) Addison Company has two products: A and B. Annual production and sales are 800 units of Product A
and 700 units of Product B. The company has traditionally used direct labor-hours as the basis for applying all
manufacturing overhead to products. Product A requires 0.2 direct labor hours per unit and Product B requires 0.6
direct labor hours per unit. The total estimated overhead for next period is $71,286.
The company is considering switching to an activity-based costing system for the purpose of computing unit product
costs for external reports. The new activity-based costing system would have three overhead activity cost pools—
Activity 1, Activity 2, and General Factory--with estimated overhead costs and expected activity as follows:
Expected Activity
Estimated
Activity Cost Pool Overhead Costs Product A Product B Total
Activity 1.................... $20,272 300 500 800
Activity 2.................... 29,380 800 500 1,300
General Factory........ 21,634 160 420 580
Total.......................... $71,286
(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor hours.)

Level: Medium
Solution:

Product A: 800 units × .2 DLHs per unit...................................................... 160 DLHs
Product B: 700 units × .6 DLHs per unit...................................................... 420 DLHs
Total............................................................................................................
580 DLHs
Predetermined overhead rate = $71,286 ÷ 580 DLHs = $122.91

Level: Medium
Solution:

Product A: 800 units × .2 DLHs per unit...................................................... 160 DLHs
Product B: 700 units × .6 DLHs per unit...................................................... 420 DLHs
Total............................................................................................................
580 DLHs
Predetermined overhead rate = $71,286 ÷ 580 DLHs = $122.9069
Total overhead cost applied to Product B using traditional costing: $122.9069 × 420 DLHs = $51,621 (rounded)
Overhead cost per unit = $51,621 ÷ 700 units = $73.74

Level: Medium
Solution:
(a) (b) (a) ÷ (b)

Activity Cost Pool Estimated Cost Estimated Activity Activity Rate
Activity 2 $29,380 1,300 $22.60

Level: Hard
Solution:
(a) (b) (a) ÷ (b)
Activity Cost Pool Estimated Cost Estimated Activity Activity Rate
Activity 1 $20,272 800 $25.34
Activity 2 $29,380 1,300 $22.60
General Factory $21,634 580 $37.30
Total Cost of Product B:

(a) (b) (a) × (b)
Activity Cost Pool Activity Rate Activity ABC Cost
Activity 1 $25.34 500 $12,670
Activity 2 $22.60 500 11,300
General Factory $37.30 420 15,666
$39,636
Overhead cost per unit = $39,636 ÷ 700 units = $56.62 per unit (rounded)
(Appendix 8B) Koszyk Manufacturing Corporation has a traditional costing system in which it applies manufacturing
overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has
two products, P85G and C43S, about which it has provided the following data:
P85G C43S
Direct materials per unit............... $36.50 $63.10
Direct labor per unit...................... $20.80 $31.20
Direct labor-hours per unit............ 0.80 1.20
Annual production........................ 35,000 10,000
The company’s estimated total manufacturing overhead for the year is $2,264,000 and the company’s estimated total
direct labor-hours for the year is 40,000.
The company is considering using a variation of activity-based costing to determine its unit product costs for external
reports. Data for this proposed activity-based costing system appear below:
Estimated Overhead
Activities and Activity Measures Cost
Supporting direct labor (DLHs)........... $1,160,000
Setting up machines (setups)............. 288,000
Parts administration (part types)......... 816,000
Total.................................................... $2,264,000
Expected Activity
P85G C43S Total
DLHs............... 28,000 12,000 40,000
Setups............. 1,480 920 2,400
Part types........ 1,880 840 2,720

Level: Medium
Solution:
Predetermined overhead rate = $2,264,000 ÷ 40,000 DLHs = $56.60 per DLH
Applied overhead per unit =

$56.60 per DLH × 0.80 DLHs per unit = $45.28 per unit

Level: Medium
Solution:
(a) (b) (a) ÷ (b)

Estimated Estimated Activity
Activity Cost Pool Cost Activity Rate
Supporting direct labor $1,160,000 40,000 DLHs $29 per DLH
Setting up machines $288,000 2,400 setups $120 per setup
Parts administration $816,000 2,720 part types $300 per part type
Total Overhead applied to Product C43S:

(a) (b) (a) × (b)
Activity Cost Pool Activity Rate Expected Activity ABC Cost
Supporting direct labor $29 per DLH 12,000 DLHs $348,000
Setting up machines $120 per setup 920 setups 110,400
Parts administration $300 per part type 840 part types 252,000
$710,400
Applied overhead per unit = $710,400 ÷ 10,000 units = $71.04 per unit
(Appendix 8B) Binegar Manufacturing Corporation has a traditional costing system in which it applies manufacturing
two products, R58G and R09O, about which it has provided the following data:
R58G R09O
Estimated Overhead
Assembling products (DLHs)...................... $ 696,000
Preparing batches (batches)....................... 252,000
Product support (product variations)........... 669,600
Total............................................................ $1,617,600
Expected Activity
R58G R09O Total
DLHs............................... 3,000 21,000 24,000
Batches........................... 528 1,152 1,680
Product variations............ 1,056 1,176 2,232

Level: Medium
Solution:
Total applied overhead = 3,000 DLHs × $67.40 per DLH = $202,200
Applied overhead per unit = $202,200 ÷ 30,000 units = $6.74 per unit

Level: Medium
Solution:
(a) (b) (a) ÷ (b)

Estimated Estimated Activity
Activity Cost Pool Cost Activity Rate
Assembling products $696,000 24,000 DLHs $29 per DLH
Preparing batches $252,000 1,680 batches $150 per batch
Product support $669,600 2,232 product $300 per product
variations variation
Total Overhead applied to Product R09O:

(a) (b) (a) × (b)
Assembling products $29 per DLH 21,000 DLHs $ 609,000
Preparing batches $150 per batch 1,152 batches 172,800
$300 per product 1,176 product
Product support variation variations 352,800
$1,134,600
Applied overhead per unit = $1,134,600 ÷ 10,000 units = $113.46 per unit
(Appendix 8B) Kebort Manufacturing Corporation has a traditional costing system in which it applies manufacturing
two products, U86Y and M91F, about which it has provided the following data:
U86Y M91F
Estimated Overhead
Direct labor support (DLHs)................... $1,175,000
Setting up machines (setups)................. 407,960
Part administration (part types).............. 958,800
Total....................................................... $2,541,760
Expected Activity
U86Y M91F Total
DLHs................... 28,000 19,000 47,000
Setups................ 2,256 658 2,914
Part types........... 1,034 2,162 3,196

Level: Medium
Solution:
Applied overhead = [(40,000 units × 0.70 DLHs per unit) × $54.08 per DLH] ÷ 40,000 units = $37.86 per unit
Unit Product Cost:

Direct materials.................................... $19.80
Direct labor........................................... 18.20
Applied manufacturing overhead.......... 37.86
Total..................................................... $75.86

Level: Medium
Solution:
(a) (b) (a) ÷ (b)

Expected Activity
Activity Cost Pool Estimated Cost Activity Rate
Direct labor support $1,175,000 47,000 DLHs $25 per DLH
Setting up machines $407,960 2,914 setups $140 per setup
Part administration $958,800 3,196 part types $300 per part type
Total Overhead applied to Product M91F:

(a) (b) (a) × (b)
Direct labor support $25 per DLH 19,000 DLHs $ 475,000
Setting up machines $140 per setup 658 setups 92,120
2,162 part types
Part administration $300 per part type 648,600
$1,215,720
Overhead Cost per unit = $1,215,720 ÷ 10,000 units = $121.57 per unit
Unit Product Cost:

Direct materials.................................... $ 45.80
Direct labor........................................... 49.40
Total..................................................... $216.77
(Appendix 8B) Pacchiana Manufacturing Corporation has a traditional costing system in which it applies manufacturing
two products, R21V and D00B, about which it has provided the following data:
R21V D00B
Direct materials per unit...................... $19.60 $61.70
Direct labor per unit............................ $3.90 $19.50
Direct labor-hours per unit.................. 0.30 1.50
Annual production............................... 45,000 15,000
Estimated
Activities and Activity Measures Overhead Cost
Assembling products (DLHs)........................... $ 108,000
Preparing batches (batches)............................ 362,880
Product support (product variations)................ 792,000
Total................................................................ $1,262,880
Expected Activity
R21V D00B Total
DLHs............................ 13,500 22,500 36,000
Batches........................ 1,440 1,152 2,592
Product variations......... 1,404 576 1,980

Level: Medium
Solution:
Applied overhead = [(45,000 units × 0.30 DLHs per unit) × $35.08 per DLH] ÷ 45,000 units = $10.52 per unit
Unit Product Cost:

Direct materials.................................... $19.60
Direct labor........................................... 3.90
Total..................................................... $34.02

Level: Medium
Solution:
(a) (b) (a) ÷ (b)
Expected Activity
Activity Cost Pool Estimated Cost Activity Rate
$108,000 36,000 DLHs $3 per DLH
Assembling products
Preparing batches $362,880 2,592 batches $140 per batches
Product support $792,000 1,980 product $400 per product
variations variation
Total Overhead applied to Product D00B:

(a) (b) (a) × (b)
Assembling products $3 per DLH 22,500 DLHs $ 67,500
Preparing batches $140 per batch 1,152 batches 161,280
Product support $400 per product 576 product
variation variations 230,400
$459,180
Overhead Cost per unit = $459,180 ÷ 15,000 units = $30.61 per unit
Unit Product Cost:

Direct materials.................................... $ 61.70
Direct labor........................................... 19.50
Total..................................................... $111.81

Accounting Integration Part 2 Activity Based Costing

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Accounting Integration Part 2 Activity Based Costing

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ACTG-INT02.B.

College of Business and Accountancy

ACCOUNTING INTEGRATION PART 2 RBR BACAY, CPA, MBA,FRIAcc,CB

I. ACTIVITY BASED COSTING

1. Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1

2. Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1

3. Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1

4. Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1

5. Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1

6. Ans: C LO: 1 Level: Medium

7. Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 8A

8. Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3

Total Fabrication Cost:

9. Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3

Total Order Processing Cost:

10. Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3

Total Assembly Cost:

11. Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3

Total Order Processing Cost:

12. Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2

Total Assembly Cost:

13. Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2

Total Setting Up Cost:

14. Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2

Total Other Cost:

15. Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2

Total Fabricating Cost:

16. Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2

17. Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2

Total Other Cost:

18. Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4,5

(a) (b) (a) ÷ (b)

Calculation of Overhead Costs:

19. Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4,5

(a) (b) (a) ÷ (b)

Calculation of Overhead Costs:

Sales (360 × $113.70)........................................................ $40,932.00

20. Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4

(a) (b) (a) ÷ (b)

Average Cost of Product D28K:

21. Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4

(a) (b) (a) ÷ (b)

Average Cost of Product Q79Y:

22. Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3

23. 1 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3

24. 1 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4

25. 1 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4

26. Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4

Use the following to answer questions 27-28:

Indirect factory wages.................................. $340,000

Distribution of Resource Consumption across Activity Cost Pools:

Activity Cost Pools

27. Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2

Customer Orders Cost:

28. Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2

Use the following to answer questions 29-30:

Supervisory wages................. $660,000

Distribution of Resource Consumption across Activity Cost Pools:

Activity Cost Pools

29. Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2

Batch Processing Cost:

30. Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2

Use the following to answer questions 31-32: