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    Answers To 11 - 16 Assignment in ABC PDF

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    Mubarrach Matabalao
    This document provides an example of implementing activity-based costing at a company. It includes information on allocating overhead costs across different activities and products based on appropriate cost drivers. The summary is: 1) The company previously used a traditional costing system and wants to implement ABC to better assign overhead costs. 2) Calculations are shown to determine the unit cost of three products under both the traditional and ABC systems. 3) Most of the company's overhead costs (88.54%) are treated differently between the two systems, leading to changes in perceived product costs and selling prices.

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    Answers To 11 - 16 Assignment in ABC PDF

    Uploaded by

    Mubarrach Matabalao
    141 views3 pages
    This document provides an example of implementing activity-based costing at a company. It includes information on allocating overhead costs across different activities and products based on appropriate cost drivers. The summary is: 1) The company previously used a traditional costing system and wants to implement ABC to better assign overhead costs. 2) Calculations are shown to determine the unit cost of three products under both the traditional and ABC systems. 3) Most of the company's overhead costs (88.54%) are treated differently between the two systems, leading to changes in perceived product costs and selling prices.

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    Answers to 11_16 Assignment in ABC.pdf

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    This document provides an example of implementing activity-based costing at a company. It includes information on allocating overhead costs across different activities and products based on appropriate cost drivers. The summary is: 1) The company previously used a traditional costing system and wants to implement ABC to better assign overhead costs. 2) Calculations are shown to determine the unit cost of three products under both the traditional and ABC systems. 3) Most of the company's overhead costs (88.54%) are treated differently between the two systems, leading to changes in perceived product costs and selling prices.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    141 views3 pages

    Answers To 11 - 16 Assignment in ABC PDF

    Uploaded by

    Mubarrach Matabalao
    This document provides an example of implementing activity-based costing at a company. It includes information on allocating overhead costs across different activities and products based on appropriate cost drivers. The summary is: 1) The company previously used a traditional costing system and wants to implement ABC to better assign overhead costs. 2) Calculations are shown to determine the unit cost of three products under both the traditional and ABC systems. 3) Most of the company's overhead costs (88.54%) are treated differently between the two systems, leading to changes in perceived product costs and selling prices.

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    of 3

    Name ________________________________________ ACCTG 312n ASSIGNMENT

    ACTIVITY-BASED COSTING November 16, 2020

    Show your solutions and answers on yellow/white paper. Label and properly identify (encircle or box) your final answer.

    NO. 1 Geeza Pro Company has an in-house legal department whose activities fall into one of three major categories. Recently,
    operating costs in the department have risen dramatically. Management has decided to implement an activity-based system to
    help control costs and charge in-house users for the legal services provided. The principal expense in the legal department is
    professional salaries, and the estimated cost of professional salaries associated with each activity follow:
    Reviewing supplier or customer contracts (contracts) ₱200,000
    Reviewing regulatory compliance issues (regulation) 250,000
    Court actions (court) 350,000

    Management has determined that the appropriate cost allocation for Contracts is the number of pages in the contract reviewed;
    for Regulation, the allocation base is the number of reviews; and for Court, the allocation base is professional hours. For 2019,
    the legal department reviewed 10,000 pages of contracts, responded to 500 regulatory review requests, and logged 3,000
    professional hours in court.
    a) Determine the allocation rate for each activity in the legal department.
    Review Rev. compliance Court
    contracts issues actions
    Total cost ₱ 200,000 ₱ 250,000 ₱ 350,000
    Divided by Cost drivers 10,000 pages 500 rev. requests 3,000 prof. hrs.
    Cost rate ₱ 20 ₱ 500 ₱ 116.67
    per page per rev. request per prof. hour

    b) What amount would be charged to a producing department that had 1,000 pages of contracts reviewed, made 15
    regulatory review requests, and consumed 250 professional hours in court services during the year?
    Review contracts (1,000 pages x ₱20) ₱ 20,000
    Review compliance requests (15 requests x ₱500) 7,500
    Court actions (250 hrs. x ₱116.66…) 29,167
    Total cost ₱ 56,667

    NO. 2 Gothic Furniture Corporation has identified activity centers to which overhead costs are assigned. The cost pool amounts
    for these centers and their selected activity drivers for 2019 are as follows:
    Activity center Costs Activity drivers
    Utilities ₱300,000 machine hours
    Scheduling and setup 273,000 setups
    Material handling 640,000 pounds of material
    Other indirect labor cost 157,000 direct labor hours

    The company’s products and other operating statistics follow:


    PRODUCTS
    A B C
    Direct costs ₱ 80,000 ₱ 80,000 ₱ 90,000
    Machine hours 30,000 10,000 20,000
    Number of setups 130 380 270
    Pounds of material 500,000 300,000 800,000
    Number of units produced 40,000 20,000 60,000
    Direct labor hours 32,000 18,000 50,000

    1) Before it installed an ABC system, the company used a conventional costing system and allocated factory overhead to
    products using direct labor hours. The firm operates in a competitive market and product prices were set at a cost plus
    a 20 percent markup.
    a. Calculate unit costs based on conventional costing.
    OH rate = ₱1,370,000/100,000 DLHs = ₱13.70 per DLH

    A B C Total
    Direct costs ₱ 80,000 ₱ 80,000 ₱ 90,000 ₱ 250,000
    Overhead cost 438,400 246,600 685,000 1,370,000
    Total cost ₱ 518,400 ₱ 326,600 ₱ 775,000 ₱ 1,620,000
    Units produced / 40,000 / 20,000 / 60,000
    Unit cost ₱ 12.96 ₱ 16.33 ₱ 12.916…
    X 120% X 120% X 120%
    Selling price ₱ 15.55 ₱ 19.60 ₱ 15.50

    b. Determine selling prices based on unit cost for conventional costing.


    c. Calculate the unit cost using the appropriate cost drivers for each of the products.
    A B C Total
    Direct costs ₱ 80,000 ₱ 80,000 ₱ 90,000 ₱ 250,000
    Overhead costs:
    Utilities 150,000 50,000 100,000 300,000
    Scheduling 45,500 133,000 94,500 273,000
    Mat. handling 200,000 120,000 320,000 640,000
    Other IL cost 50,240 28,260 78,500 157,000
    Total cost ₱ 525,740 ₱ 411,260 ₱ 683,000 ₱ 1,620,000
    Units produced / 40,000 / 20,000 / 60,000
    Unit cost ₱ 13.1435 ₱ 20.563 ₱ 11.3833
    X 120% X 120% X 120%
    Selling price ₱15.77 ₱ 24.68 ₱ 13.66

    d. Determine selling prices based on unit cost for activity-based costing.

    2) Reconcile the two costing systems, for each product. (use columns for total and per-unit costs)
    Product A Total Unit Cost
    Cost from Traditional System ₱ 518,400 ₱ 12.96
    OH Adjustments:
    Understatement of utilities
    ₱300,000 (32% - 50%) 54,000 1.35
    Overstatement of scheduling & setup
    ₱273,000 (32% - 16.66..%) ( 41,860 ) ( 1.0465 )
    Overstatement of materials handling
    ₱640,000 (32% - 31.25%) ( 4,800 ) ( 0.12 )
    Cost from ABC System ₱ 525,740 ₱ 13.1435

    Product B Total Unit Cost


    Cost from Traditional System ₱ 326,600 ₱ 16.33
    OH Adjustments:
    Overstatement of utilities
    ₱300,000 (18% - 16.66...%) ( 4,000 ) ( 0.20 )
    Understatement of scheduling & setup
    ₱273,000 (18% - 48.71..%) 83,860 4.193
    Understatement of materials handling
    ₱640,000 (18% - 18.75%) 4,800 0.24
    Cost from ABC System ₱ 411,260 ₱ 20.563

    Product C Total Unit Cost


    Cost from Traditional System ₱ 775,000 ₱ 12.91…
    OH Adjustments: 50%
    Overstatement of utilities
    ₱300,000 (50% - 33.33…%) ( 50,000 ) ( 0.83.. )
    Overstatement of scheduling & setup
    ₱273,000 (50% - 34.61..%) ( 42,000) ( 0.70 )
    Cost from ABC System ₱ 683,000 ₱ 11.38…

    3) What percentage of Gothic Furniture Corporation’s overhead is treated differently by the two costing systems?
    Utilities ₱ 300,000
    Scheduling and setup 273,000
    Materials handling 640,000
    Total cost treated differently ₱1,213,000
    Total OH cost / 1,370,000
    Percentage of OH cost treated differently 88.54…%

    4) Determine the percentage change in the selling price of each product as a result of the change in the system.
    A B C
    SP from Traditional System ₱ 15.55 ₱ 19.60 ₱ 15.50
    SP from ABC System 15.77 24.68 13.66
    Marginal difference ₱ 0.22 ₱ 5.08 ( ₱ 1.84 )
    Percent change 1.42% 25.92% 11.87%
    increase increase decrease
    . . . end . . .

    “Real integrity is doing the right thing, knowing that nobody's going to know whether you did it or not.”
    - Oprah Winfrey

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