ABC activities, Shambu Shoes, DS Company, Statues Inc., Valentino Company

1. The following is a list of activities that occur for a company that sells many different types of products. Please classify each as either unit-level (U), batch-level (B), product-level (P), or organization-sustaining activity (O):

packing labor wages
materials-handling labor wages
part administrators’ salaries
plant management salaries
production scheduling staff salaries
cost of servicing production equipment, based on hours used
property taxes for a plant site
production expediters’ salaries
insurance for plant site
plant security
production workers’ training
cost of electricity to run production equipment

2. Shambu Shoes is in the business of manufacturing basketball shoes. Accordingly the company uses the six activity cost pools listed below:

Activity Cost Pool             Activity Measure
Maintenance                    Machine Hours
Setups                            Setup Hours
Cutting Supervision          Setup Hours
Cutting Depreciation         Machine Hours
Assembly supervision       Direct Labor hours
Assembly Depreciation     Machine Hours

The company has already carried out its first stage allocations of costs. The company’s annual costs and activities are summarized as follows:

Activity Cost Pool                            Estimated Overhead Cost                Expected Activity            

Maintenance                                         $150,000                               50,000 Machine hours
Setups                                             $450,000                                    300 Setup hours
Cutting Supervision                             $270,000                               300 setup hours
Cutting Depreciation                          $160,000                                 80,000 Machine Hours

Assembly Supervision                     $160,000                                   32,000 Direct Labor hrs

Assembly Depreciation                    $20,000                                       80,000 Machine Hours

Compute the activity rate for each of the activity cost pools: (Show computations)
a. Maintenance
b. Setups
c. Cutting supervision
d. Cutting depreciation
e. Assembly supervision
f. Assembly depreciation

3. DS Company has identified the following cost pools and activity rates:

Activity Cost Pool                                Activity Rate
Supporting direct labor                       $4 per direct labor hour
Machine processing                            $3 per machine hour
Machine setups                                  $30 per setup
Production orders                              $11 per order
Shipments                                        $98 per shipment
Product sustaining                            $750 per product

Activity data have been supplied for the following products:

                                          Total Expected Activity
                                           D130                 S150

Direct labor hours                  2,500                300
Machine hours                        4,300               250
Machine Setups                       7                     2
Production orders                   3                       2
Shipments                             9                      4
Products sustaining                2                         1

Determine the total overhead cost that would be assigned to each of the products listed above in the activity based costing system: (show computations and details)

a. D130
b. S150

4. Statues Inc. has the following sales budget for the second of the current year:

                        April    $250,000

                        May     $340,000 

                        June    $590,000

Total Budgeted sales  $1,180,000

From past experience the company has learned that 10% of a month’s sales are collected in the month of sale, another 60% are collected in the month following sale, and the remaining 30% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $150,000 and March Sales totaled $220,000.

For each of the following months, calculate the amount of projected cash collections: Show solutions and related details.

A. April
B. May
C. June

5. Valentino Company had the following budgeted sales over the last 4 months of the year:

                     Sales in Units
October               10,000
November            25,000
December            35,000
January                46,000

The company is now in the process of preparing a production budget for the fourth quarter. Past experience has shown that end of the month inventories of finished good must equal 20% of the next month’s sales. The inventory at the end of September is 2,000 units For each of the following months calculate the number of units that need to be produced: (show computations and related details)

a. October
b. November
c. December