AF 210

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Ch5-1

The following data from an activity-based costing accounting system are offered:
a. Determine the total amount of supervisory wages and factory utilities costs that would be allocated to the Unit Processing activity cost pool. Show your work!
b. Determine the total amount of supervisory wages and factory utilities costs that would NOT be assigned to products. Show your work!
Supervisory wages $ 94,000
Factory utilities $ 128,000
Distribution of Resource Consumption across Activity Cost Pools:
Activity Cost Pools Batch Set-Ups Unit Processing Other Total
Supervisory wages 34% 64% 2% 100%
Factory utilities 49% 35% 16% 100%
The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products.

Ch5-2

The following data from an activity-based costing system are provided:
a. Compute the activity rates (i.e., cost per unit of activity) for the activity cost pools. Round off all calculations to the nearest whole cent.
b. Using the activity-based costing system, compute the customer margin for the Hoium family. Round off all calculations to the nearest whole cent.
c. Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to customers on the basis of cleaning hours.
Compute the margin for the Hoium family. Round off all calculations to the nearest whole cent.
Activity Cost Pool Total Cost Total Activity
Cleaning $ 263,784 $ 34,800 hours
Job support 145,180 7,000 jobs
Client support 4,774 220 clients
Other 170,000 Not applicable
Total $ 583,738
The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
The Hoium family requested 45 jobs during the year that required a total of 90 hours of housecleaning and was charged $2,000.

Ch6-1

100,000 units per year of the B345 gasket are manufactured for use in a final product. Data concerning the associated unit production costs follow:
An outside supplier has offered to provide all of the B345 gaskets it requires resulting in a 25% reduction of fixed manufacturing overhead costs;
assume that direct labor is a variable cost.
a. Assuming no alternative use for the facilities presently devoted to production of the B345 gaskets.
If the outside supplier offers to sell the gaskets for $0.46 each, should Kirsten Corporation accept the offer?
b. Assuming the facilities presently devoted to production of the B345 gaskets could be used to expand production of another product
that would yield an additional contribution margin of $10,000 annually.
What is the maximum price Kirsten Corporation should be willing to pay the outside supplier for B345 gaskets?
Fully support your answers with appropriate calculations.
Direct materials $ 0.15
Direct labor 0.10
Variable manufacturing overhead 0.13
Fixed manufacturing overhead 0.24
Total manufacturing cost per unit $ 0.62

Ch6-2

A recent monthly income statement is given below:
If Store B is closed, one-fourth of its traceable fixed expenses will continue unchanged and Store A sales will decrease by 10 percent.
The company allocates common fixed expenses to the stores on the basis of sales dollars.
Required: Determine the monthly financial advantage (disadvantage) of closing Store B.
Total Store A Store B
Sales 1000000 400000 600000
Variable expenses 580000 160000 420000
Contribution margin 420000 240000 180000
Traceable fixed expenses 300000 100000 200000
Store segment margin 120000 140000 -20000
Common fixed expenses 50000 20000 30000
Net operating income 70000 120000 -50000

Ch7-1

(Ignore income taxes) Ostermeyer Corporation is considering a project that would require an initial investment of $247,000 and would last for 7 years.
The incremental annual revenues and expenses for each of the 7 years would be as follows:
Required: Determine the payback period of the project. Show your work!
Sales $ 198,000
Variable expenses 46,000
Contribution margin 152,000
Fixed expenses:
Salaries $ 22,000
Rents 32,000
Depreciation 33,000
Total fixed expenses 87,000
Net operating income $ 65,000
At the end of the project, the scrap value of the project's assets would be $16,000.

Ch7-2

(Ignore income taxes.) A project that would have a ten-year life and would require a $1,000,000 investment in equipment is considered.
At the end of ten years, the project would terminate and the equipment would have no salvage value.
The project would provide net operating income each year as follows:
a. Compute the project's net present value.
b. Compute the project's internal rate of return to the nearest whole percent.
c. Compute the project's payback period.
d. Compute the project's simple rate of return.
Sales $ 2,000,000
Variable expenses 1,400,000
Contribution margin 600,000
Fixed expenses:
Fixed out-of-pocket cash expenses $ 300,000
Depreciation 100,000 400,000
Net operating income $ 200,000
All of the above items, except for depreciation, represent cash flows. The company's required rate of return is 12%.