Accounting homework help
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week_3_2.xlsxProblem 1
| Prescott, Inc., manufactures bookcases and uses an activity-based costing system. Prescott's activity areas and related data follows: | |||||
| Activity | Budgeted Cost of Activity | Allocation Base | Cost Allocation Rate | ||
| Materials handling | $230,000 | Number of parts | $0.50 | ||
| Assembly | 3,200,000 | Direct labor hours | 16.00 | ||
| Finishing | 180,000 | Number of finished units | 4.50 | ||
| Prescott produced two styles of bookcases in October: the standard bookcase and an unfinished bookcase, which has fewer parts and requires no finishing. The totals for quantities, direct materials costs, and other data follow: | |||||
| Product | Total Units Produced | Total Direct Materials Costs | Total Direct Labor Costs | Total Number of Parts | Total Assembling Direct Labor Hours |
| Standard bookcase | 3,000 | $36,000 | $45,000 | 9,000 | 4,500 |
| Unfinished bookcase | 3,500 | 35,000 | 35,000 | 7,000 | 3,500 |
| Requirements: | |||||
| 1. Compute the manufacturing product cost per unit of each type of bookcase. | |||||
| 2. Suppose that pre-manufacturing activities, such as product design, were assigned to the standard bookcases at $7 each, and to the unfinished bookcases at $2 each. Similar analyses were conducted of post-manufacturing activities such as distribution, marketing, and customer service. The post-manufacturing costs were $22 per standard bookcase and $14 per unfinished bookcase. Compute the full product costs per unit. | |||||
| 3. Which product costs are reported in the external financial statements? Which costs are used for management decision making? Explain the difference. | |||||
| 4. What price should Prescott's managers set for unfinished bookcases to earn $15 per bookcase? |
Problem 2
| Corbertt Pharmaceuticals manufactures an over-the-counter allergy medication. The company sells both large commercial containers of 1,000 capsules to health-care facilities and travel packs of 20 capsules to shops in airports, train stations, and hotels. The following information has been developed to determine if an activity-based costing system would be beneficial: | |||
| Activity | Estimated Indirect Activity Costs | Allocation Base | Estimated Quantity of Allocation Base |
| Materials handling | $95,000 | Kilos | 19,000 kilos |
| Packaging | 219,000 | Machine hours | 5,475 hours |
| Quality assurance | 124,500 | Samples | 2,075 samples |
| Total indirect costs | $438,500 | ||
| Other production information includes the following: | |||
| Commercial Containers | Travel Packs | ||
| Units produced | 3,500 containers | 57,000 packs | |
| Weight in kilos | 14,000 | 5,700 | |
| Machine hours | 2,625 | 570 | |
| Number of samples | 700 | 855 | |
| Requirements: | |||
| 1. Compute the cost allocation rate for each activity. | |||
| 2. Use the activity-based cost allocation rates to compute the activity costs per unit of the commercial containers and the travel packs. (Hint: First compute the total activity cost allocated to each product line, and then compute the cost per unit.) | |||
| 3. Corbertt's original single-allocation-base costing system allocated indirect costs to produce at $157 per machine hour. Compute the total indirect costs allocated to the commercial containers and to the travel packs under the original system. Then compute the indirect cost per unit for each product. | |||
| 4. Compare the indirect activity-based costs per unit to the indirect costs per unit from the single-allocation-base system. How have the unit costs changed? Explain why the costs changed. |
