Acc349 Managerial / Cost Accounting: Week 3 Assignments (E4-10, E4-11, P4-3A, P4-4A)

Acc349 Cost Accounting
Week 3 Assignments
Mallory Luongo, Inc, manufactures five models of kitchen appliances at itsMesaplant. The company is installing activity-based costing and has identified the following activities performed at itsMesaplant. Having analyzed itsMesaplant operations for purposes of installing activity-based costing, Mallory Luongo, Inc. identified its activity cost centers. It now needs to identify relevant activity cost drivers in order to assign overhead costs to its products. Using the activities listed below, identify for each activity one or more cost drivers that might be used to assign overhead to Mallory Luongo's five products.
Using the activities listed above, identify for each activity one or more cost drivers that might be used to assign overhead to Mallory Luongo's five products.
Sorce Instrument, Inc. manufactures two products: missile range instruments and space pressure gauges. During April, 50 range instruments and 300 pressure gauges were produced, and overhead costs of $89,500 were estimated. An analysis of estimated overhead costs reveals the following activities.
Activities Cost Drivers Total Cost
1. Materials Handling Number of requisition 35,000
2. Machine setups Number of setups 27,500
3. Quality inspections Number of inspections 27,000
The cost driver volume for each product was as follows:
Cost Drivers Instruments Gauges Total
Number of requisition 400 600 1,000
Number of setups 200 300 500
Number of inspections 200 400 600
(a) Determine the overhead rate for each activity.
(b) Assign the manufacturing overhead costs for April to the two products using activity based costing.
Skaros Stairs Co. of Moore designs and builds factory-made premium wooden stairways for homes. The manufactured stairway components (spindles, risers, hangers, hand rails) permit installation of stairways of varying lengths and widths. All are of white oak wood. Budgeted manufacturing overhead costs for the year 2011 are as follows.
Overhead Cost Pools Amount
Purchasing 57,000
Handling materials 82,000
Production (cutting,milling, finishing) 210,000
Setting up machines 85,000
Inspecting 90,000
Inventory control (raw materials and finished goods) 126,000
Utilities 180,000
Total budget overhead costs 830,000

Activity Cost Pools Cost Drivers Expected Use of Cost Drivers
Purchasing Number of orders 600
Handling materials Number of moves 8,000
Production (cutting, milling, finishing) Direct labor hours 100,000
Setting up machines Number of setups 1,250
Inspecting Number of inspections 6,000
Inventory control (raw materials and finished goods) Number of components 168,000 Utilities Square feet occupied 90,000
David Hannon, sales manager, has received an order for 280 stairs from Community Builders, Inc., a large housing development contractor. At David's request, Neal prepares cost estimates for producing components for 280 stairs so David can submit a contract price per stair to Community Builders. He accumulates the following data for the production of 280 stairways.
Direct materials 103,600
Direct labor 112,000
Machine hours 14,500
Direct labor hours 5,000
Number of purchase orders 60
Number of material moves 800
Number of machine setups 100
Number of inspections 450
Number of components 16,000
Number of square feet occupied 8,000
a. Compute the predetermined overhead rate using traditional costing with machine hours as the basis.
b. What is the manufacturing cost per stairway under traditional costing?
c. What is the manufacturing cost per stairway under the proposed activity-based costing?
Polzin Corporation produces two grades of wine from grapes that it buys from California growers. It produces and sells roughly 3,000,000 liters per year of a low-cost, high-volume product called CoolDay. It sells this in 600,000 5-liter jugs. Polzin also produces and sells roughly 300,000 liters per year of a low-volume, high-cost product called LiteMist. LiteMist is sold in 1-liter bottles.

CoolDay LiteMist
Direct materials per liter 0.40 1.20
Direct labor cost per liter 0.25 0.50
Direct labor hours per liter 0.05 0.09
Total direct labor hours 150,000 27,000
Expected Use of Cost Drivers per Product
Activity Cost Pool Cost Driver Estimated Overhead Expected Use of Cost Drivers CoolDay LiteMist
Grape processing Cart of grapes 145,860 6,600 6,000 600
Aging Total months 396,000 6,600,000 3,000,000 3,600,000
Bottling and corking Number of bottles 270,000 900,000 600,000 300,000
Labeling and boxing Number of bottles 189,000 900,000 600,000 300,000
Maintain and inspect equipment Number of inspections 240,800 800 350 450
Total estimated overhead $1,241,660
1. Under traditional product costing using direct labor hours, compute the total manufacturing cost per liter of both products.
2. Under ABC, prepare a schedule showing the computation of the activity-based overhead rates (per cost driver).
3. Prepare a schedule assigning each activity's overhead cost pool to each product, based on the use of cost drivers. What is the overhead cost per liter?
4. Compute the total manufacturing cost per liter for both products under ABC.
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