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Estimat
ed
Overhe
ad Cost
$77,40
0
$30,00
0
$57,60
0
$4,200
$8,700
Expected Activity
180,00 square feet of
0 lawn
24,000 square feet of
low
maintenance
beds
18,000 square feet of
high
maintenance
beds
15,000
miles
30
customers
7-1
$0.4
3
$1.2
5
$3.2
0
$0.2
8
$29
0
Activity Rate
per square foot of
lawn
per square foot of
low maintenance
beds
per square foot of
high maintenance
beds
per mile
per customer
The activity rate for each activity cost pool is computed by dividing its estimated overhead
cost by its expected activity.
7-2
Activity Rate
$7
Machine processing..........
$3
Machine setups................
Production orders.............
$40
$16
0
$12
0
$80
0
Shipments........................
Product sustaining............
Total overhead cost..........
W52
per setup
per order
per shipment
per product
1,00
0
3,20
0
5
5
10
1
Activity Rate
$7
Machine processing..........
Machine setups................
Production orders.............
$3
$40
$16
0
$12
Shipments........................
Activity
40
30
1
1
1
direct laborhours
machine-hours
setups
order
shipment
ABC
Cost
$ 7,00
0
9,600
200
800
1,200
product
80
0
$19,60
0
Activity
ABC
Cost
$ 280
direct laborhours
machine-hours
setups
orders
shipments
90
40
160
120
Product sustaining............
Total overhead cost..........
0
$80
0
per product
product
800
$1,490
7-4
City
General
$30,000
5%
$1,500
County
General
$30,000
5%
$1,500
$31,500
$31,500
2. Activity Rates:
(a)
Estimat
ed
Overhea
d Cost
$400,00
0
$300,00
0
$200,00
0
$500,00
0
(b)
Expected
Activity
5,000 deliverie
s
4,000 orders
12,500
orders
400,00
0
line
items
(a) (
Activity
$80.0 per de
0
$75.0 per ma
0
$16.0 per ele
0 order
$1.25 per lin
picked
(b)
Activity
10 deliveries
(a)
(b)
ABC
Cost
$ 800
0 orders
10 orders
160
processing...................
0
Line item picking............ $1.25 per line
item
Total activity costs..........
125
$1,085
County General:
Activity Cost Pool
Customer deliveries.......
Manual order
processing...................
Electronic order
processing...................
Line item picking............
(a)
Activity Rate
$80.0 per
0 delivery
$75.0 per order
0
$16.0 per order
0
$1.25 per line
item
(b)
Activity
20 deliverie
s
40 orders
(a) (b)
ABC
Cost
$1,600
3,000
0 orders
260 line
items
0
325
$4,925
Sales.................................
Cost of goods sold.............
Gross margin.....................
Customer deliveries..........
Manual order processing. . .
Electronic order
processing......................
Line item picking...............
Total activity costs.............
Customer margin..............
City
General
$31,500
30,000
1,500
800
0
160
County
General
$31,500
30,000
1,500
1,600
3,000
0
125
1,085
$ 415
325
4,925
$(3,425)
7-6
unprofitable.
Exercise 7-13 (15 minutes)
Customer MarginABC Analysis
Sales (2,400 seats $137.95 per seat)....
Costs:
Direct materials ($112 per seat 2,400
seats)...................................................... $268,800
Direct labor ($14.40 per seat 2,400
seats)......................................................
34,560
Supporting direct labor ($12 per DLH
0.8 DLH per seat 2,400 seats).............
23,040
Batch processing ($96 per batch 4
batches)..................................................
384
Order processing ($284 per order 1
order)......................................................
284
Customer service overhead ($2,620 per
customer 1 customer).........................
2,620
Customer margin........................................
7-7
$331,080
329,688
$ 1,392
$508,625
= $3.13 per DL$
$162,500
EX300
$1,200,0
00
366,325
120,000
375,60
0
861,92
5
$ 338,07
5
TX500
$500,000
162,550
42,500
Total
$1,700,00
0
528,875
162,500
133,025
508,625
338,075
1,200,000
$161,925
$ 500,000
7-8
7-9
(a)
Amou
nt
$366,3
25
120,00
0
375,60
0
$861,9
25
TX500
(a) (c)
%
69.3%
73.8%
(b)
Amou
nt
$162,5
50
42,500
Total
(b) (c)
(c)
%
Amount
30.7% $ 528,87
5
26.2%
162,500
73.8%
133,02
5
$338,0
75
26.2%
69.3%
$162,5
50
42,500
30.7% $ 528,87
5
26.2%
162,500
100,00
0
66.7%
Total cost......................................
Activity-Based Costing System
Direct costs:
Direct materials.........................
Direct labor................................
Advertising expense..................
$366,3
25
120,00
0
50,000
7-10
73.8%
33.3%
508,62
5
1,200,00
0
550,00
0
$1,750,0
00
150,000
Indirect costs:
Machining..................................
Setups.......................................
Product sustaining.....................
Total cost assigned to products....
Costs not assigned to products:
Selling and administrative.........
Other.........................................
117,00
0
30,000
59.0%
81,250
41.0%
198,250
20.0%
80.0%
150,000
50,00
0
$733,3
25
50.0%
120,00
0
50,00
0
$556,3
00
50.0%
100,00
0
1,289,62
5
400,000
60,37
5
$1,750,0
00
Total cost......................................
7-11