New Era University

College of Accountancy

COST ACCOUNTING
Activity-Based Costing Answers and Solutions

1. A. 39%
Value-added time:
Process time 2.8 days
Divide by manufacturing cycle time1 7.2 days
Manufacturing cycle efficiency 39 %
1
Computation of manufacturing cycle time:
Queue time 3.0 days
Inspection time 0.8
Process time 2.8
Move time 0.6
Manufacturing cycle time 7.2 days
Note: The waiting time between the customer order and the beginning of production is not
included in manufacturing cycle time.

2. C. 51 hours
Materials handling 2 hours
Order setup 6
Machine maintenance 3
Order scheduling 1
Inspection of completed order 5
Pack and move to storage 2
Manufacturing assembly 24
Receiving and stocking raw materials 6
Inspection of raw materials 2
Throughput (manufacturing cycle) time 51 hours
Note: The new product development time and order taking and checking time are not included in
manufacturing cycle time.

3. A. 47.06%
Value-added time:
Manufacturing assembly 24 hours
Divide by throughput time (see no. 2) 51 hours
Manufacturing cycle efficiency 47 %

4. C. P2,515.00
Overhead Item Expected Cost Expected Qty. Overhead Rate
Setup costs P100,000 500 P200.00 per setup
Ordering costs 40,000 3,200 P12.50 per order
Maintenance 200,000 4,000 P50.00 per machine hour
Power 20,000 80,000 P0.25 per kilowatt hour
Setup costs (P200.00 per setup x 2 setups) P 400
Ordering costs (P12.50 per order x 8 orders) 100
Maintenance (P50.00 per machine hour x 40 machine hours) 2,000
Power (P0.25 per kilowatt hour x 60 kilowatt hours) 15
Total overhead allocated to Job 500 P2,515

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5. D. P0.36
Cost per setup P 5,000 per setup
Multiply by number of setups x4 setups
Total setup cost P20,000
Divide by number of units (50,000 + 6,000) 56,000 units
Per-unit setup cost P 0.36 per unit

6. B. P5.00
Setup cost P 5,000
Divide by number of blue units of Product Z 1,000 units
Per-unit setup cost P 5.00 per unit

7. B. P240.00
Total overhead P480,000
Divide by cost-allocation base units2 2,000 DL hours
Overhead rate P 240 per DL hour
Multiply by direct labor hours per unit Model 1 x1 DL hour per unit
Overhead cost per unit Model 1 P240 per unit
2
Computation of cost-allocation base units:
Model 1 (1 x 1,000) 1,000 DL hours
Model 2 (5 x 200) 1,000
Cost-allocation base units 2,000 DL hours

8. D. P525.50 higher than the cost using the traditional system.

Traditional costing system:
Quality control cost application rate 14.50 %
Multiply by direct labor cost x P27,500.00
Allocated to Satin Sheen P 3,987.50
Activity-based costing system:
Incoming material inspection (P11.50 x 12) P 138.00
In-process inspection (P0.14 x 17,500) 2,450.00
Product certification (P77 x 25) 1,925.00
Allocated to Satin Sheen P 4,513.00

9. A. P115.50
Total overhead P780,000
Divide by cost-allocation base units3 87,200 hours
Overhead rate P8.94495 per hour
Multiply by overhead activity hours Product A x 7,200 hours
Allocated to Product A P 64,404
Divide by number of units Product A 800 units
Overhead cost per unit Product A P 80.50 per unit
Add direct material and labor costs Product A 35.00
Total product cost per unit Product A P 115.50 per unit
3
Computation of cost-allocation base units:
Product A [(2 + 1 + 6) x 800] 7,200 hours
Product B [(1 + 8 + 1) x 8,000] 80,000
Cost-allocation base units 87,200 hours

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10. C. P111.44
Overhead rate (see no. 9) P8.94495 per hour
Multiply by overhead activity hours Product B x 80,000 hours
Allocated to Product B P715,596
Divide by number of units Product B 8,000 units
Overhead cost per unit Product B P 89.44 per unit
Add direct material and labor costs Product B 22.00
Total product cost per unit Product B P 111.44 per unit

11. A. P37,500
Number of direct labor hours standard model 375 DL hours
Divide by total number of direct labor hours (375 + 225) 600 DL hours
Percentage to use in allocating overhead to the standard model 62.5 %
Multiply by total overhead costs x P60,000
Allocated to the standard model P37,500

12. C. P24,800
Setup cost (P20,000 x 22/50) P 8,800
Component cost (P40,000 x 8/20) 16,000
Allocated to the standard model P24,800

13. C. P3,000
Traceable costs process loan applications P27,000
Divide by number of loan applications 900 applications
Overhead rate process loan applications P 30 per application
Multiply by number of loan applications Jennings x 100 applications
Loan application cost to be assigned to Jennings P 3,000

14. A. P1,800
Traceable costs process deposits P36,000
Divide by number of deposits 400,000 applications
Overhead rate process deposits P 0.09 per application
Multiply by number of deposits Crowley x 20,000 applications
Deposit cost to be assigned to Crowley P 1,800

15. B. P6.60
Activity 1 (P20,000 x 100/500) P 4,000
Activity 2 (P37,000 x 800/1,000) 29,600
Activity 3 (P91,200 x 800/3,800) 19,200
Allocated to coats P52,800
Divide by production volume of coats 8,000 units
Cost per unit of coats P 6.60 per unit

16. D. P15.90
Activity 1 (P20,000 x 400/500) P16,000
Activity 2 (P37,000 x 200/1,000) 7,400
Activity 3 (P91,200 x 3,000/3,800) 72,000
Allocated to hats P95,400
Divide by production volume of hats 6,000 units
Cost per unit of hats P 15.90 per unit

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17. A. P1,000; P500
Based on direct labor hours:
Budgeted materials handling costs P50,000
Divide by total direct labor hours [(200 x 25) + (200 x 25)] 10,000 DL hours
Overhead rate P 5 per DL hour
Multiply by direct labor hours per unit wall mirrors x 200 DL hour per unit
Materials handling cost per unit wall mirrors P 1,000 per unit
Under activity-based costing:
Budgeted materials handling costs P50,000
Divide by cost-allocation base units (5 + 15) 20 material moves
Overhead rate P 2,500 per material move
Multiply by material moves wall mirrors x5 material moves
Materials handling cost wall mirrors P12,500
Divide by number of units wall mirrors 25 units
Materials handling cost per unit wall mirrors P 500 per unit

18. B. 75%
Number of clients served tax planning 60 clients
Divide by total number of clients served (20 + 60) 80 clients
Percentage to use in allocating staff support costs tax planning 75 %

19. A. decrease by P23,500.

Traditional costing system:
Total administrative cost P250,000
Multiply by allocation rate consulting (100% 65%) x 35%
Allocated to consulting P 87,500
Activity-based costing system:
Staff support (P180,000 x 20/80) P 45,000
In-house computing charges (P50,000 x 30%) 15,000
Miscellaneous office costs (P20,000 x 20%) 4,000
Allocated to consulting P 64,000

20. C. P117,740
Telephone costs P203,000
Divide by number of calls 7,000 calls
Telephone costs per call P 29 per call
Multiply by number of calls for retail division (7,000 2,940) x 4,060 calls
Allocated to retail division P117,740

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