1.

value:

10.00 points

Larner Corporation is a diversified manufacturer of industrial goods. The company's activity-based

costing system contains the following six activity cost pools and activity rates :
Activity Rates
$ 7.00 per direct labor-hour
$ 3.00 per machine-hour
$ 40.00 per setup
$ 160.00 per order
$ 120.00 per shipment

Activity Cost Pool

Supporting direct labor
Machine processing
Machine setups
Production orders
Shipments
Product sustaining

$ 800.00 per product

Activity data have been supplied for the following two products:
Total Expected
Activity

J78
1,000
3,200
5
5
10
1

Direct labor-hours
Machine-hours
Machine setups
Production orders
Shipments
Product sustaining

W52
40
30
1
1
1
1

Required:
Determine the total overhead cost that would be assigned to each of the products. (Omit the "$" sign in
your response.)

Activity Cost Pool

Supporting direct labor
Machine processing
Machine setups
Production orders
Shipments
Product sustaining
Total overhead cost

check my work

~ eBook Link

J78
$ t - -_ _7_0_00-11
9600 .
200 1
800
1200 1
800
$

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o

. _ _ I_ _

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W52
$ 1 - - - - - -280
-1
90
40
160
120
800
$

. _ _ I_

14_9__,
o

1 ~ 1 references

2.

value:

10.00 points
Updraft Systems, Inc. , makes paragliders for sale through specialty sporting goods stores. The company
has a standard paraglider model, but also makes custom-designed paragliders. Management has
designed an activity-based costing system with the following activity cost pools and activity rates:
Activity Cost Pool
Supporting direct labor
Order processing
Custom designing
Customer service

Activity Rate
$ 18 per direct labor-hour
$ 192 per order
$ 261 per custom design
$ 426 per customer

Management would like an analysis of the profitability of a particular customer, Eagle Wings, which
has ordered the following products over the last 12 months:
Standard Custom
Design
Model
Number of gliders
Number of orders
Number of custom designs
Direct labor-hours per glider
Selling price per glider
Direct materials cost per glider

10
1
0

2
2
2

28.50

32.00
$2,300

$1 ,650
$ 462

$ 576

The company's direct labor rate is $19 per hour.

Required:
Using the company's activity-based costing system , compute the customer margin of Eagle Wings. (Do
not round intermediate calculations. Round final answer to the nearest dollar amount. Omit the
"$" sign in your response.)
Customer margin
check my work

$ J~_ _8_
9~
1I

~ eBook Links (2)

View Hint #1

1~ i

references

3.

value:

10.00 points
Med Max buys surgical supplies from a variety of manufacturers and then resells and delivers these
supplies to hundreds of hospitals. Med Max sets its prices for all hospitals by marking up its cost of
goods sold to those hospitals by 510. For example, if a hospital buys supplies from Med Max that had
cost Med Max $100 to buy from manufacturers, Med Max would charge the hospital $105 to purchase
these supplies.
For years, Med Max believed that the 510 markup covered its selling and administrative expenses and
provided a reasonable profit. However, in the face of declining profits Med Max decided to implement an
activity-based costing system to help improve its understanding of customer profitability. The company
broke its selling and administrative expenses into five activities as shown below:
Activity Cost Pool
Customer deliveries
Manual order processing
Electronic order processing
Line item picking
Other organization-sustaining costs

Activity Measure
Number of deliveries
Number of manual orders
Number of electronic orders
Number of line items picked
NA

Total Cost

$ 400,000
300,000
200,000
500,000
600,000

Total Activity
5,000 deliveries
4,000 orders
12,500 orders
400,000 line items

$2,000,000

Total selling and administrative expenses

Med Max gathered the data below for two of the many hospitals that it serves-City General and County
General (each hospital purchased medical supplies that had cost Med Max $30,000 to buy from its
manufacturers):
Activity Measure
Number of deliveries
Number of manual orders
Number of electronic orders
Number of line items picked

Activity
City General
County General

10
0
10
100

20
40
0
260

Required:
1. Compute the total revenue that Med Max would receive from City General and County General. (Omit
the "$" sign in your response.)
Total Revenue
City General
County General

$F
I = = =31500
I
===i
$ ..I____3_15_0_,
o 1.

2. Compute the activity rate for each activity cost pool. (Round the "Line item picking" to 2 decimal
places. Omit the "$" sign in your response.)
Activity Cost Pool
Customer deliveries
Manual order processing
Electronic order processing
Line item picking

Activitl'. Rate

$1
$
$
$

so l
75
16
1.25

per delivery
per manual order
per electronic order
per line item picked

3. Compute the total activity costs that would be assigned to City General and County General. (Round
your intermediate calculations to 2 decimal places and final answers to the nearest dollar
amount. Omit the "$" sign in your response.)
Total Activity Costs
City General
County General

$L
$

c---=

1os5 ]
4925

4. Compute Med Max's customer margin for City General and County General. (Hint: Do not overlook
the $30 ,000 cost of goods sold that Med Max incurred serving each hospital.) (Loss amount should
be indicated with a minus sign. Round your intermediate calculations to 2 decimal places and
final answers to the nearest dollar amount. Omit the "$" sign in your response.)
Customer Margin
City General
County General
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$
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1~ 1

415 ]
-3425 ]
references

4.

value:

10.00 points

As You Like It Gardening is a small gardening service that uses activity-based costing to estimate costs
for pricing and other purposes. The proprietor of the company believes that costs are driven primarily by
the size of customer lawns, the size of customer garden beds, the distance to travel to customers, and
the number of customers. In addition , the costs of maintaining garden beds depends on whether the
beds are low-maintenance beds (mainly ordinary trees and shrubs) or high-maintenance beds (mainly
flowers and exotic plants). Accordingly, the company uses the five activity cost pools listed below:
Activity Cost Pool
Caring for lawn
Caring for garden beds- low maintenance
Caring for garden beds-high maintenance
Travel to jobs
Customer billing and service

Activity Measure
Square feet of lawn
Square feet of low-maintenance beds
Square feet of high-maintenance beds
Miles
Number of customers

The company has already completed its first-stage allocations of costs. The company's annual costs
and activities are summarized as follows:

Activity Cost Pool

Caring for lawn
Caring for garden beds-low maintenance
Caring for garden beds-high
maintenance
Travel to jobs
Customer billing and service

Estimated
Overhead
Cost
$ 77,400
$ 30,000

Expected Activity
180,000 square feet of lawn
24,000 square feet of low-maintenance beds

$ 57,600

18,000 square feet of high-maintenance beds

$ 4,200
$ 8,700

15,000 miles
30 customers

Required:
Compute the activity rate for each of the activity cost pools. (Round your answers to 2 decimal places.
Omit the "$" sign in your response.)

Activity Cost Pool

Caring for lawn
Caring for garden beds-low
maintenance
Caring for garden beds-high
maintenance
Travel to jobs
Customer billing and service
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Activity Rate
$._I___._4__.
3 I per square foot of lawn

$I

1.25 I per square foot of low maintenance beds

$I

3.20 I per square foot of high maintenance beds

$$1
.
View Hint #1

.281per mile
290.00 per customer

1 ~ i references

5.

value:

10.00 points
Performance Products Corporation makes two products, titanium Rims and Posts. Data regarding the
two products follow:
Direct
LaborHours
Annual
per
Production
Unit
0.40 20,000 units
0.20 80,000 units

Rims
Posts

Additional information about the company follows:

a. Rims require $17 in direct materials per unit, and Posts require $10.
b. The direct labor wage rate is $16 per hour.
c. Rims are more complex to manufacture than Posts, and they require special equipment.
d. The ABC system has the following activity cost pools:

Activity Cost Pool (and activity measure)

Machine setups (number of setups)
Special processing (machine-hours)
General factory (direct labor-hours)

Estimated
Overhead Cost
$ 21 ,600
$180,000
$288,000

Rims
100

Activity
Posts
80

Total
180

4,000
8,000

0
16,000

4,000
24 ,000

Required:
1. Compute the activity rate for each activity cost pool. (Omit the "$" sign in your response.)
Activity Cost Pool
Machine setups
Special processing
General factory

Activitv Rate
120 per setup

45 per MH
12 per DLH

$1

2 . Determine the unit cost of each product according to the ABC system. (Do not round intermediate
calculations. Round your answers to 2 decimal places. Omit the "$" sign in your response.)
Rims
Direct materials
Direct labor

$1

Overhead

Unit cost

$1

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Posts
17 1
6.4 1
14.4 '
37.8 I

C ~ ) references

$1

I
$1

10 1
3.2 1
2.52 '
15.72 I

6.

value:

10.00 points

--- ...... - ................................................................................................................................................................. ............................................................................................... -----------------

VaultOnWheels Corporation operates a fleet of armored cars that make scheduled pickups and
deliveries for its customers in the Phoenix area. The company is implementing an activity-based costing
system that has four activity cost pools: Travel, Pickup and Delivery, Customer Service, and Other. The
activity measures are miles for the Travel cost pool, number of pickups and deliveries for the Pickup and
Delivery cost pool, and number of customers for the Customer Service cost pool. The Other cost pool
has no activity measure because it is an organization-sustaining activity. The following costs will be
assigned using the activity-based costing system:
Driver and guard wages
Vehicle operating expense
Vehicle depreciation
Customer representative salaries and expenses
Office expenses
Administrative expenses

$ 840,000
270,000
150,000
180,000
40,000
340,000

Total cost

$1 ,820,000

The distribution of resource consumption across the activity cost pools is as follows:

Travel

40o/o
75%
70%
0%
0%
0%

Driver and guard wages

Vehicle operating expense
Vehicle depreciation
Customer representative salaries and expenses
Office expenses
Administrative expenses

Pickup
Customer
and
Delivery Service

45%
5%
10%
0%
25%
5%

10%
0%
0%
85%
35%
55%

Other

Totals

5%
20%
20%
15%
40%
40%

100%
100%
100%
100%
100%
100%

Required:
Complete the first-stage allocations of costs to activity cost pools. (Leave no cells blank be certain to
enter "O" wherever required. Omit the "$" sign in your response.)
Pickup and
Delivery

Travel

Driver and guard wages

$ ~I= =
33=6o=o===i
oI

Vehicle operating expense

Vehicle depreciation
Customer representative salaries
and expenses
Office expenses
Administrative expenses

202500
105000

Total cost

643500]

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eBook Link

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~ ~ 1 references

84000 1

I
I

oI
oI

$ ~I= =4=2o=o===i
oI
I
54000 1
I
30000 1

153000
14000
187000 1

27000
16000
136000 1

438000]

3050oo j

17000 1

$[

433500J

Other

$1

1000~ 1

01

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15000 1

Customer
Service

$[

Totals

$I
I
I

840000 I
270000 1
150000 I
180000
40000
340000 1

$r

1820006]

Score: 60 out of 60 points (100%)