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Chapter 3
3-13 High Low Method
Kylie Hepworth has been operating a beauty shop in a college town for the past 10years. Recently,
Kylie rented space next to her shop and opened a tanning salon. She anticipated that the costs for the
tanning service would be primarily fixed but found that tanning salon costs increased with the number
of appointments. Costs for this service over the past eight months are as follows:
Required
1) Which month represents the high point? The low point?
2) Using the high-low method, compute the variable rate for tanning. Compute the fixed cost per
month.
3) Using your answers to Requirement 2, write the cost formula for tanning services.
4) Calculate t
he
total predicted cost of tanning services for September for 2,500 appointments using the
formula found in Requirement 3. Of that total cost, how much is the total fixed cost for
September? How much is the total predicted variable cost for September?
2. Chapter 4
4-3 Plant wide rate and applied overhead
Gandars Associates produces carburetors for small engines and uses a normal costing system.
The following data are available for 2006:
Budgeted:
Overhead $4,500,000
Machine hours 187,500
Direct labor hours 600,000
Actual:
Units produced 750,000
Overhead $4,466,250
Prime costs $6,750,000
Machine hours 187,875
Direct labor hours 585,000
Overhead is applied on the basis of direct labor hours.
Required
1) What is the predetermined overhead rate?
2) What is the applied overhead for 2006?
Was overhead overapplied or underapplied, and by how much?
3) What is the unit cost for the year?
overhead rate to apply overhead. Overhead is applied on the basis of machine hours in the Drilling
Department and on the basis of direct hours in the Assembly Department. At the beginning of 2006,
the following estimates are provided for the coming year:
Required
1) Compute the predetermined overhead rates for each department.
2) Compute the applied overhead for the year 2006. What is the underapplied or overapplied
overhead for each department? For the firm?
3) Suppose a job used 4,000 machine hours in drilling and 1,600 direct labor hours in assembly.
If the job size is 8,000 units, what is the overhead cost per unit?
Required
1) Do you think that the direct labor costs and direct materials costs are accurately traced to each
briefcase? Explain.
2) Calculate the consumption ratios for each activity.
3) Calculate the overhead cost per unit for each briefcase, using a plantwide rate based on direct
labor costs. Comment on this approach to assigning overhead.
4) Calculate the overhead cost per unit for each briefcase using overhead rates based on machine
hours and setup hours. Explain why these assignments are more accurate than using direct
labor costs.
3. Chapter 5
Functional and Activity based Responsibility Accounting
5. What are the differences between functional based responsibility accounting and activity-based
responsibility accounting?
Activities
Comparing purchase orders and receiving orders and invoices
Resolving discrepancies among the three documents
Preparing checks for suppliers
Making journal entries and mailing checks
Percentage of
Clerical Time
15%
70
10
5
4. Chapter 6
$45,600
6,432
14,400
Costs added by the Mixing Department during the first quarter were
Powder
$33,500
Conversion costs
72,640
There were 31,500 quarts in ending inventory, 20 percent complete with respect
to conversion costs.
Required
Prepare a production report using the FIFO method. Follow the five steps outlined in the chapter in
preparing the report. Carry out unit costs to three decimal places.
Round to the nearest dollar in the production report.
5. Chapter 7
7-6 Single Charging Rate
Pollard Company charges all of its departments and manufacturing cells for the use of
machine maintenance services. Budgeted maintenance costs for the year are $193,200, and budgeted
maintenance hours are 4,200. By the end of the year, total actual maintenance hours equal 4,110, and
actual costs are $190,060.
Required
1) Calculate the billing rate for machine maintenance.
2) If the small motor cell used 370 maintenance hours during the year, what was the cell charged
for maintenance services?
3) Were the departments and cells (taken as a whole) over- or undercharged for the actual costs
of machine maintenance, and by how much?
equipment maintenance. Budgeted hours of routine maintenance are 2,000, with 2,200 hours for the
more technical maintenance.
Required
1) Explain how the controller verified the accuracy of the $460 charged to the Assembly
Department.
2) Calculate two charging rates for the Maintenance Department: a rate for routine maintenance
based on hours needed for routine maintenance; and a rate for technical maintenance based on
hours needed for technical maintenance. Assuming that the Assembly Department needed
only routine maintenance last month, what would the charge have been under the dual rate
system?
3) What does this experience suggest for the determination of charging rates for support
departments?