Managerial Accounting Notes

Accounting chapter 7 managerial accounting Exercises Lambert Fabrication, Inc. , uses activity-based costing data for internal decisions. The company has the following four activity cost pools: Activity Cost PoolAnnual Activity Producing units5,000 machine-hours Processing orders1,000 orders Customer support200 customers OtherNot applicable The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The company traces the costs of direct materials and direct labor to jobs (i. . , orders). Overhead costs—both manufacturing and non-manufacturing—are allocated to jobs using the activity-based costing system. These overhead costs are listed below: Indirect factory wages$100,000 Other manufacturing overheadS200,000 Selling and administrative expense$400,000 To develop the company’s activity-based costing system, employees were asked how they distributed their time and resources across the four activity cost pools. The results of those interviews appear below: Results of Interviews of Employees
Distribution of Resource Consumption Across Activities Producing Processing Customer UnitsOrdersSupportOtherTotals Indirect factory wages40%30%10%20%100% Other manufacturing overhead30%10%0%60%100% Selling and administrative expense0%25%40%35%100% a. Using the results of the interviews, carry out the first-stage allocation of costs to the activity cost pools. Producing Processing Customer UnitsOrdersSupportOtherTotals Indirect factory wages $ S S $ S
Other manufacturing overhead Selling and administrative expense.. Total overhead cost $$ $___ ___ $ $__ ____ Chapter 7 b. Using the results of the first-stage allocation, compute the activity rates for each of the activity cost pools. (Activity rates are not computed for the “Other” activity cost pool because these costs will not be allocated to products or customers. ) Computation of Activity Rates

Activity Cost Pools Total CostTotal ActivityActivity Rate Producing units $ machine-hours $ per machine-hour Processing orders $ orders $ per order Customer support $ customers $per customer c. Data concerning one of the company’s products are listed below: Product W562 Selling price$100 Annual sales (units)1,000 Direct materials per unit$24 Direct labor per unit Machine-hours per unit1. 5 Orders processed80 Using the activity rates you derived in part (b) above and the above data, compute the total amount of over¬head cost that would be allocated to product W562.
Overhead Cost of Product W562 Activity Cost PoolsActivity RateActivityABC Cost Producing units$per machine-hourmachine-hours$ Processing orders$per orderorders Customer support$per customerNot applicable Total $__________ d. Using the data developed above for product W562, complete the following report. Product Margin—Product W562 Sales$ Costs: Direct materials$ Direct labor Producing units Processing orders ________ Product margin $_______________