M6-13
- i 6. d
- h 7. b*
- f 8. c
- a 9. e
- j 10. g
*(Note: (d) cannot be used because it is the most logical answer to item
6, and each answer can be used only once.)
M6-15
IntroductoryGraduate
CourseCourse
Assignment of salary:
$117,000 0.65 portion teaching 0.50$38,025$38,025
Annual enrollment:
Introductory course
2 sections 70 students 2 semesters 280
Graduate course
1 section 30 students 2 semesters ______ 60
Cost of instruction per student$135.80$633.75
E6-25
a.
Overhead rate per direct labor dollar: $83,000 $45,000 = 1.8444 or 184.444%
Gas Charcoal
CookerSmokerTotal
Direct materials$40,000$100,000$140,000
Direct labor 20,000 25,00045,000
Overhead (1.84.444 × direct labor) 36,889 46,111 83,000
Total cost$96,889$171,111$268,000
Units 1,000 5,000
Unit cost$ 96.89$ 34.22
b.
Rate per unit of activity cost driver:
(a) (b) (a) ÷ (b)
Cost Driver
ActivityCostCost driver Quantity Rate
Materials acquisitionDirect Materials
and inspection$30,800 Cost $140,000 0.22 per DM$
Materials movement 16,200Number of moves 100 $162 per move
Scheduling 36,000Number of batches 60 $600 per batch
Gas Charcoal
CookerSmokerTotal
Total direct materials costs$ 40,000$ 100,000$140,000
Total direct labor costs20,00025,00045,000
Overhead costs:
Materials acquisition
$40,000 & $100,000 @ 0.22/DM$ 8,800 22,00030,800
Materials movement
80 & 20 @ $162/batch move 12,9603,24016,200
Scheduling 50 & 10 @ $600/batch 30,000 6,00036,000
Total costs $111,760$156,240$268,000
Units produced 1,000 5,000
Unit cost $ 111.76 $ 31.25
c. The solution to (b) using activity-based costing is more accurate. If the solution to (a) using traditional costing is followed, prices developed on the basis of costs will be inaccurate and result in lost profits and lost profit opportunities.
In particular, the Gas Cooker, which is more complicated and produced in much smaller batches, may be priced too low, resulting in lost revenues and profits in the premium grill market. The Charcoal Smoker, which is less complicated and can be produced in very large batches, may be priced too high, resulting in lost sales and inability to compete in the discount market. Under traditional costing, Charcoal Smokers are subsidizing the cost of Gas Cookers because part of the cost of the Cookers is being assigned to the Smokers.
d. Subtracting product costs from revenues will yield the gross margin on the products, but to determine the net profitability of Cookers and Smokers, the costs incurred after the products are manufactured for selling and distribution activities must be determined. Because all customer types may not be equally profitable (due to variations in servicing demands), management may also want to determine the profitability for the various categories of customers (e.g., discount stores, buying clubs, and specialty shops) that buy Smokers and Cookers from Chef Grill Company.