Cost Accounting Homework

5-23. ABC, PROCESS COSTING. Walsh Company produces mathematical and financialcalculators and operates at capacity. Data related to the two products are presented here:
Total manufacturing overhead costs are as follows:
Total
Machining costs
$440,000
Setup costs
110,000
Inspection costs
120,000
Required
1. Choose a cost driver for each overhead cost pool and calculate the manufacturing overhead
cost per unit for each product.
2. Compute the manufacturing cost per unit for each product.
3. How might Walsh’s managers use the new cost information from its activity-based costing
system to better manage its business?
5-35. FIRST-STAGE ALLOCATION, TIME-DRIVEN ACTIVITY-BASED COSTING, SERVICE
SECTOR. LawnCare USA provides lawn care and landscaping services to commercial clients.
LawnCare USA uses activity-based costing to bid on jobs and to evaluate their profitability.
LawnCare USA reports the following budgeted annual costs:
John Gilroy, controller of LawnCare USA, has established four activity-cost pools and the
following budgeted activity for each cost pool:
Activity-Cost Pool
Activity Measure
Total Activity for the Year
Estimating jobs
Number of job estimates
250 estimates
Lawn care
Number of direct labor-hours
10,000 direct labor-hours
Landscape design
Number of design hours
500 design hours
Other
Facility-sustaining costs that are
not allocated to jobs
Not applicable
Gilroy estimates that LawnCare USA’s costs are distributed to the activity-cost pools as follows:
Estimating Jobs
Lawn Care
Landscape
Design
Other
Total
Wages and salaries
5%
70%
15%
10%
100%
Depreciation
10%
65%
10%
15%
100%
Supplies
0%
100%
0%
0%
100%
Other overhead
15%
50%
20%
15%
100%
Sunset Office Park, a new development in a nearby community, has contacted LawnCare USA
to provide an estimate on landscape design and annual lawn maintenance. The job is estimated
to require a single landscape design requiring 40 design hours in total and 250 direct
labor-hours annually. LawnCare USA has a policy of pricing estimates at 150% of cost.
Required
1. Allocate LawnCare USA’s costs to the activity-cost pools and determine the activity rate for
each pool.
2. Estimate total cost for the Sunset Office Park job. How much would LawnCare USA bid to
perform the job?
3. LawnCare USA does 30 landscape designs for its customers each year. Estimate the total
cost for the Sunset Office park job if LawnCare USA allocated costs of the Landscape Design
activity based on the number of landscape designs rather than the number of landscape
design-hours. How much would LawnCare USA bid to perform the job? Which cost driver do
you prefer for the Landscape Design activity? Why?
4. Sunset Office Park asks LawnCare USA to give an estimate for providing its services for a
2-year period. What are the advantages and disadvantages for LawnCare USA to provide a
2-year estimate?
5-38. CHOOSING COST DRIVERS, ACTIVITY-BASED COSTING, ACTIVITY-BASED
MANAGEMENT. Pastel Bags (PB) is a designer of high-quality backpacks and purses. Each
design is made in small batches. Each spring, PB comes out with new designs for the backpack
and the purse. The company uses these designs for a year and then moves on to the next
trend. The bags are all made on the same fabrication equipment that is expected to operate at
capacity. The equipment must be switched over to a new design and set up to prepare for the
production of each new batch of products. When completed, each batch of products is
immediately shipped to a wholesaler. Shipping costs vary with the number of shipments.
Budgeted information for the year is as follows:
Other budget information follows:
backpacks
purses
total
Number of bags
6,175
3,075
9,250
Hours of production
1,665
2,585
4,250
Number of batches
120
80
200
Number of designs
2
2
4
Required
1. Identify the cost hierarchy level for each cost category.
2. Identify the most appropriate cost driver for each cost category. Explain briefly your choice of
cost driver.
3. Calculate the budgeted cost per unit of cost driver for each cost category.
4. Calculate the budgeted total costs and cost per unit for each product line.
5. Explain how you could use the information in requirement 4 to reduce costs.