Question : 20) Aunt Ethel’s Fancy Cookie Company manufactures and sells three : 1212089

 

20) Aunt Ethel’s Fancy Cookie Company manufactures and sells three flavors of cookies: Macaroon, Sugar, and Buttercream. The batch size for the cookies is limited to 1,000 cookies based on the size of the ovens and cookie molds owned by the company. Based on budgetary projections, the information listed below is available:

 

MacaroonSugar     Buttercream

Projected sales in units500,000800,000600,000

 

PER UNIT data:

Selling price$0.80$0.75$0.60

 

Direct materials$0.20$0.15$0.14

Direct labor$0.04$0.02$0.02

 

Hours per 1000-unit batch:

Direct labor hours211

Oven hours111

Packaging hours0.50.50.5

 

Total overhead costs and activity levels for the year are estimated as follows:

 

ActivityOverhead costsActivity levels

Direct labor 2,400 hours

Oven$210,0001,900 oven hours

Packaging$150,000950 packaging hours

$360,000

 

Required:

a.Determine the activity-cost-driver rate for packaging costs.

 

b.Using the ABC system, for the sugar cookie:

1.compute the estimated overhead costs per thousand cookies.

2.compute the estimated operating profit per thousand cookies.

 

c.Using a traditional system (with direct labor hours as the overhead allocation base), for the sugar cookie:.

1.compute the estimated overhead costs per thousand cookies.

2.compute the estimated operating profit per thousand cookies.

 

d.Explain the difference between the profits obtained from the traditional system and the ABC system. Which system provides a better estimate of profitability? Why?

 

Objective 5.7

 

1) Velshi Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2015, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages.

 

For 2015 Velshi Printers has decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis:

 

Cost poolManufacturing overhead costsActivity level

Design changes$ 120,000300 design changes

Setups640,0005,000 setups

Inspections80,0008,000 inspections

Total manufacturing overhead costs$840,000

 

During 2015, two customers, Money Managers and Hospital Systems, are expected to use the following printing services:

 

ActivityMoney ManagersHospital Systems

Pages60,00076,000

Design changes100

Setups2010

Inspections3038

 

When costs are assigned using the single cost driver, number of pages printed, then ________.

A) Velshi Printers will want to retain this highly profitable customer

B) Money Managers will likely seek to do business with competitors

C) Money Managers is unfairly over billed for its use of printing resources

D) Money Managers is grossly under billed for the job, while other jobs will be unfairly over billed

2) Whitman Printing has contracts to complete weekly supplements required by forty-six customers. For the year 20X5, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages.

 

For 2010, Whitman Printing decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis:

 

Cost pool              Manufacturing overhead costs              Activity level

Design changes              $ 120,000              200 design changes

Setups              640,000              4,000 setups

Inspections              80,000              16,000 inspections

Total manufacturing overhead costs              $840,000

 

During 2010, two customers, Money Managers and Hospital Systems, are expected to use the following printing services:

 

ActivityMoney ManagersHospital Systems

Pages60,00076,000

Design changes102

Setups2010

Inspections3038

 

When costs are assigned using the single cost driver, number of pages printed, then Hospital Systems ________.

A) is fairly billed because resources are allocated uniformly to all jobs

B) is grossly under billed for the job, while other jobs will be unfairly over billed

C) will likely seek to do business with competitors

D) will contribute too little to profits, and Wallace Printing will not want to accept additional work from the company

 

3) Activity-based costing information can be used for ________.

A) product-mix decisions

B) pricing decisions

C) advertisement decisions

D) inventory valuation

4) Which of the following statements is true of costing systems?

A) Single-indirect cost pool systems always result in overcosting of products.

B) Single-indirect cost pool systems classify some direct costs as indirect costs.

C) ABC systems always result in overcosting of products.

D) ABC systems classify some indirect costs as direct costs helping to improve processes