Question : 165.Waller Company has a regional division and a national division. : 1302777

165.Waller Company has a regional division and a national division. A travel department supports the employees in both divisions. The fixed costs of the travel department ($54,000 per month) are allocated based on the peak usage of reservation services. The national division has a peak monthly usage of 160 reservations and the regional has a peak usage of 240 reservations. The variable costs of the travel department are allocated to the divisions based on the number of reservations made at a rate of $15 per reservation.

a.If the national division requires 28 reservations in November and the regional division requires 20 reservations during November, calculate the amount of travel department costs that will be allocated to each of the divisions.

b.Explain why the allocation is higher to the regional division when it uses fewer reservations.

166.Hanson Inc. is operating at 60 percent of its capacity. Hanson has received an offer from a retail company to purchase 600 granite tables for $158 each. Hanson’s accountants determined that the order can be accommodated within the excess capacity. The following costs information is provided:

Direct material              $  80

Direct labor              55

Manufacturing overhead                 40

Total              $175

Of the $40 of overhead, $18 is variable and $22 relates to fixed costs. The $22 of fixed overhead is allocated as $3.00 per direct labor hour.

                What will be the effect on profit if the order is accepted?

b.Explain why managers who focus on the full reported cost per unit may be inclined to turn down the order.

167.Bowcock Manufacturing allocates factory overhead using one cost pool with direct labor hours as the allocation base. Bowcock has two production departments (A1 and A2). The new accountant at Bowcock estimates that next year the total factory overhead costs will be $4,000,000 and approximately 500,000 direct labor hours will be worked. The accountant also estimates that A1 will use 150,000 direct labor hours and there will be about $2,000,000 in overhead costs in A1. A2 will use 350,000 direct labor hours and there will be $2,000,000 in overhead costs in A2. Bowcock has two products: R4 and R5. It takes two direct labor hours in A1 and three direct labor hours in A2 to complete one unit of R4. It takes one direct labor hour in A1 and four direct labor hours in A2 to complete one unit of R5.

Which product will be undercosted and which will be overcosted using a single cost pool system? Support your answer with appropriate calculations.

168.The following are six cost pools established for a company using activity-based costing. The pools are related to the company’s products using cost drivers. For each of the cost pools, identify a possible cost driver.

COST POOLCOST DRIVER

(1) Handling of raw materials

(2) Production equipment repairs and maintenance

(3) Raw materials storage

(4) Plant heat, light, water, and power

(5) Finished product quality control

(6) Production line setups