亨格瑞管理会计英文第15版练习答案04.doc

CHAPTER 4
COVERAGE OF LEARNING OBJECTIVES

LEARNING OBJECTIVE
FUNDA-
MENTAL ASSIGN-MENT
MATERIAL
CRITICAL THINKING EXERCISES AND EXERCISES

PROBLEMS
CASES, EXCEL, COLLAB. & INTERNET EXERCISES
LO1: Describe the purposes of cost management systems.

31, 34
50

LO2: Explain the relationship between cost, cost object, cost accumulation, and cost assignment.

45
56
LO3: Distinguish between direct and indirect costs.
A1,B1
36, 37, 38, 39, 44
45, 49
56
LO4: Explain the major reasons for allocating costs.
B2
33, 41
46
54
LO5: Identify the main types of manufacturing costs: direct materials, direct labor, and indirect production costs.

36, 37, 38, 39

LO6: Explain how the financial statements of merchandisers and manufacturers differ because of the types of goods they sell.
A2

57, 60, 61
LO7: Understand the main differences between traditional and activity-based costing systems and why ABC systems provide value to managers.
A3, A4, B3, B4
33, 40, 41, 42
48, 49, 50
55, 56, 57, 58, 59, 60, 61
LO8: Use activity-based cost information to make strategic and operational control decisions.
A4, B4
32, 37, 43
48, 49, 50
55, 56, 60

CHAPTER 4
Cost Management Systems and Activity-Based Costing

4-A1 (20-30 min.)

See Table 4-A1 on the following page.

4-A2 (25-30 min.)

1. Merchandise Inventories, 1,000 devices @ $97 $97,000

2. Direct materials inventory $ 40,000
Work-in-process inventory 0
Finished goods inventory 97,000
Total inventories $137,000
3.
NILE ELECTRONICS PRODUCTS
Statement of Operating Income
For the Year Ended December 31, 20X9

Sales (9,000 units at $170) $1,530,000
Cost of goods sold:
Beginning inventory $ 0
Purchases 970,000
Cost of goods available for sale $ 970,000
Less ending inventory 97,000
Cost of goods sold (an expense) 873,000
Gross margin or gross profit $ 657,000
Less other expenses: selling & administrative costs 185,000
Operating income (also income before taxes
in this example) $ 472,000

123
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall.
TABLE 4-A1

STATEMENT OF OPERATING INCOME OPERATING INCOME BY PRODUCT LINE
EXTERNAL REPORTING PURPOSE INTERNAL STRATEGIC DECISION MAKING PURPOSE
Custom Large Small
Detailed Std. Std. Cost Type, Assignment Method
Sales $155,000 $30,000 $45,000 $80,000
Cost of goods sold:          
Direct material 40,000 5,000 15,000 20,000 Direct, Direct Trace
Indirect manufacturing 41,000 28,0001 5,000 8,000 Indirect, Alloc. – Mach. Hours
  81,000 33,000 20,000 28,000  
Gross profit 74,000 (3,000) 25,000 52,000  
Selling and administrative expenses:          
Commissions 15,000 1,500 3,500 10,000 Direct, Direct Trace
Distribution to warehouses 10,400 1,0002 3,000 6,400 Indirect, Allocation - Weight
Total selling and admin. expenses 25,400 2,500 6,500 16,400  
Contribution to corporate expenses
and profit 48,600 $(5,500) $18,500 $35,600  
Unallocated expenses:      
Administrative salaries 8,000        
Other administrative expenses 4,000        
Total unallocated expenses 12,000        
Operating income before tax $ 36,600        

1 Total machine hours is 1,400 + 250 + 400 = 2,050. Indirect manufacturing cost per machine hour is then $41,000 ÷ 2,050 = $20. The allocation to custom detailed is $20 × 1,400 machine hours = $28,000.
2 Total weight shipped is 25,000 kg + 75,000 kg + 160,000 kg = 260,000 kg. Indirect distribution costs per kilogram is then $10,400 ÷ 260,000 kg = $0.04. The allocation to custom detailed is $0.04 × 25,000 kg = $1,000.

178
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall.
4. ORINOCO, INC.
Statement of Operating Income
For the Year Ended December 31, 20X9

Sales (9,000 units at $170) $1,530,000
Cost of goods manufactured and sold:
Beginning finished goods inventory $ 0
Cost of goods manufactured:
Beginning WIP inventory $ 0
Direct materials used 530,000
Direct labor 290,000
Indirect manufacturing 150,000
Total mfg. costs to account for $970,000
Less ending work-in-
process inventory 0 970,000
Cost of goods available for sale $970,000
Less ending finished goods inventory 97,000
Cost of goods sold (an expense) 873,000
Gross margin or gross profit $ 657,000
Less other expenses: selling and administrative costs 185,000
Operating income (also income before taxes
in this example) $ 472,000

5. The balance sheet for the merchandiser (Nile) has just one line for inventories, the ending inventory of the items purchased for resale. The balance sheet for the manufacturer (Orinoco) has three items: direct materials inventory, work-in-process inventory, and finished goods inventory.

The income statements are similar except for the computation of cost of goods available for sale. The merchandiser (Nile) simply shows purchases for the year plus beginning inventory. In contrast, the manufacturer (Orinoco) shows beginning work-in-process inventory plus the three categories of cost that comprise manufacturing cost (direct materials used, direct labor, and factory (or manufacturing) overhead) and then deducts the ending work-in-process inventory. The manufacturer then adds the beginning finished goods inventory to this cost of goods manufactured to get the cost of goods available for sale.

6. The purpose is providing aggregate measures of inventory value and cost of goods manufactured for external reporting to investors, creditors, and other external stakeholders.

4-A3 (10-15 min.)

There can be many justifiable answers for each item other than the listed cost driver and behavior. The purpose of this exercise is to generate an active discussion regarding those chosen by First Bank’s managers. One point that should be emphasized is that many times managers choose cost drivers that are not the most plausible or reliable because of lack of data availability. Cost drivers are also used as a basis to allocate activity and resource costs and so the availability of data is often an important consideration.

Activity
Or Cost
Resource Cost Driver Behavior
a.* R Number of square feet F
b.** R Number of person hours F
c. R Number of computer transactions V
d. A Number of schedules
e. R Number of person hours F
f. R Number of loan inquiries V
g.*** A Number of investments
h. A Number of applications
i. R Number of person hours V
j. R Number of minutes V
k. R Number of person hours F
l. A Number of loans

* An argument can be made that maintenance of the building is an activity. If this was the case, resources such as supplies and labor would be resources consumed, and several resource cost drivers would be needed. In addition, a separate resource and associated cost driver would be needed for insurance costs. However, the company had a contract for maintenance (fixed price), so this was a fixed-cost resource that was added to other occupancy costs such as insurance. The cost driver chosen for all these occupancy costs was square feet occupied by the various departments.

** Normally, the cost driver used for any labor resource is person hours. It is assumed that the staff person hours used are regular hours rather than overtime or temporary labor hours. Thus, the cost is fixed with respect to changes in hours used. As the hours used increases (decreases) the utilization of the resources increases (decreases) and eventually management will need to make a decision whether to expand capacity (or whether to cut back on labor). This is an example of a step cost that is fixed over wide ranges of cost-driver level.

*** Students may try to determine the cost behavior of activities even though the problem requirements do not ask for it. Point out that activities almost always have mixed cost behavior because they consume various resources. Some of these are fixed-cost and others variable-cost resources. For example, the activity “research to evaluate a loan application” consumes such fixed-cost resources as manager labor time and computers (assumed owned by the bank). This activity also consumes variable-cost resources such as telecommunications time and external computing services.
4-A4 (20-30 min.)

1. The first step is to determine the cost per cost-driver unit for each activity:

Monthly Cost- Cost per
Manufacturing Driver Driver
Activity [Cost driver] Overhead Activity Unit
Material Handling [Direct materials cost] $12,000 $200,000 $ 0.06
Engineering [Engineering change notices] 20,000 20 1,000.00
Power [Kilowatt hours] 16,000 400,000 0.04
Total Manufacturing Overhead $48,000

Next, the costs of each activity can be allocated to each of the three products:

PHYSICAL FLOW / ALLOCATED COST
Cost Senior Basic Deluxe
Material Handling $.06 × 25,000 = $1,500 $.06 × 50,000 = $ 3,000 $.06 × 125,000 = $ 7,500
Engineering $1,000 × 13 = 13,000 $1,000 × 5 = 5,000 $1,000 × 2 = 2,000
Power $.04 × 50,000 = 2,000 $.04 × 200,000 = 8,000 $.04 × 150,000 = 6,000
Total $16,500 $16,000 $15,500

2. Overhead rate based on direct labor costs:

Rate = Total manufacturing overhead ÷ Total direct labor cost
= $48,000 ÷ $8,000 = $6.00/DL$

Overhead allocated to each product is:
Senior: $6.00 × 4,000 = $24,000
Basic: $6.00 × 1,000 = 6,000
Deluxe: $6.00 × 3,000 = 18,000
Total $48,000

Notice that much less manufacturing overhead cost is allocated to Basic using direct labor as a cost driver. Why? Because Basic uses only a small amount of labor but large amounts of other resources, especially power.

3. The product costs in requirement 1 are more accurate if the cost drivers are good indicators of the causes of the costs -- they are both plausible and reliable. For example, kilowatt hours is certainly a better measure of the cost of power costs than is direct labor hours. Therefore, the allocation of power costs in requirement 1 is certainly better than in requirement 2. Materials handling and engineering are likewise more plausible. A manager would be much more confident in the manufacturing overhead allocated to products in requirement 1. Remember, however, that there are incremental costs of data collection associated with the more accurate ABC system. The benefit/cost criteria must be applied in deciding which costing system is “best.”

4-B1 (20-30 min.)

See Table 4-B1 on the following page.

4-B2 (25-30 min.)

1. $1,080,000 ÷ 45,000 hours = $24 per direct-labor hour

2. (a) $585,000 ÷ 15,000 hours = $39 per direct-labor hour
(b) $495,000 ÷ 30,000 hours = $16.50 per direct-labor hour

3. (a) $585,000 ÷ 97,500 hours = $6 per machine hour
(b) $495000 ÷ 30,000 hours = $16.50 per direct-labor hour

4. (a) $24 × (1.0 + 14.0) = $360.00
$24 × (1.5 + 3.0) = $108.00
$24 × (1.3 + 8.0) = $223.20
(b) ($39 × 1.0) + ($16.50 × 14.0) = $39.00 + $231.00 = $270.00
($39 × 1.5) + ($16.50 × 3.0) = $58.50 + $ 49.50 = $108.00
($39 × 1.3) ($16.50 × 8.0) = $50.70 + $132.00 = $182.70
(c) ($6 × 12.0) + ($16.50 × 14.0) = $ 72.00 + $231.00 = $303.00
($6 × 17.0) + ($16.50 × 3.0) = $102.00 + $ 49.50 = $151.50
($6 × 14.0) + ($16.50 × 8.0) = $ 84.00 + $132.00 = $216.00
(d) First consider using departmental instead of firmwide rates (part b vs. part a). Departmental rates that use direct-labor hours as the base decrease the cost applied to units of A and C and leave B unaffected. Other products that use relatively less assembly time will increase in cost. Now examine changing to a base of machine hours in machining (part c vs. part a). Product B is the only one with an increase in cost in (c) compared to (a). Why? Because B's uses only 16% of the direct labor hours used for A, B, and C, so it is is allocated only 16% of the costs allocated on the basis of direct labor hours. But it uses 40% of the machine hours, and there is allocated 40% of costs that are allocated on the basis on machine hours. Therefore, it receives relatively more costs with a base of machine hours than with a base of direct-labor hours.

TABLE 4-B1

STATEMENT OF OPERATING INCOME OPERATING INCOME BY PRODUCT LINE
Thousands of Dollars Lawn Hand
Scooter Mower Tool Cost Type,
Parts Parts Parts Assignment Method Lawn Mower Parts Hand Tool Parts Cost Type, Assignment Method
Sales $990 $350 $380 $260
Cost of goods sold:          
Direct material 400 175 125 100 Direct, Direct Trace
Indirect manufacturing 94 68 1 14 12 Indirect – Mach.Hrs
  494 243 139 112  
Gross profit 496 107 241 148  
Selling and administrative expenses:          
Commissions 55 25 20 10 Direct, Direct Trace
Distribution to warehouses 150 20 2 80 50 Indirect - Weight
Total selling and administrative expenses 205 45 100 60  
Contribution to corporate expenses and profit 291 $ 62 $141 $ 88  
Unallocated expenses:      
Corporate salaries 11        
Other general expenses 17        
Total unallocated expenses 28        
Operating income before tax $263        

1 Total machine hours is 8,500 + 1,750 + 1,500 = 11,750. Indirect manufacturing cost per machine hour is then $94,000 ÷ 11,750 = $8. The allocation to scooter parts is $8 × 8,500 machine hours = $68,000.
2 Total weight shipped is 100,000 kg + 400,000 kg + 250,000 kg = 750,000 kg. Indirect distribution costs per kilogram is then $150,000 ÷ 750,000 kg = $0.20. The allocation to scooter parts is $0.20 × 100,000 kg = $20,000.
4-B3 (30-35 min.)

1. The existing system allocates all costs based on direct labor cost. The rate for allocating indirect production costs is:

Estimated indirect production cost ÷ Estimated direct labor cost
= ¥24,500,000 ÷ ¥35,000,000 = 70%

That is, each time ¥1 is spent on direct labor, Watanabe adds ¥0.7 of indirect production cost to the cost of the product.

2. Under an ABC system, Watanabe would allocate indirect production costs separately for each activity. This would result in the following four allocation rates:

Receiving: Receiving costs ÷ Direct material cost
=¥4,800,000 ÷ 60,000,000 = ¥0.08 per ¥1of dir. mat.
Assembly: Assembly costs ÷ Number of control units
=¥13,800,000 ÷ 92,000 = ¥150 per control unit
Qual. Control: Quality control cost ÷ QC hours
=¥1,800,000 ÷ 600 = ¥3,000 per QC hour
Shipping: Shipping cost ÷ # of boxes shipped
=¥4,100,000 ÷ 8,200 = ¥500 per box shipped

3. (a) The cost will contain 3 components (in thousands of yen):
Dir