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E4-10 XXXXX XXXXXatorre, Inc. manufactures five models of kitchen appliances at its Mesa plant.




E4-10 XXXXX XXXXXatorre, Inc. manufactures five models of kitchen appliances at its Mesa plant. The company is installing activity-based costing and has identified the following activities performed at its Mesa plant.;1. Designing new models.;2. Purchasing raw materials and parts.;3. Storing and managing inventory.;4. Receiving and inspecting raw materials and parts.;5. Interviewing and hiring new personnel.;6. Machine forming sheet steel into appliance parts.;7. Manually assembling parts into appliances.;8. Training all employees of the company.;9. Insuring all tangible fixed assets.;10. Supervising production.;11. Maintaining and repairing machinery and equipment.;12. Painting and packaging finished appliances.;Having analyzed its Mesa plant operations for purposes of installing activity-based costing;XXXXX XXXXXatorre, Inc. identified its activity cost centers. It now needs to identify relevant activity cost drivers in order to assign overhead costs to its products.;Instructions;Using the activities listed above, identify for each activity one or more cost drivers that might be used to assign overhead to XXXXX XXXXXatorre?s five products.;E4-11 Fontillas Instrument, Inc. manufactures two products: missile range instruments and space pressure gauges. During April, 50 range instruments and 300 pressure gauges were produced, and overhead costs of $89,500 were estimated. An analysis of estimated overhead costs reveals the following activities.;Activities Cost Drivers Total Cost;1. Materials handling Number of requisitions $35,000;2. Machine setups Number of setups 27,500;3. Quality inspections Number of inspections 27,000;The cost driver volume for each product was as follows.;Cost Drivers Instruments Gauges Total;Number of requisitions 400 600 1,000;Number of setups 200 300 500;Number of inspections 200 400 600;Instructions;(a) Determine the overhead rate for each activity.;(b) Assign the manufacturing overhead costs for April to the two products using activity based costing.;(c) Write a memorandum to the president of Fontillas Instrument explaining the benefits of activity-based costing.;Questions;13. What are the benefits of activity-based costing?;14. What are the limitations of activity-based costing?;P4-3A Stellar Stairs Co. of Poway designs and builds factory-made premium wooden stairs for homes. The manufactured stair components (spindles, risers, hangers, hand rails) permit installation of stairs of varying lengths and widths. All are of white oak wood. Its budgeted manufacturing overhead costs for the year 2006 are as follows.;Overhead Cost Pools Amount;Purchasing $ 57,000;Handling materials 82,000;Production (cutting, milling, finishing) 210,000;Setting up machines 85,000;Inspecting 90,000;Inventory control (raw materials and finished goods) 126,000;Utilities 180,000;Total budget overhead costs $830,000;For the last 4 years, Stellar Stairs Co. has been charging overhead to products on the basis of machine hours. For the year 2006, 100,000 machine hours are budgeted.;Heather Fujar, owner-manager of Stellar Stairs Co., recently directed her accountant, Lindsay Baker, to implement the activity-based costing system that she has repeatedly proposed. At Heather Fujar?s request, Lindsay, and the production foreman identify the following cost drivers and their usage for the previously budgeted overhead cost pools.;Expected;Use of;Activity Cost Pools Cost Drivers Cost Drivers;Purchasing Number of orders 600;Handling materials Number of moves 8,000;Production (cutting, milling, finishing) Direct labor hours 100,000;Setting up machines Number of setups 1,250;Inspecting Number of inspections 6,000;Inventory control (raw materials and finished goods) Number of components 168,000;Utilities Square feet occupied 90,000;Jason Dion, sales manager, has received an order for 280 stairs from Community Builders, Inc., a large housing development contractor. At Jason?s request, Lindsay prepares cost estimates for producing components for 280 stairs so Jason can submit a contract price per stair to Community Builders. She accumulates the following data for the production of 280 stairways.;Direct materials $103,600;Direct labor $112,000;Machine hours 14,500;Direct labor hours 5,000;Number of purchase orders 60;Number of material moves 800;Number of machine setups 100;Number of inspections 450;Number of components 16,000;Number of square feet occupied 8,000;Instructions;(a) Compute the predetermined overhead rate using traditional costing with machine hours as the basis.


Paper#20327 | Written in 18-Jul-2015

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