Managerial Accounting
15th Edition
ISBN: 9780078025631
Author: Ray H Garrison, Eric Noreen, Peter C. Brewer Professor
Publisher: McGraw-Hill Education
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Chapter 7.A, Problem 1E
EXERCISE 7A-1 Preparing an Action Analysis Report [L07-6]
Fairway Golf Corporation produces private label golf clubs for pro shops throughout North America. The company uses activity-based ousting to evaluate the profitability of serving its customers. This analysis is based on categorizing the company’s costs as follows, using the ease of adjustment color coding scheme described in Appendix 7A:
| Ease of Adjustment Code | |
| Direct materials | Green |
| Direct labor | Yellow |
| Indirect labor | Yellow |
| Factory equipment |
Red |
| Factory administration | Red |
| Selling and administrative wages and salaries | Red |
| Selling and administrative depreciation | Red |
| Marketing expenses | Yellow |
Management would like to evaluate the profitability of a particular customer—Shaker Run Golf Club of Lebanon, Ohio. Over the last twelve months this customer submitted one order for 100 golf clubs that had to be produced in four batches due to differences in product labeling requested by the customer. Summary data concerning the order appear below:
| Number of clubs | 100 |
| Number of orders | 1 |
| Number of batches | 4 |
| Direct labor-hours per club | 0.3 |
| Selling price per club | $50.00 |
| Direct materials cost per club | $29.50 |
| Direct labor rate per hour | $20.50 |
A cost analyst working in the controller’s office at the company has already produced the action analysis cost matrix for the Shaker Run Golf Club that appears below:
| Action Analysis Cost Matrix for Shaker Run Golf Club | Activity Cost Pools | ||||
| Supporting Direct labor | Batch Processing | Order Processing | Customer Service | Total | |
| Activity | 30 direct labor-hours | 4 batches | 1 order | 1 customer | |
| Manufacturing overhead: | |||||
| Indirect labor | $ 35.40 | $ 53.70 | $ 6.80 | $ 0.00 | $ 95.90 |
| Factory equipment depreciation | 102.80 | 0.90 | 0.00 | 0.00 | 103.70 |
| Factory administration | 18.50 | 0.50 | 12.00 | 228.00 | 259.00 |
| Selling and administrative overhead: | |||||
| Wages and salaries | 11.00 | 0.00 | 36.00 | 382.00 | 429.00 |
| Depreciation | 0.00 | 0.00 | 6.00 | 24.00 | 30.00 |
| Marketing expenses | 117.70 | 0.00 | 54.00 | 369.00 | 540.70 |
| Total | $285.40 | $55.10 | $114.80 | $1,003.00 | $1,458.30 |
Required:
Prepare an action analysis report showing the profitability of the Shaker Run Golf Club. Include direct materials and direct labor costs in the report. Use Exhibit 7A-5 as a guide for organizing the report.
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Instruction: Read each problem carefully ana proviue h n
Prob
Problem 1. Classify each of the following costs of Bug Company in two ways: (a) as variable
(V) fixed costs (F); (b) as inventoriable costs (I) or period costs (P):
Example: Direct labor
1. Salary of company
2. Fire insurance on direct materials
controller
3. Property taxes on finished goods
held for sale
4. Direct materials used tico of
5. Factory.renty p
6. Sales Commissions R
7. Overtime premium of machine
operators
8. Straight-line depreciation of
Factory equipment
9. Straight-line depreciation of
trucks used for delivery
R.
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16
Exercise 7-5 (Algo) Product and Customer Profitability Analysis [LO7-4, LO7-5]
Thermal Rising, Incorporated, makes paragliders for sale through specialty sporting goods stores. The company has a standard
paraglider model, but also makes custom-designed paragliders. Management designed an activity-based costing system with the
following activity cost pools and activity rates:
Activity Cost Pool
Supporting direct labor
Order processing
Custom design processing
Customer service
Management wants to calculate the profitability of a particular customer, Big Sky Outfitters, which ordered the following products over
the last 12 months:
Number of gliders
Number of orders
Activity Rate
$ 22 per direct labor-hour
$ 200 per order
$ 254 per custom design
$426 per customer
Number of custom designs
Direct labor-hours per glider
Selling price per glider
Direct materials cost per glider
The company's direct labor rate is $20 per hour.
Customer margin
Standard
Model
15
1
0
28.50
$ 1,925
$ 456
Custom…
Classify Costs
Cromwell Furniture Company manufactures sofas for distribution to several major retail chains. The following costs are incurred in the production and sale of sofas:
Required:
Classify the costs as either fixed costs, variable costs, or mixed cost.
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b. Wood for framing the sofas
c. Legal fees paid to attorneys in defense of the company in a patent infringement suit, $25,000 plus $160 per hour
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g. Straight-line depreciation on factory equipment
h. Rental costs of warehouse, $30,000 per month
i. Property taxes on property, plant, and equipment
j. Insurance premiums on property, plant, and equipment, $25,000 per year plus $25 per $25,000 of insured value over $16,000,000
k. Springs
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Chapter 7 Solutions
Managerial Accounting
Ch. 7.A - EXERCISE 7A-1 Preparing an Action Analysis Report...Ch. 7.A - Prob. 2ECh. 7.A - Prob. 3ECh. 7.A - Prob. 4ECh. 7.A - Prob. 5ECh. 7 - Prob. 1QCh. 7 - Prob. 2QCh. 7 - Prob. 3QCh. 7 - What are unit-level, batch-level, product-level,...Ch. 7 - What types of costs should not be assigned to...
Ch. 7 - What are the two stages off allocation in...Ch. 7 - Why is the first stage of the allocation process...Ch. 7 - When activity-based costing is used, why do...Ch. 7 - Prob. 9QCh. 7 - Why is the form of activity-based costing...Ch. 7 - The Excel worksheet form that appears below is to...Ch. 7 - Prob. 2AECh. 7 - The Excel worksheet form that appears below is to...Ch. 7 - Prob. 1F15Ch. 7 - Prob. 2F15Ch. 7 - Prob. 3F15Ch. 7 - Prob. 4F15Ch. 7 - Prob. 5F15Ch. 7 - Prob. 6F15Ch. 7 - Prob. 7F15Ch. 7 - Prob. 8F15Ch. 7 - Prob. 9F15Ch. 7 - Prob. 10F15Ch. 7 - Prob. 11F15Ch. 7 - Prob. 12F15Ch. 7 - Prob. 13F15Ch. 7 - Prob. 14F15Ch. 7 - Prob. 15F15Ch. 7 - Prob. 1ECh. 7 - Prob. 2ECh. 7 - Prob. 3ECh. 7 - Prob. 4ECh. 7 - Prob. 5ECh. 7 - Prob. 6ECh. 7 - EXERCISE 7-7 First-Stage Allocations LO7-2
The...Ch. 7 - Prob. 8ECh. 7 - Prob. 9ECh. 7 - Prob. 10ECh. 7 - Prob. 11ECh. 7 - Prob. 12ECh. 7 - EXERCISE 7-13 Computing ABC Product Costs LO7-3,...Ch. 7 - Prob. 14ECh. 7 - Prob. 15ECh. 7 - Prob. 16PCh. 7 - Prob. 17PCh. 7 - Prob. 18PCh. 7 - Prob. 19PCh. 7 -
PROBLEM 7-20 Evaluating the Profitability of...
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