Fundamentals Of Cost Accounting (6th Edition)
6th Edition
ISBN: 9781259969478
Author: WILLIAM LANEN, Shannon Anderson, Michael Maher
Publisher: McGraw Hill Education
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Chapter 9, Problem 52E
Time-Driven Activity-Based Costing
Kim Distribution Services (KDS) distributes food purchased in bulk to small retailers. The firm is divided into two divisions: Purchasing and Distribution. Purchasing is responsible for ordering goods from the manufacturer, receiving them, and then moving them to the appropriate location in the warehouse. Distribution is responsible for taking orders from retailers, picking the products from the warehouse for the orders, and packaging the orders for shipment. KDS has a policy of filling every order on the day of the order. If the firm is out of a particular item, it will ship a partial order and complete the order when the item is back in stock. Occasionally, an order will not have to be packaged if the retailer chooses to take delivery at the KDS loading dock.
Distribution has 15 employees who are responsible for the activities, and all 15 are trained to handle any of the three tasks. Each of these employees works 40 hours per week for 50 weeks. There is an allowance of 15 percent of the employees’ time for training and other administrative tasks. The total costs of distribution for the coming year are estimated to be $826,200. When asked, the manager of Distribution estimated the following times for each of the three activities:
- Taking orders: 10 minutes.
- Picking orders: 14 minutes.
- Packaging orders: 20 minutes.
During the year, the Distribution received 25,000 orders. Because of out-of-stock events, pickers had to pick 30,000 orders. 27,700 orders were packaged.
Required:
- a. What is the cost per minute for activities in Distribution?
- b. What is the cost of an order that requires all three activities?
- c. How many minutes of unused capacity did Distribution have for the year?
- d. What was the cost of the unused capacity in Distribution?
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Figure Four is a distributor of pharmaceutical products. Its activity-based costing system has five activity areas:
Activity Area
Cost Driver and Rate
Order processing
$40 per order
Line item ordering
$3 per line item
Store deliveries
$50 per store delivery
Carton deliveries
$1 per carton
Shelf-stocking
$16 per stocking-hour
Rick Flair, the controller of Figure Four, wants to use this activity-based costing system to examine individual customer profitability within each distribution market. Two customers are used to exemplify the insights available with the activity-based costing approach. Data pertaining to these two customers in August are as follows:
Charleston Pharmacy
Chapel Hill Pharmacy
Total orders
12
10
Average line items per order
10
18
Total store deliveries
6
10
Average cartons shipped per store delivery
24
20
Average hours of shelf-stocking per store delivery
0
0.5
Average…
Comfort Foods Inc. uses activity-based costing to determine product costs. For each activity listed
in the left column, match an appropriate activity base from the right column. You may use items in
the activity-base list more than once or not at all.
Activity
Activity Base
Cafeteria
Engineering change orders
Customer return processing
Electric power
Kilowatt hours used
Number of customers
Human resources
Number of customer orders
Number of customer returns
Inventory control
Invoice and collecting
Machine depreciation
Materials handling
Order shipping
Payroll
Performance reports
Number of employees
Number of inspections
Number of inventory transactions
Number of machine hours
Number of material moves
Number of payroll checks processed
Number of performance reports
Number of production orders
Number of purchase orders
Production control
Production setup
Purchasing
Quality control
Sales order processing
Number of sales orders
Number of setups
Activity-based costing, activity-based management, merchandising. Mountain Outtters operates a large outdoor clothing and equipment store with three main product lines: clothing, equipment, and shoes. Mountain Outtters operates at capacity and allocates selling, general, and administration (S, G & A) costs to each product line using the cost ofmerchandise of each product line. The company wants to optimize the pricing and cost management of each product line and is wondering if its accounting system is providing it with the best information for making such decisions. Store manager Aaron Budd gathers the following information regarding the three product lines:
Chapter 9 Solutions
Fundamentals Of Cost Accounting (6th Edition)
Ch. 9 - Give examples of cost drivers commonly used to...Ch. 9 - What is the death spiral? How is it related to the...Ch. 9 - The product costs reported using either plantwide...Ch. 9 - Why do companies commonly use direct labor-hours...Ch. 9 - What are the costs of moving to an activity-based...Ch. 9 - What are the basic steps in computing costs using...Ch. 9 - Prob. 7RQCh. 9 - Prob. 8RQCh. 9 - What type of organization is most likely to...Ch. 9 - Prob. 10RQ
Ch. 9 - How does complexity lead to higher costs? Why is...Ch. 9 - Prob. 12RQCh. 9 - Prob. 13RQCh. 9 - Why are cost drivers based on direct labor widely...Ch. 9 - Prob. 15CADQCh. 9 - Activity-based costing could not be applied in a...Ch. 9 - Activity-based costing is the same as department...Ch. 9 - Prob. 18CADQCh. 9 - It is clear after reading this chapter that...Ch. 9 - Prob. 20CADQCh. 9 - Prob. 21CADQCh. 9 - Prob. 22CADQCh. 9 - Prob. 23CADQCh. 9 - Activity-based costing is just another inventory...Ch. 9 - Prob. 25CADQCh. 9 - Prob. 26CADQCh. 9 - Prob. 27CADQCh. 9 - One of the issues we identified with traditional...Ch. 9 - The cost accounting manager at your business says...Ch. 9 - Prob. 30CADQCh. 9 - Prob. 31ECh. 9 - Reported Costs and Decisions Kima Company...Ch. 9 - Plantwide versus Department Allocation Munoz...Ch. 9 - Plantwide versus Department Allocation Main Street...Ch. 9 - Unitwide versus Department...Ch. 9 - Prob. 36ECh. 9 - Prob. 37ECh. 9 - Upriver currently applies overhead on the basis of...Ch. 9 - Compute the unit costs for the two products, V-1...Ch. 9 - Prob. 40ECh. 9 - Prob. 41ECh. 9 - Activity-Based Costing in a Nonmanufacturing...Ch. 9 - Activity-Based versus Traditional Costing Maglie...Ch. 9 - Activity-Based Costing versus Traditional Costing...Ch. 9 - Activity-Based Costing in a Service Environment...Ch. 9 - Activity-Based versus Traditional Costing Isadores...Ch. 9 - Prob. 47ECh. 9 - Activity-Based Costing: Cost Flows through...Ch. 9 - Prob. 49ECh. 9 - Activity-Based Costing for an Administrative...Ch. 9 - Prob. 51ECh. 9 - Time-Driven Activity-Based Costing Kim...Ch. 9 - Time-Driven ABC for an Administrative Service The...Ch. 9 - Comparative Income Statements and Management...Ch. 9 - Comparative Income Statements and Management...Ch. 9 - Prob. 56PCh. 9 - Activity-Based Costing and Predetermined Overhead...Ch. 9 - Activity-Based Costing and Predetermined Overhead...Ch. 9 - Choosing an Activity-Based Costing System Pickle...Ch. 9 - Churchill Products is considering updating its...Ch. 9 - Utica Manufacturing (UM) was recently acquired by...Ch. 9 - Cain Components manufactures and distributes...Ch. 9 - Prob. 63PCh. 9 - Prob. 64PCh. 9 - Prob. 65PCh. 9 - Cawker Products has two manufacturing...Ch. 9 - MTI makes three types of lawn tractors: M3100,...Ch. 9 - Prob. 68PCh. 9 - Prob. 69PCh. 9 - Prob. 72IC
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