Assignment Ch05
Assignment Materials
5-15
Revising a time-driven activity-based cost system, adding products Refer to the Madison Dairy ice cream plant example described in this chapter.
Required
(a) Suppose that production-related computer resource expenses of $18,000 per month have been inadvertently overlooked for inclusion in the cost system. Explain how the time-driven ABC model should be updated to reflect this cost.
Answer:
Time-driven activity-based costing systems (TDABC or Time-Driven ABC) estimate two parameters and then assign indirect costs similar to the way direct costs are assigned.
Cost rate for each type of indirect resource
Identify all costs incurred to supply the resource
Identify the practical capacity supplied by the resource
Determine the capacity cost rate of the resource by dividing its cost by the practical capacity
The time-driven ABC model will now include a capacity cost rate for computer resources
= $18,000 divided by the practical capacity computer hours per month.
The computer resources Usage can measure in computer time per product or production run.
(b) Suppose that energy costs of $4,000 per month to run the machinery have also been inadvertently overlooked for inclusion in the cost system. How should the activity-based cost model be updated to include this cost, and what will be the effect on the machine hour rate?
Answer:
Before the machinery energy costs were calculated
It was:
The machinery rate was computed as $15,400 divided by 308 practical capacity hours, which equals $50 per hour. The energy costs of $4,000 per month will be added to the $15,400 monthly machinery costs,
The Correct machinery resource cost of $19,400 per month, leading to a higher rate per hour. The new rate is $19,400/308 = $62.99, which can be rounded to $63 per hour for convenience.
(c) If the company wishes to introduce a new flavor, what information is needed in order to determine the cost of producing this new flavor?
Answer:
If the company introduces a
5-15
Revising a time-driven activity-based cost system, adding products Refer to the Madison Dairy ice cream plant example described in this chapter.
Required
(a) Suppose that production-related computer resource expenses of $18,000 per month have been inadvertently overlooked for inclusion in the cost system. Explain how the time-driven ABC model should be updated to reflect this cost.
Answer:
Time-driven activity-based costing systems (TDABC or Time-Driven ABC) estimate two parameters and then assign indirect costs similar to the way direct costs are assigned.
Cost rate for each type of indirect resource
Identify all costs incurred to supply the resource
Identify the practical capacity supplied by the resource
Determine the capacity cost rate of the resource by dividing its cost by the practical capacity
The time-driven ABC model will now include a capacity cost rate for computer resources
= $18,000 divided by the practical capacity computer hours per month.
The computer resources Usage can measure in computer time per product or production run.
(b) Suppose that energy costs of $4,000 per month to run the machinery have also been inadvertently overlooked for inclusion in the cost system. How should the activity-based cost model be updated to include this cost, and what will be the effect on the machine hour rate?
Answer:
Before the machinery energy costs were calculated
It was:
The machinery rate was computed as $15,400 divided by 308 practical capacity hours, which equals $50 per hour. The energy costs of $4,000 per month will be added to the $15,400 monthly machinery costs,
The Correct machinery resource cost of $19,400 per month, leading to a higher rate per hour. The new rate is $19,400/308 = $62.99, which can be rounded to $63 per hour for convenience.
(c) If the company wishes to introduce a new flavor, what information is needed in order to determine the cost of producing this new flavor?
Answer:
If the company introduces a