Exercises For Session 7
1
Exercises for Session 7:
We solve a selection of these exercises in class.
Exercise 1
Taken from Midterm Fall Term 2011
AIM: Traditional versus ABC accounting
QUESTION V. 19 POINTS
Stellar Stairs Co. 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 made of white oak wood. The company’s budgeted manufacturing overhead costs for 2012 are as follows:
Overhead Cost Pools
Purchasing
Handling materials
Production (cutting, milling, finishing)
Amount
$ 60,000
80,000
250,000
Setting up machines
70,000
Inspecting
90,000
Total budget overhead costs
$550,000
For the last four years, Stellar Stairs Co. has been charging overhead to products on the basis of direct labour hours. For 2012, it has budgeted 250,000 direct labour hours.
The owner-manager of Stellar Stairs Co. recently directed the accountant to implement the activity-based costing system that has been proposed. The accountant and the production foreperson identify the following cost drivers and their usage for the previously budgeted overhead cost pools.
2
Activity Cost Pools
Cost Drivers
Expected Use of Cost
Drivers
Purchasing
Number of orders
600
Handling materials
Number of moves
16,000
Production (cutting)
Direct labour hours
100,000
Setting up machines
Number of set-ups
Inspecting
Number of inspections
350
6,000
The sales manager has received an order for 280 stairs from Community Builders, Inc., a large housing development contractor. The accountant prepares cost estimates for producing components for 280 stairways so the sales manager can submit a contract price per stair to
Community Builders. The Accountant accumulates the following data for the production of 280 stairways: Direct materials
Direct labour
Machine hours
Direct labour hours
$158,250
112,000
5,000
14,500
Number of purchase orders
60
Number of material
Exercises for Session 7:
We solve a selection of these exercises in class.
Exercise 1
Taken from Midterm Fall Term 2011
AIM: Traditional versus ABC accounting
QUESTION V. 19 POINTS
Stellar Stairs Co. 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 made of white oak wood. The company’s budgeted manufacturing overhead costs for 2012 are as follows:
Overhead Cost Pools
Purchasing
Handling materials
Production (cutting, milling, finishing)
Amount
$ 60,000
80,000
250,000
Setting up machines
70,000
Inspecting
90,000
Total budget overhead costs
$550,000
For the last four years, Stellar Stairs Co. has been charging overhead to products on the basis of direct labour hours. For 2012, it has budgeted 250,000 direct labour hours.
The owner-manager of Stellar Stairs Co. recently directed the accountant to implement the activity-based costing system that has been proposed. The accountant and the production foreperson identify the following cost drivers and their usage for the previously budgeted overhead cost pools.
2
Activity Cost Pools
Cost Drivers
Expected Use of Cost
Drivers
Purchasing
Number of orders
600
Handling materials
Number of moves
16,000
Production (cutting)
Direct labour hours
100,000
Setting up machines
Number of set-ups
Inspecting
Number of inspections
350
6,000
The sales manager has received an order for 280 stairs from Community Builders, Inc., a large housing development contractor. The accountant prepares cost estimates for producing components for 280 stairways so the sales manager can submit a contract price per stair to
Community Builders. The Accountant accumulates the following data for the production of 280 stairways: Direct materials
Direct labour
Machine hours
Direct labour hours
$158,250
112,000
5,000
14,500
Number of purchase orders
60
Number of material