SecuriCorp operates a fleet of armored cars that make scheduled pickups and deli
ID: 2334366 • Letter: S
Question
SecuriCorp operates a fleet of armored cars that make scheduled pickups and deliveries in the Los Angeles area. The company is implementing an activity-based costing system that has four activity cost pools: Travel, Pickup and Delivery, Customer Service, and Other. The activity measures are miles for the Travel cost pool, number of pickups and deliveries for the Pickup and Delivery cost pool, and number of customers for the Customer Service cost pool. The Other cost pool has no activity measure because it is an organization-sustaining activity. The following costs will be assigned using the activity-based costing system:
The distribution of resource consumption across the activity cost pools is as follows:
Required:
Complete the first stage allocations of costs to activity cost pools.
2.
Green Thumb Gardening is a small gardening service that uses activity-based costing to estimate costs for pricing and other purposes. The proprietor of the company believes that costs are driven primarily by the size of customer lawns, the size of customer garden beds, the distance to travel to customers, and the number of customers. In addition, the costs of maintaining garden beds depends on whether the beds are low maintenance beds (mainly ordinary trees and shrubs) or high maintenance beds (mainly flowers and exotic plants). Accordingly, the company uses the five activity cost pools listed below:
The company already has completed its first stage allocations of costs and has summarized its annual costs and activity as follows:
Required:
Compute the activity rate for each of the activity cost pools. (Round your answers to 2 decimal places except customer billing and service.)
3.
Klumper Corporation is a diversified manufacturer of industrial goods. The company’s activity-based costing system contains the following six activity cost pools and activity rates:
Activity data have been supplied for the following two products:
Total Expected Activity
Required:
How much total overhead cost would be assigned to K425 and M67 using the activity-based costing system?
Driver and guard wages $ 720,000 Vehicle operating expense 280,000 Vehicle depreciation 120,000 Customer representative salaries and expenses 160,000 Office expenses 30,000 Administrative expenses 320,000 Total cost $ 1,630,000Explanation / Answer
SecuriCorp
First stage allocation of costs to activity cost pools:
First stage allocation:
Travel
Pick-up and Delivery
Customer Service
Other
Total
Percent
Amount
Percent
Amount
Percent
Amount
Percent
Amount
Driver and guard wages
50%
$360,000
35%
$252,000
10%
$72,000
5%
36,000
$720,000
Vehicle operating expenses
70%
$196,000
5%
$14,000
0%
$0
25%
$70,000
$280,000
Vehicle depreciation
60%
$72,000
15%
$18,000
0%
$0
25%
$30,000
$120,000
Customer representative salaries and expenses
0%
$0
0%
$0
90%
$144,000
10%
$16,000
$160,000
Office Expenses
0%
$0
20%
$6,000
30%
$9,000
50%
$15,000
$30,000
Administrative expenses
0%
$0
5%
$16,000
60%
$192,000
35%
$112,000
$320,000
Total assigned cost
$628,000
$306,000
$417,000
$279,000
$1,630,000
Computation of the activity rate for each of the activity cost pools:
Activity Cost Pool
Estimated overhead cost
expected activity
cost per activity
Caring for lawn
$72,000
150,000 square feet of lawn
$0.48 per square feet
($72,000/150,000)
Caring for garden beds - low maintenance
$26,400
20,000 square feet of low maintenance beds
$1.32 per square feet
(26,400/20,000)
Caring for garden beds - high maintenance
$41,400
15,000 square feet of high maintenance
$2.76 per square feet of high maintenance- garden beds)
41,400/15,000
Travel to jobs
$3,250
12,500 miles
$0.26 per mile
$3,250/12,500
Customer billing and service
$8,750
25 customers
$350 per customer
(8,750/25 = $350 per customer
Determination of the total overhead cost that would be assigned to K425 and M67 using the activity-based costing method:
K425
Activity
Expected activity
activity rate
total assigned cost
Supporting direct labor
80 DL hours
$6 per DLH
$480
Machine processing
100 MHs
$4 per MH
$400
Machine setups
1 setup
$50 per setup
$50
Production orders
1 order
$90 per order
$90
shipments
1 shipment
$14 per shipment
$14
Product sustaining
200 units of production
$840 per product
$840
Total overhead cost
$1,874
M67
Activity
Expected activity
activity rate
total assigned cost
Supporting direct labor
500 DLH
$6 per DLH
$3,000
Machine processing
1,500 MH
$4 per MH
$6,000
Machine setups
4 setup
$50 per setup
$200
Production orders
4 orders
$90 per order
$360
shipments
10 shipment
$14 per shipment
$140
Product sustaining
2,000 units
$840 per product
$840
Total overhead cost
$10,540
First stage allocation:
Travel
Pick-up and Delivery
Customer Service
Other
Total
Percent
Amount
Percent
Amount
Percent
Amount
Percent
Amount
Driver and guard wages
50%
$360,000
35%
$252,000
10%
$72,000
5%
36,000
$720,000
Vehicle operating expenses
70%
$196,000
5%
$14,000
0%
$0
25%
$70,000
$280,000
Vehicle depreciation
60%
$72,000
15%
$18,000
0%
$0
25%
$30,000
$120,000
Customer representative salaries and expenses
0%
$0
0%
$0
90%
$144,000
10%
$16,000
$160,000
Office Expenses
0%
$0
20%
$6,000
30%
$9,000
50%
$15,000
$30,000
Administrative expenses
0%
$0
5%
$16,000
60%
$192,000
35%
$112,000
$320,000
Total assigned cost
$628,000
$306,000
$417,000
$279,000
$1,630,000