Q 1 Describe activity based management. Q 2 Why might an organization want to track customer-related costs?

Q 1 Describe activity based management.

Q 2 Why might an organization want to track customer-related costs?

Q3 Abdullah Motors manufactures cars and currently uses only 50% of its manufacturing facility (20,000 cars). The company could utilize more of its facility by producing its own tires and using the total capacity. It currently purchases tires at $30 per unit. Abdullah would incur $12 per unit for direct materials, $10 for direct labor, and $24 for overhead (which is 30% variable) if it produces the tires.

a.   Should Abdullah Motors make or buy the tires? Provide calculations that support your answer.

b.   Suppose Abdullah Motors could rent the unused portion of its plant and receive $1,500 a month. Should the company make or buy the tires?  Provide calculations that support your answer

c.   List two qualitative factors that could affect this decision.

4. Explain the methods used to allocated Supporting department costs

The SABIC Company undertakes the following activities in its production operation and incurred the following costs during the first half of 20x2:

Harvest oranges                                                    $25,000

Prepare oranges for processing                           20,000

Extract juice from oranges                                     18,000

Process juice into orange juice concentrate, orange juice, or orange popsicles                               30,000

Package completed products                                  9,000

            In addition to the costs listed above, processing the juice into 3 final products involves the use of 2 machines, each of which incurred depreciation costs of $10,000 for the first half of 20x2.  Each product requires a different set up on the processing machines, so SABIC normally sets up the machines to produce concentrate for the first week of each month using 80 machine hours.  The machine is then set up to produce orange juice for the next 2 weeks using 160 machine hours.  Finally, workers set up the same machines to produce orange popsicles during the last week of each month, using 80 machine hours.

            During the first half of 20x2, 20% of the oranges harvested were turned into orange juice concentrate, 50% were processed into orange juice, and 30% became orange popsicles. The orange juice concentrate operation takes up 40% of SABIC’s total factory space.  Regular orange juice and orange popsicles occupy 35% and 25%, respectively.

a.   Calculate the total costs included in the processing activity cost pool.

b.   Choose a cost driver for the processing activity and explain your choice.  Calculate the ABC allocation rate for this activity.

c.   Allocate processing costs to each product line using the ABC allocation rate developed in part (b).

• Discuss the Treatment of Normal and Abnormal Spoilage under Job Costing.

Q 2       PNG Corporation designs and builds roller coasters for amusement parks.  At the end of 20x1, managers estimated overhead costs for 20x2 of $150,000 based on expected production of 5 roller coasters (5 jobs) using 5,000 labor hours each.  Actual overhead costs for 20x2 were $170,000.  PNG actually designed and built 6 roller coasters (6 jobs) with the following direct labor usage and overhead costs:

                                                          Actual Overhead Cost        actual Labor Hours

The Big Dipper (job 1)                             $28,000                             3,500

The Ultimate Scream (job 2)                  35,000                             4,000

Loop Me (job 3)                                           27,000                             5,000

The Screaming Chicken (job 4)              40,000                             2,500

You Don’t Know Coasters (job 5)         25,000                             6,000

Old Faithful (job 6)                                     15,000                             4,500

            Assume PNG uses a normal costing system with the number of labor hours as the overhead allocation base.

a.   Calculate the allocation rate for 20x2.

b.   Calculate the total corporate over- or underapplied overhead (specify which) for 20x2.

Q3       Following are production data for a process costing system.

Beginning work in process, 30% complete               12,000 units

Started                                                                                    90,000 units

Ending work in process, 70% complete                        8,000 units

                Costs:

Beginning work in process:

Direct Materials                                                       $  28,800

Conversion costs                                                           5,220

Materials used during the period                              216,000

Conversion costs incurred during the period        139,200

a.   Using the FIFO basis, prepare a process costing report.

b.   Write out the journal entries for the costs incurred and the work performed this period under the FIFO method.

Q  4 Explain the differences between the weighted average and FIFO process costing methods.