Complete the following questions using Microsoft Excel. No other s

Complete the following questions using Microsoft Excel. No
other submission format is allowed. Review the grading rubric
to confirm you are meeting the assignment requirements.
Consider the following information for Hamburg Corporation:
Items
Units
Beginning inventory
85,000
Units started during the year
155,000
Ending inventory
61,000
Inventory is 100% complete as to materials and 60% complete
as to conversion.
Items
Materials
Conversion
Beginning costs (SAR)
425,000
686,000
Costs added during the period (SAR)
1,255,000
980,000
Using the WEIGHTED AVERAGE method:
1. Calculate the number of units completed during the period.
2. Calculate equivalent units for conversion during the period.
3. Calculate cost per equivalent units for materials.
Mannheim Corporation manufactures small camping tents and
family camping tents. The estimated direct labor time to
produce each type of tent is as follows:

Items
Small
Family
Estimated tents produced
24,500
11,000
Direct labor hours per tent
2.5
4.5
Estimated overhead for the period = 1,300,000 SAR.
0. Compute the overhead cost assigned to each type of tent
assuming direct labor hours are used to allocate overhead costs.
The controller is not satisfied with the traditional method of
allocating overhead because he believes that most of the
overhead costs relate to the family tent product line because of
its complexity. He, therefore, developed the following three
activity cost pools and related cost drivers to better understand
the costs.
Activity Cost Pools
Expected Use of Cost Drivers
Estimated Overhead Costs (SAR)
Setting up machines
1,000 setups
25,000
Assembling
90,000 labor hours
980,000
Inspection
1,200 inspections
230,000
0. Calculate the activity-based overhead rates for these three
cost pools.

1. Compute the cost that is assigned to each tent using activity-
based costing system, given the following information.
Expected Use of Cost Drivers per Product
Items
Small
Family
Number of setups
130
825
Direct labor hours
29,000
55,000
Number of inspections
125
1,125
0. What do you believe the controller should do and why?
You must show your work for credit
Chapter 4
Activity-Based Costing
Product Costing Allocation Methods
(slide 1 of 2)
Determining the cost of a product is termed product costing.
© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole

or in part.
2
Allocation of Factory Overhead Costs
or in part.
Product Costing Allocation Methods
(slide 2 of 2)
The most common methods of allocating factory overhead using
predetermined factory overhead rates are:
Single plantwide factory overhead rate method
Multiple production department factory overhead rate method
Activity-based costing method
The choice of allocation method is important to managers
because the allocation affects the product cost.
or in part.
Single Plantwide Factory Overhead
Rate Method (slide 1 of 5)
Under the single plantwide factory overhead rate method,
factory overhead costs are allocated to products using only one
rate.
Assume that Ruiz Company, which manufactures snowmobiles
and riding mowers in a single factory, has total budgeted
factory overhead costs of $1,600,000 for the year and 20,000

total budgeted direct labor hours. The total budgeted direct
labor hours are computed as follows:
ParticularsSnowmobilesRiding MowersTotalPlanned production
for the year 1,000 units 1,000 unitsDirect labor hours per
unit 10 hours 10 hoursBudgeted direct labor hours
10,000 hours 10,000 hours20,000 hours
or in part.
Under the single plantwide factory overhead rate method, the
$1,600,000 budgeted factory overhead is applied to all products
by using one rate.
This rate is computed as follows:
The budgeted allocation base is a measure of
operating activity in the factory.
Common allocation bases would include direct labor hours,
direct labor dollars, and machine hours.
or in part.
Ruiz allocates factory overhead using budgeted direct labor
hours as the plantwide allocation base.

Thus, Ruiz’s single plantwide factory overhead rate is computed
as follows:
or in part.
Ruiz uses the plantwide rate of $80 per direct labor hour to
allocate factory overhead to snowmobiles and riding mowers,
computed as follows:ProductsSingle Plantwide Factory
Overhead Rate×Direct Labor Hours per Unit=Factory Overhead
Cost per UnitSnowmobile$80 per direct labor hour×10 direct
labor hours=$800Riding Mower$80 per direct labor hour×10
direct labor hours=$800
or in part.
or in part.
9

Multiple Production Department Factory Overhead
When production departments differ significantly in their
manufacturing processes, factory overhead costs are normally
incurred differently in each department.
In such cases, factory overhead costs may be more accurately
allocated using multiple production department factory
overhead rates.
or in part.
The multiple production department factory overhead rate
method uses different rates for each production department to
allocate factory overhead costs to products.
In contrast, the single plantwide rate method uses only one rate
to allocate factory overhead costs.
or in part.
Assume that Ruiz Company uses the following two production
departments in the manufacture of snowmobiles and riding
mowers:
Fabrication Department, which cuts metal to the shape of the

product.
Assembly Department, which manually assembles pieces into a
final product.
The total budgeted factory overhead for Ruiz is $1,600,000
divided into the Fabrication and Assembly departments as
follows:ParticularsBudgeted Factory Overhead Costs
($)Fabrication Department 1,030,000Assembly
Department 570,000Total budgeted factory
overhead costs 1,600,000
or in part.
Department Overhead Rates and
Allocation
DepartmentSnowmobileRiding MowerFabrication Department
8 hours 2 hoursAssembly Department 2 hours 8
hoursDirect labor hours per unit 10 hours 10 hours
or in part.
Distortion of Product Costs
(slide 1 of 5)
The differences in Ruiz Company’s factory overhead for each
snowmobile and riding mower using the single plantwide and
the multiple production department factory overhead rate
methods are as follows:

The single plantwide factory overhead rate distorts product cost
of both the snowmobile and riding mower.ParticularsSingle
Plantwide Method ($)Multiple Production Department Method
($)Difference ($)Snowmobile$800$938(138)Riding Mower800
662138
or in part.
(slide 2 of 5)
That is, the snowmobile is not allocated enough cost and, thus,
is undercosted by $138.
In contrast, the riding mower is allocated too much cost and is
overcosted by $138 ($800 – $662).
or in part.
(slide 3 of 5)
The preceding cost distortions are caused by averaging the
differences between the high factory overhead costs in the
Fabrication Department and the low factory overhead costs in
the Assembly Department.
Using the single plantwide rate, it is assumed that all factory
overhead is directly related to a single allocation base for the
entire plant. However, this assumption is not realistic for Ruiz.
Thus, using a single plantwide rate distorted the product costs
of snowmobiles and riding mowers.

or in part.
(slide 4 of 5)
or in part.
(slide 5 of 5)
Condition one exists for Ruiz because the factory overhead rate
for the Fabrication Department is $103 per direct labor hour,
whereas the rate for the Assembly Department is only $57 per
direct labor hour.
Condition two also exists for Ruiz because the snowmobile
consumes 8 direct labor hours in the Fabrication Department,
whereas the riding mower consumes only 2 direct labor hours.
Thus, the ratios of allocation base usage for the Fabrication and
Assembly departments are computed as follows:
or in part.
18

Activity-Based Costing Method
(slide 1 of 2)
The activity-based costing (ABC) method provides an
alternative approach for allocating factory overhead that uses
multiple factory overhead rates based on different activities.
Activities are the types of work, or actions, involved in a
manufacturing or service process.
or in part.
Activity-Based Costing Method
(slide 2 of 2)
Under activity-based costing, factory overhead costs are
initially budgeted for activities, sometimes called activity cost
pools, such as machine usage, inspections, moving, production
setups, and engineering activities.
In contrast, when multiple production department factory
overhead rates are used, factory overhead costs are first
accounted for in production departments.
or in part.
Activity Rates
Budgeted activity costs are assigned to products using factory
overhead rates for each activity.
These rates are called activity rates.

The term activity base, rather than allocation base, is used
because the base is related to an activity.
or in part.
Activity Rates and Allocation
(slide 1 of 2)
Assume that snowmobiles are a new product for Ruiz Company,
and engineers are still making minor design changes. Ruiz has
produced riding mowers for many years. Activity-base usage for
the two products is as follows:ParticularsSnowmobileRiding
MowerEstimated units of total production 1,000 units 1,000
unitsEstimated setups 100 setups 20 setupsQuality control
inspections 100 inspections (10%) 4 inspections
(0.4%)Estimated engineering change orders 12 change
orders 4 change orders
or in part.
Activity Rates and Allocation
(slide 2 of 2)
The number of direct labor hours used by each product is 10,000
hours, computed as follows:ParticularsDirect Labor Hours per
UnitNumber of Units of ProductionTotal Direct Labor
HoursSnowmobile Fabrication Department8 hours1,000
8,000Snowmobile Assembly Department2 hours1,000
2,000Total10,000Riding Mower Fabrication Department2
hours1,000 2,000Riding Mower Assembly Department8

hours1,000 8,000Total 10,000
or in part.
Allocating Costs
Overhead costs of each activity rate are allocated to a product
using the following formula:
The estimated total factory overhead for a product is the sum of
the product’s individual activity allocations.
The factory overhead cost per unit is determined by the
following formula:
or in part.
Dangers of Product Cost Distortion—Ruiz Company
or in part.

25
Activity-Based Costing for Selling and Administrative Expenses
(slide 1 of 5)
Generally accepted accounting principles (G A A P) require that
selling and administrative expenses be reported as period
expenses on the income statement.
However, selling and administrative expenses may be allocated
to products for managerial decision making.
One method of allocating selling and administrative expenses to
the products is based on sales volume.
However, products may consume activities in ways that are
unrelated to their sales volumes.
When this occurs, activity-based costing may be a more
accurate method of allocation.
or in part.
(slide 2 of 5)
Assume that Abacus Company has two products, Ipso and Facto.
Both products have the same total sales volume. However, Ipso
and Facto consume selling and administrative activities
differently.
or in part.
(slide 3 of 5)
If Abacus’s selling and administrative expenses are allocated on

the basis of sales volume, then the same amount of expense
would be allocated to Ipso and Facto.
This is because Ipso and Facto have the same sales volume.
However, such an allocation would be misleading.
The activity-based costing method can be used to allocate the
selling and administrative activities to Ipso and Facto.
This is because activity-based costing allocates selling and
administrative expenses based on how each product consumes
activities.
or in part.
(slide 4 of 5)
Assume that Abacus’s field warranty service activity has a
budgeted cost of $150,000. Additionally, assume that 100
warranty claims are estimated for the period. Using warranty
claims as an activity base, the warranty claim activity rate is
computed as follows:
or in part.
29
(slide 5 of 5)
Assuming that Ipso had 10 warranty claims and Facto had 90

warranty claims, the field service activity expenses would be
allocated as follows:
or in part.
Activity-Based Costing in Service Businesses
(slide 1 of 6)
In service companies, the use of single and multiple department
overhead rate methods may lead to distortions to those of
manufacturing firms. Thus, many service companies use
activity-based costing for determining the cost of services.
or in part.
(slide 2 of 6)
Assume that Hopewell Hospital uses activity-based costing to
allocate hospital overhead to patients. Hopewell applies
activity-based costing as follows:
Step 1: Identifying activities.
Step 2: Determining activity rates for each activity.
Step 3: Allocating overhead costs to patients based upon
activity-base usage.
Hopewell has identified the following activities:
Admission
Radiological testing
Operating room
Pathological testing

Dietary and laundry
or in part.
(slide 3 of 6)
Assume that the budgeted costs for radiological testing are
$960,000 and the total estimated activity-base usage is 3,000
images.
The activity rate per radiological image is computed as follows:
The activity rates for the other activities are determined in a
similar manner.
or in part.
(slide 4 of 6)
These activity rates along with the patient activity-base usage
are used to allocate costs to patients as follows:

or in part.
(slide 5 of 6)
Assume that Mia Wilson was a patient of the hospital. The
hospital overhead services (activities) performed for Mia
Wilson were as follows:
Based on the preceding services (activities), the Hopewell
Hospital overhead costs allocated to Mia Wilson total $2,790, as
computed in slide 62.
ParticularsPatient (Mia Wilson) Activity-Base UsageAdmission
1 admissionRadiological testing 2
imagesOperating room 4 hoursPathological
testing 1 specimenDietary and laundry
7 days
or in part.
(slide 6 of 6)
or in part.
Analysis for Decision Making

(slide 1 of 4)
Activity-based costing can be used to improve the cost of a
product.
Consider Lee Corporation, that assembles LCD monitors.
The activity information is shown in slide 70.
All of the activity cost is related to labor.
Management is seeking to remove $3.00 of activity cost from
the product in order to remain price competitive.
or in part.
(slide 2 of 4)ActivityActivity-Base Usage
(hours per unit)×Activity Rate per Hour ($)=Activity Cost
($)Assembly0.80×14= 11.20Setup0.30×20=
6.00Production control0.15×32= 4.80Materials
control0.10×32= 3.20Moving0.40×12=
4.80Testing0.25×24= 6.00Activity cost per unit $36.00
or in part.
(slide 3 of 4)
The activity cost reduction can be accomplished by:
Improving operations so that the activity-base usage per unit is
either reduced or eliminated.
Changing the classification of employees doing an activity and
thereby decreasing the activity rate.

Assume the following:
The process was improved so that the setup activity required
one-third less time to complete per unit.
The moving distance was cut in half.
or in part.
(slide 4 of 4)ActivityActivity-Base Usage
(hours per unit)×Activity Rate per Hour ($)=Activity Cost
($)Assembly0.80×14= 11.20Setup0.20×20=
4.00Production control0.15×32= 4.80Materials
control0.10×32= 3.20Moving0.20×12=
2.40Testing0.25×24= 6.00Activity cost per unit $36.00
or in part.
Total Budgeted Factory Overhead
Single Plantwide Factory Overhead Rate
=
Total Budgeted Plantwide Allocation Base
$1,600,000
Single Plantwide Factory Overhead Rate
=
20,000 direct labor hours
= $80 per hou
r
Budgeted Department Factory
Production Department Facto
Overhead

=
Budgeted Department
ry Overhead Rate
Allocation Base
Direct Labor Hours for Snowmobiles8 hour
s
Ratio of Allocation Base Usage in the Fa
brication Department = 4:1
Direct Labor Hours for Riding Mowers2 ho
urs
Ratio of Allocation Base Usage in the
Assembl
==
Direct Labor Hours for Snowmobiles2 hour
s
y Department = 1:4
Direct Labor Hours for Riding Mowers8 ho
urs
==
Budgeted Activity Cost
Activity Rate =
Total Activity-Base Usage
Activity Overhead Allocated = Activity-B
ase Usage Activity Rate
´
Total Factory Overhead Cost
Factory Overhead Cost per Unit =
Total Units of Estimated Production
Activity Rate =
Budgeted Warranty Claim Expenses
Warranty Claim Activity Rate =
Total Estimated Warranty Claims
$150,000

= $1,500 per
warranty claim
100 claims
=
Ipso: 10 warranty claims $1,500 per w
arranty claim = $15,000
Facto: 90 warranty claims $1,500 per wa
rranty claim = $135,000
´
´
Activ
ity Rate =
Budgeted Radiological Testing Costs
Radiological Testing Activity Rate =
Total Estimated Images
$960,000
= $320 per image
3,000 images
=

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