Question1Discussion 2 Planning and Managerial ApplicationAft.docx

Question1:
Discussion 2: Planning and Managerial Application
After studying Chapters 5 and 6 materials including the narrated
lectures, complete the following activities:
A. Using the Internet, review at least 3 articles on Profit-Cost-
Volume relationship. Summary (300 words or more) the articles
in your own words.
B. As a manager, why is Profit-cost-volume important in
planning? Support your response with numerical example(s)
C. Using the Internet, review at least 3 articles on Variable
Costing. Summary (300 words or more) the articles in your own
words.
D. As a manager, discuss how you would use Variable Costing
in managerial decisions Support your response with numerical
example(s)
Complete your main post no later than Saturday at 11:00 PM
EST. Read and respond to at least 3 of your classmates'
posts.(Below posted my classmate discussions) Read a selection
of your colleagues' postings. Respond to at least 3 of your
classmates’ posts. (Each posting should be 150 words, It should
include the stuff like supporting their discussion and
Ask a probing question, substantiated with additional
background information, evidence or research.
• Share an insight from having read your colleagues' postings,
synthesizing the information to provide new perspectives.
• Offer and support an alternative perspective using readings
from the classroom or from your own research in the
Campbellsville University Library.
• Validate an idea with your own experience and additional
research.
• Make a suggestion based on additional evidence drawn from
readings or after synthesizing multiple postings.
• Expand on your colleagues' postings by providing additional
insights or contrasting perspectives based on readings and

evidence.)
Study Materials Link:
TextBook:https://saylordotorg.github.io/text_managerial-
accounting/index.html
Lesson Lecture - 1. Activity Based Costing (with full-length
example)
https://www.youtube.com/watch?v=QaVlWoaBytQ
2. Process Costing with Example | Managerial Accounting |
CMA Exam | Ch 4 P 1
https://www.youtube.com/watch?v=GJGklGGbCzw
Study Resources-Use the following links to study Module 2
topics
1.Activity-Based Costing:
https://saylordotorg.github.io/text_managerial-accounting/s07-
how-does-an-organization-use-a.html
2.Process Costing:
https://saylordotorg.github.io/text_managerial-accounting/s08-
how-is-process-costing-used-to.html
Classmate Discussions:
Classmate1-
by Rithwick Maheshwaram - Saturday, 21 March 2020, 4:16 PM
Article 1: Role of Analysis CVP (Cost-Volume-Profit)
Important Indicator for Planning and Making Decisions in the
Business Environment
The article intentional was to know how much the cost-volume-
profit analysis was used in planning and making the decision in
the business environment. To have proper research and positive

research was done on the manufacturing and service enterprises
with a combination of econometric models. The collection of
data was done through structured questionnaires. The aid the
exercise, Mann-Whitney U test, Brunner Munzel test DF-
degree, percent confidence interval with both independent and
dependent variables, among others, was used. After data
collection, the hypotheses case raised earlier were verified. The
result showed that there was a positive effect of the amount of
product produced on the sale value to service firms. Besides,
the result revealed that there was a valued relationship between
sales and production to the production business environment.
Hence, such a relationship contributed to growing profitability
in the business environment. The research concluded that cost-
volume-profit should be used as an essential reference in
making decisions.
Article 2: Cost-volume-profit Analysis and Decision Making in
the Manufacturing Industries of Nigeria
The article was meant to determine the effect of cost-volume-
profit in decision making in production industries. Both
longitudinal research design and survey research were used as
data collection methods. The result showed that the sales value
of the products and quantity of the product produced had
positive effects on profit made, and there existed a relationship
between the cost of production and profit. The authors
recommended that there was a need to use cost-volume-profit
analysis when it comes to decision making.
Article 3: COST-VOLUME-PROFIT MODEL: A DISCUSS
Another research was done where the authors insisted that a
better understanding of cost and revenue behavior was critical
to decision making. The study found that cost-volume-profit
analysis should emphasize the interrelationships of the
organization.
Part B
In the first case, a cost-volume-profit relationship is an
important tool from the revealed articles (Ihemeje, 2015). A
tool tells the behavior of the profit response on the change of

cost of production volumes. The cost of production should
exceed the volume of sales. Besides, the cost-volume-profit
relationship is used to find a break-even point. The Break-even
point is where the cost of production is the same as the revenue
earned. Break-even point (in units) = total fixed costs/
contribution margin. For example, if the total fixed cost is
$100,000 and the contribution margin is $ 10,000 the break-
even point is $100,000/10,000= 10,000 units. It means then
10,000 units will be neither profit nor losses.
Part c
Article 1: Absorption Costing and Variable Costing Income
Differences: Exceptions to the General Expectations
Salim Hassan, who is a managing director and senior lecturer,
department of Business Administration, Uttara University,
Bangladesh researched variable costing. The article was meant
to find the effects of variable costing on internal reporting,
analysis, and how it is applicable in the production
environment. Variable and absorption costs were not excluded.
The findings showed that variable costing could meet the
internal requirement effectively since it provided better insight
into cost relationships as the costing method met the external
reporting requirements. The authors recommended several
things concerning variable costing. One, budgeting and
inventory planning should be carefully done to reduce the
freedom of the managers and come up with more catalogs.
Besides, most of the businesses should change their accounting
systems and make them more flexible.
Article 2: The Implementation of Variable Costing in the
Management of Profitability of Sales in trade Companies
The main aim of this paper was to come up with means of
construction of an income statement on variable costing. It also
tried to find out how variable costing would be used in the
trading companies. The paper contained four parts. The first
part included the general presentation on the financial report
based on the cost variable. The second part was meant to
analyses the general assumption concerning the activities in

trade companies. The third part was about reporting on the
progress of customer profitability and fundamental financial
ratios. The last part was the conclusion and recommendation to
make the variable cost more effective. The accountant
recommended that income statement contribution based on
variable costing would enable implantation in various business
branches.
Article 3: Cost Analysis for Decision Making and Control:
Marginal Costing versus Absorption Costing
The purpose of the research was to come up with a way in
which managers would use adequate and systematic together
with cost data to manage their business enterprises and be able
to achieve the business objectives. Most of the finding was from
the cost records and report in cost accounting. This finding
defined management accountant as the application of accounting
methods to provide information to assist in planning and to
control business in enterprise decisions. The paper was the
extension of the previous research on marginal, absorption, and
variable cost.
Part D
Variable costing is generally used in decision-making. For
example, in a given company where the variable costing
includes:
Direct material of $100,000
Direct labor$50, 000
Variable manufacturing overhead$60,000
Further given the units produced in 2019 is 1000, 0000 units
The total variable costing is $210,000
The cost to produce a special order is $0.21x 1000, 000=
$210,000 taking the total price to be $300,000, then the
contribution margin will $300, 000-$210,000= $90,000.
Therefore, considering the variable cost taken, then the
particular order must be made since the contribution margin is a
positive number meaning additional to the profit earned.
References
Dyhdalewicz, A. (2015). The Implementation of Variable

Costing in the Management of Profitability of Sales in trade
Companies. E-Finance, 11(3), 116-127. Doe: 10.1515/fiqf-2016-
0123
Hasan, S. (2015). Absorption Costing and Variable Costing
Income Differences: Exceptions to the General
Expectations. SSRN Electronic Journal. Doe:
10.2139/ssrn.921283
Ihemeje, J. (2015). Cost-volume-profit Analysis and Decision
Making in the Manufacturing Industries of Nigeria. Journal of
International Business Research and Marketing, 1(1), 8-16. Doe:
10.18775/jibrm.1849-8558.2015.11.3001
Ikponwosa, E. (2014). His Cost-Volume-Profit Model: A
Discuss. His Cost-Volume-Profit Model: A Discuss, 8(5), 117-
123. Doe: 10.5897/ajpsir08.020
Lakmal, D. (2014). Cost Analysis for Decision Making and
Control: Marginal Costing versus Absorption Costing. SSRN
Electronic Journal. Doe: 10.2139/ssrn.2417024
Lulaj, E., & Iseni, E. (2018). Role of Analysis CVP (Cost-
Volume-Profit) as Important Indicator for Planning and Making
Decisions in the Business Environment. European Journal of
Economics and Business Studies, 4(2), 99-114. Doe:
10.2478/ejes-2018-0043
Classmate2:
by Bindiya Marneni - Saturday, 21 March 2020, 4:27 PM
PART A
Business organizations exist and operate intending to make
profits and improve themselves to ensure that they become
competitive in the long run (Clancy and Madison, 2016). The
cost volume profit analysis is a tool that is used by many
business organizations to analyze and establish a relationship
between the costs and volume of the products manufactured in

the organization. This, therefore, makes it obligatory for the
organization to have reliable and robust methods of handling all
organizational processes. There are assumptions made when an
organization decides to use the Cost-Volume-Profit analysis
tool (Lee He-Young, 2017). The three critical assumptions
include the following.
First is that the sales price per unit is always constant. This,
therefore, means that the organization takes the cost per unit at
a constant price despite anything that can happen in the market
and affect the process of their products. Consequently, it makes
it easy to do the calculations and get the maximum profit made
by the organization since the price of the products does not
change.
The second assumption made is that the variable costs per unit
are constant, too (Clancy and Madison, 2016). Variable
expenses are costs that are incurred during the production
process and always change depending on the product being
manufactured. Therefore in the profit- cost-volume analysis, the
variable costs are assumed to be constant.
The crucial third assumption made is that the total fixed costs
are constant, too (Ghandour, 2017). This, therefore, means that
all costs incurred during the production process and all other
costs are assumed to be constant and do not change too. This,
therefore, means that the organization can know the total
expenses incurred and know how to minimize them and
maximize the profit they make.
PART B
Profit cost-volume is significant in planning in the following
aspects. It helps business organizations to ensure that they
minimize the costs incurred while manufacturing their products
and set affordable prices for their products. This move makes it
possible for the organization to make a profit since many
customers go for their products since they are affordable
Example
A company with $100,000 of fixed costs and a contribution
margin of 40% must earn revenue of $250,000 to break even.

PART C
On the other hand, variable costing is a method used by
organizations in cost accounting, where the fixed manufacturing
overheads are excluded from the final price of the products
(Baral, 2016). It is mostly used by the manager in organizations
to conduct break-even analysis and contribution margin to
understand the cost, volume, and profitability of the products
manufactured. Therefore, an organization that uses variable
costing the following are the critical costs considered as crucial
to the products being manufactured. First is the price of direct
materials. This gives the organization the actual costs of raw
materials used to make a particular product. Second is direct
labor costs, and this provides the organization with the accurate
prices on human resources and other related expenses incurred
when manufacturing the product. The third fundamental cost is
the variable manufacturing overhead (VMOH).
The variable manufacturing overhead helps the organization to
critically analyze the changes in manufacturing costs that end
up affecting the production output (Novak, Papadaki, Hares &
Popesko, 2017). Through this, the organization also gets
reliable frameworks and models to be used on future
expenditures and to come up with the lowest price at which a
particular product ought to be sold.
A key characteristic of variable costing is that when used by an
organization, it makes the organization record a higher gross
margin compared to absorption costing (Dyhdalewicz, 2018).
This happens because there are no overhead charges allocated to
the sales. Business organizations, therefore, use variable costing
for controlling costs, avoiding the impact of fixed costs, and for
planning and control purposes in the long run. Bearing in mind
that the business environment is ever-changing, several factors
affect their activities; hence using dynamic frameworks is
paramount to success. The use of emerging technologies is the
epicenter of these changes, and organizations ought to be
prepared by having flexible methodologies to handle their
operations.

PART D
As a manager, I would apply variable costing knowledge and
insights to do the following. The first is to conduct a break-even
analysis to help the organization identify the number of units to
be sold for the organization to begin making a profit. Secondly,
I would use variable costing to determine the contribution
margin on a product.
Example: An organization wants to produce 1,000,000 units
under the following costs. What is the variable costing?
Direct material of $150,000
Direct labor of $75,000
Variable manufacturing overhead of $80,000
Total costs = $305,000 ÷ 1,000,000 units produced = $0.305
variable cost per unit References
Baral, G. (2016). Cost – Value – Profit Analysis and Target
Costing with Fuzzy Logic Theory. Mediterranean Journal of
Social Sciences.
Clancy, D., and Madison, T. (2016). Cost-Volume-Profit
Analysis and Changing Costs: Reconciling Theory and
Practice. The Journal of Cost Analysis, 14(2), pp.89-108.
Companies. E-Finance, 11(3), 116-127. doi: 10.1515/fiqf-2016-
0123
Ghandour, D. (2017). The Relationship between Cost-Volume
Profit Management and Profitability in Private
Organizations. International Journal of Advanced Engineering
Research and Science, 4(4), pp.281-288.
Lee Hee-Young (2017). A Profit Model Analysis of Abroad
Performing Art based on Cost Volume Profit Approach. The
Korean Journal of Dance Studies, 67(5), pp.121-137.
Novak, P., Papadaki, S., Hrabec, D., & Popesko, B. (2017).
Comparison of managerial implications for utilization of
variable costing and throughput accounting
methods. Istrazivanja I Projektovanja Za Privredu, 14(3), 351-
360. doi: 10.5937/jaes14-10895

Classmate3:
by Prakash Penikalapati - Wednesday, 18 March 2020, 4:32 PM
Cost volume profits analysis is a tool utilized by the
organization in examining the relationship between changes in
activities and changes in the organization’s total sales, costs as
well as profits. The tools are essential since it provides viable
information for a business that is in its primary stages or a
business that is experiencing adverse economic conditions
(Ihemeje, 2015). The authors documented that cost volume
analysis is vital in determining the number of units that the
organization should sell into break-even. Breakeven is a
situation where the total revenue is equivalent to total costs,
which results in zero. Break-even situations it means that the
organization is neither making profit nor losses. The other
article documented the assumptions that must be held for Cost
volume analysis to hold. These assumptions influence the
operations of the organization in the organization in a
competitive environment. The authors documented the
following assumptions all variables usually remain constant
with the exception of volume; the total costs and revenues are in
linear functions. The other assumptions are that the profits are
computed using marginal costing models (Kim, 2015). This
assumption must be held to aid in yielding the desired results
for the organizations. The results for the organization are
usually gauged based on productivity and performance. The tool
hence contributes towards the meeting of the stakeholder’s
expectations and profit maximization objective, which are the
primary aims for establishment. The prosperity of the
organization in the competitive environment requires the
business to conduct effective planning to aid attaining the
desired results (Dianawati, 2010). The authors documented that
during uncertainty conditions, the organization can embrace

cost volume profit analysis. The utilization of CVP contributes
towards provisions of the necessary information that assists the
organization in making viable decisions, thus succeeding in the
competitive environment.
As a manager profit cost volume is an essential tool in planning
since it will aid in establishing when the business will break
even and start making the required profits. This is vital since it
is the primary objective of establishing any business. The tool
is vital since it assists in evaluating investments and
establishing which projects are viable. The viability of projects
is usually gauged in terms of net present value. Investment,
which yields positive NPV are highly preferred. A tool is also
an imperative tool for effective planning and budgeting of the
organization. This is essential since it contributes to
organizational prosperity in a competitive environment.
Numerical illustration of CVP
XYZ Company is a newly established business that specializes
in the production of electrical appliances. The company
intended to establish its break-even. Below are cost incurred by
the company Total sales volume per appliance was $150 PER
fan which was equivalent to $150,000 variable costs was
equivalent to $120,000 fixed costs was $30000 and the
maximum capacity was 7000 units.
Number of units sold $150,000/$150=1000 units
Variables cost per unit =$120000/1000= $120
Contribution per unit will be selling price per units less the
variable cost per units
=$150-$30 = $ 30 per unit
Break-even point hence will be fixed costs/contribution per
units
= $30000/$30
1000 units
Variable costing is a tool that is utilized to assigns variable
costs to inventories. The major categories of inventories within
the organization are classified into raw materials, work in
progress and finished goods. Variable costing hence ensures

that all overheads costs are charged to expenses in the period in
which they were incurred while variable overheads and direct
materials for the organization are assigned to inventory
(Dyhdalewicz, 2015). Variable costs which vary with the final
output for the organization are usually applicable in conducting
of break-even analysis for the organizations. This is imperative
since it aids in determining sales levels at which business or
organization makes zero profits. The tool is essential in
establishing the lowest price at which a product can be charged
by the organizations. This is essential in ensuring that the
organization does not make losses in both the short run and long
run.
The other article documented the application of variable costing
in manufacturing companies. Variable costing is an essential
tool since it enhances effective planning and controlling for
large manufacturing companies (Lakmal, 2014). Variable costs
usually relate to only those costs that are related to the final
products, and they usually vary with the final output for the
organization. The use of variable costing has enabled the
manufacturing companies to meet their internal requirements,
thus leading to their success in the competitive environment.
The organization’s success is gauged on how the organization
utilizes the scarce resources to leads to wants attainment of the
strategic goals for the organizations. These goals usually have a
significant influence on the organization’s performance in a
competitive environment. They should, therefore, carefully
formulated to contribute towards organization prosperity as a
going concern in the dynamic environment (Pong & Mitchell,
2006). The prosperity of the organization which is usually
measured in terms of productivity and performance of the
organization in the dynamic environment.
As a manager, I will use variable costing to aid in establishing
which products are profitable to the organization and the
products which should be discontinued. This is essential since it
will enable the organization to operate in a profitable manner
and avoid losses. Variable costing also will assist a manager in

determining which products to offer to the target markets. This
is essential since it contributes towards customer’s retention
and satisfaction.
Numerical Example
Company ABC produces 750 computers. The company
incurs $15000 on accessories, $2500 on salaries and $850
installation expense and security expenses of $ 300 and $400
incurred for rent and rates to produce 750 computers.
Total costs for producing computer=
$15000+$2500+$300+$850+$400
= $19050
Total Product Cost of tables = $19050
Unit Product Cost of $19050/750 = $25.4 References
Dianawati, W. (2010). Cost-Volume-Profit Analysis Untuk
Kondisi Uncertainty. AKRUAL: Jurnal Akuntansi, 2(1), 43.
Doi: 10.26740/jaj.v2n1.p43-54
Companies. E-Finance, 11(3), 116-127. Doi: 10.1515/fiqf-2016-
0123
Ihemeje, J. (2015). Cost-volume-profit analysis and Decision
Making in the Manufacturing Industries. Journal of
International Business Research and Marketing, 1(1), 8-16. Doi:
10.18775/jibrm.1849-8558.2015.11.3001
Kim, S. (2015). Cost-Volume-Profit Analysis for a Multi-
Product Company: Micro Approach. International Journal of
Accounting and Financial Reporting, 1(1), 23. Doi:
10.5296/ijafr.v5i1.6832
Lakmal, D. (2014). Cost Analysis for Decision Making and
Control: Marginal Costing versus Absorption Costing. SSRN
Electronic Journal. Doi: 10.2139/ssrn.2417024
Pong, C., & Mitchell, F. (2006). Full costing versus variable
costing: Does the choice still matter? An empirical exploration
of UK manufacturing companies 1988–2002. The British
Accounting Review, 38(2), 131-148. Doi:
10.1016/j.bar.2005.09.003

Practice problems
for reference.docx
Module 2: Practice Problems/Applications: Please Review
Module 2 Review/Practice Problem
In addition to the review problems in the assigned reading
material, review the following problems to help you understand
the application of the concepts covered in Module 2. To
maximize the benefit of your practice, solve the problems with
as much details as you can provide. Check your answer after
you complete all the problems. You are encouraged to complete
this review before you start the related quiz.
Process Costing
Review 1: Conversion Cost Using Weighted-Average Methods
Kamp Company uses the weighted-average method in its
process costing. Information about
units processed during a recent month in the Curing Department
follow:
Units
Conversion Percent Completion
Beginning work in process inventory.......
10,000
30%
Units started into production.....................
150,000

Units completed and transferred out.........
140,000
Ending work in process inventory.............
20,000
40%
The beginning work in process inventory had $4,600 in
conversion cost. During the month, the Department incurred an
additional $210,000 in conversion cost.
Required:
a. Determine the equivalent units of production for
conversion for the month.
b. Determine the cost per equivalent unit of production for
conversion for the month.
c. Determine the total conversion cost transferred out during
the month.
d. Determine the conversion cost assigned to the ending work
in process inventory.
Review 2: Materials/Conversion Cost Using Weighted-Average
Methods
Bansal Inc. uses the weighted-average method in its process
costing system. The following data
concern the operations of the company's first processing
department for a recent month.
Work in process, beginning:

Units in process...............................
300
Percent complete with respect to
materials.......................................
60%
conversion....................................
60%
Costs in the beginning inventory:
Materials cost..................................
$342
Conversion cost...............................
$4,518
Units started into production during the
month........................................
22,000
Units completed and transferred out...
21,800
Costs added to production during the month:
Materials cost..................................
$45,963
Conversion cost...............................

$538,602
Work in process, ending:
Units in process...............................
500
materials.......................................
50%
conversion....................................
20%
Required:
Using the weighted-average method:
a. Determine the equivalent units of production for materials
and conversion costs.
b. Determine the cost per equivalent unit for materials and
conversion costs.
c. Determine the cost of units transferred out of the
department during the month.
d. Determine the cost of ending work in process inventory in
the department.
Review 3-A: Conversion/Material Cost Using FIFO
Engsbye Inc. uses the FIFO method in its process costing
system. The following data concern the
operations of the company's first processing department for a
recent month.

Work in process, beginning:
Units in process.........................................
200
materials................................................
80%
conversion.............................................
10%
Costs in the beginning inventory:
Materials cost............................................
$800
Conversion cost.........................................
$406
Units started into production during the
month........................................................
20,000
Units completed and transferred out............
20,000
Costs added to production during the month:
Materials cost............................................
$96,000

Conversion cost.........................................
$413,648
Work in process, ending:
Units in process.........................................
200
materials................................................
80%
conversion.............................................
50%
Required:
Using the FIFO method:
a. Determine the equivalent units of production for materials
and conversion costs.
b. Determine the cost per equivalent unit for materials and
conversion costs.
c. Determine the cost of ending work in process inventory.
d. Determine the cost of units transferred out of the
department during the month.
Review 3-B: Conversion/Material Cost Using FIFO
Rauzman Corporation uses the FIFO method in its processing
costing. The following data concern the company's Mixing
Department for the month of August.

Materials
Conversion
Work in process, August 1.................................
$25,641
$15,300
Cost added to production in the Mixing Department during
August.............................
$170,940
$179,775
Equivalent units of production for August.........
7,770
7,650
Required:
Compute the cost per equivalent unit for materials and
conversion for the Mixing Department for August using the
FIFO method.
Review 3-C: Conversion/Material Cost Using FIFO
The following data has been provided by Glasco Inc., a
company that uses the FIFO method in
its processing costing system. The data concern the company's
Shaping Department for the
month of June.
Cost in beginning work in process inventory............
$1,690

Units started and completed this month........................
4,110
Materials
Conversion
Cost per equivalent unit.......................................
$12.50
$45.70
Equivalent units required to complete the units in beginning
work in process inventory...........
460
260
Equivalent units in ending work in process
inventory..........................................................
220
176
Required:
Determine the cost of ending work in process inventory
and the cost of the units transferred out of the department
during June using the FIFO method.
Review 4: Service Cost Allocation using Direct Method
Mercik Consultancy uses the direct method to allocate its
service department costs to its
operating departments. The company has two service
departments, Information Technology and
Administration, and two operating departments, Corporate

Practice and Government Practice.
Data concerning those departments follow:
Service Departments
Operating Departments
Information Technology
Admini-stration
Corporate Practice
Government Practice
Departmental costs
$26,244
$21,696
$226,170
$477,980
eComputers...........
39
14
51
30
Employees.............
32
10
70
26

Information Technology Department costs are allocated
on the basis of computers and Administration Department costs
are allocated on the basis of employees.
Required:
Allocate the service department costs to the operating
departments using the direct method.
Activity-Based Costing (ABC)
Review 5: Unit Cost Using Traditional and ABC
Bullie Manufacturing Corporation has a traditional costing
system in which it applies
manufacturing overhead to its products using a predetermined
overhead rate based on direct
labor-hours (DLHs). The company has two products, D31X and
U75X, about which it has
provided the following data:
D31X
U75X
Direct materials per unit..............
$29.20
$47.40
Direct labor per unit....................
$1.10
$23.10

Direct labor-hours per unit..............
0.10
2.10
Annual production
35,000
15,000
The company’s estimated total manufacturing overhead for the
year is $1,147,650 and the company’s estimated total direct
labor-hours for the year is 35,000.
The company is considering using a variation of activity-based
costing to determine its unit product costs for external reports.
Data for this proposed activity-based costing system appear
below:
Activities and Activity Measures
Estimated Overhead Cost
Assembling products (DLHs)........
$ 140,000
Preparing batches (batches)...........
241,150
Axial milling (MHs)......................
766,500
Total...............................................
$1,147,650

D31X
U75X
Total
Assembling products.........
3,500
31,500
35,000
Preparing batches...............
560
1,295
1,855
Axial milling......................
1,540
1,015
2,555
Required:
a. Determine the manufacturing overhead cost per unit of
each of the company's two products under the traditional costing
system.
b. Determine the manufacturing overhead cost per unit of
each of the company's two products under activity-based costing
system.
Review 6: ABC First Stage Cost Allocation
IGL Draperies makes custom draperies for homes and
businesses. The company uses an activity-
based costing system for its overhead costs. The company has
provided the following data
concerning its annual overhead costs and its activity cost pools.

Overhead costs:
Production overhead....
$140,000
Office expense.............
140,000
Total.............................
$280,000
Distribution of resource consumption:
Activity Cost Pools
Making Drapes
Job Support
Other
Total
60%
20%
20%
100%
15%
55%
30%
100%
The “Other” activity cost pool consists of the costs of idle
capacity and organization-sustaining costs.
The amount of activity for the year is as follows:

Activity Cost Pool
Annual Activity
Making drapes.......
3,000
yards
Job support.............
140
jobs
Other......................
Not
applicable
Required:
a. Prepare the first-stage allocation of overhead costs to the
activity cost pools by filling in the table below:
Making Drapes
Job Support
Other
Total

Total.............................
b. Compute the activity rates (i.e., cost per unit of activity)
for the Making Drapes and Job Support activity cost pools by
filling in the table below:
Making Drapes
Job Support
Total.............................
a. Prepare an action analysis report in good form of a job
that involves making 85 yards of drapes and has direct materials
and direct labor cost of $2,990. The sales revenue from this job
is $6,000. For purposes of this action analysis report, direct

materials and direct labor should be classified as a Green cost;
production overhead as a Red cost; and office expense as a
Yellow cost.
Review 7: Using ABC to Compute Customer Margin
Dane Housecleaning provides housecleaning services to its
clients. The company uses an
activity-based costing system for its overhead costs. The
company has provided the following
data from its activity-based costing system.
Activity Cost Pool
Total Cost
Total Activity
Cleaning....................
$263,784
34,800
hours
Job support................
145,180
7,000
jobs
Client support...........
4,774
220
clients
Other.........................
170,000
Not

applicable
Total..........................
$583,738
The “Other” activity cost pool consists of the costs of
idle capacity and organization-sustaining costs.
One particular client, the Hoium family, requested 45
jobs during the year that required a total of 90 hours of
housecleaning. For this service, the client was charged $2,000.
Required:
a. Compute the activity rates (i.e., cost per unit of activity)
for the activity cost pools. Round off all calculations to the
nearest whole cent.
b. Using the activity-based costing system, compute the
customer margin for the Hoium family. Round off all
calculations to the nearest whole cent.
c. Assume the company decides instead to use a traditional
costing system in which ALL costs are allocated to customers
on the basis of cleaning hours. Compute the margin for the
Hoium family. Round off all calculations to the nearest whole
cent.

Answers
Process Costing
Review 1: Conversion Cost Using Weighted-Average Methods
Ans:
a.
Units transferred out..................................

140,000
Add: equivalent units in the ending
inventory................................................
8,000
Equivalent units of production..................
148,000
b.
Cost in the beginning inventory................
$ 4,600
Cost added during the month....................
210,000
Total cost...................................................
$214,600
$214,600 ÷ 148,000 units = $1.45 per unit
c. 140,000 units × $1.45 per unit = $203,000
d. 20,000 units × 40% × $1.45 per unit = $11,600
Review 2: Materials/Conversion Cost Using Weighted-Average
Methods
Ans:
Weighted-average method:
a.

Materials
Conversion
Units transferred to next department...
21,800
21,800
Ending work in process:
Materials: 500 units × 50%..........
250
Conversion: 500 units × 20%..........
100
Equivalent units of production
22,050
21,900
b.
Materials
Conversion
Cost of beginning work in process.....................................
$ 342
$ 4,518
Cost added during the month......
45,963
538,602

Total cost....................................
$46,305
$543,120
Equivalent units..........................
22,050
21,900
Cost per equivalent unit..............
$2.10
$24.80
c.
Materials
Conversion
Total
Equivalent units of production.........
250
100
Cost per equivalent unit..
$2.10
$24.80
Cost of ending work in process.
$525
$2,480
$3,005
d.
Materials

Conversion
Total
Units completed and transferred out.....................
21,800
21,800
Cost per equivalent unit..
$2.10
$24.80
Cost of units transferred out...
$45,780
$540,640
$586,420
Review 3-A: Conversion/Material Cost Using FIFO
Ans:
FIFO method:
a.
Materials
Conversion
To complete the beginning work in process:
Materials: 200 units × (100% − 80%).........
40

Conversion: 200 units × (100% − 10%).....
180
Units started and completed (20,000 − 200)..
19,800
19,800
Materials: 200 units × 80%.........................
160
Conversion: 200 units × 50%......................
100
Equivalent units of production.......................
20,000
20,080
b.
Materials
Conversion
Cost added during the month.........................
$96,000
$413,648
Equivalent units of production.......................

20,000
20,080
Cost per equivalent unit.................................
$4.80
$20.60
c.
Materials
Conversion
Total
Equivalent units of production...............
160
100
Cost per equivalent unit..........................
$4.80
$20.60
Cost of ending work in process..............
$768
$2,060
$2,828
d.
Materials
Conversion

Total
Cost from the beginning inventory.........
$800
$406
$1,206
Cost to complete the units in beginning inventory:
Equivalent units to complete...............
40
180
Cost per equivalent unit.......................
$4.80
$20.60
Cost to complete..................................
$192
$3,708
$3,900
Cost of units started and completed:
Units started and completed................
19,800
19,800

Cost per equivalent unit.......................
$4.80
$20.60
Cost of units started and completed....
$95,040
$407,880
$502,920
Total cost of units transferred out...........
$508,026
Review 3-B: Conversion/Material Cost Using FIFO
Ans:
FIFO method:
Materials
Conversion
Cost added during the month........
$170,940
$179,775
Equivalent units.............................
7,770
7,650
Cost per equivalent unit................

$22.00
$23.50
Review 3-C: Conversion/Material Cost Using FIFO
Ans:
FIFO method:
Transferred to the next department:
From the beginning work in process inventory:
Cost in beginning work in process inventory.................
$ 1,690
Cost to complete these units:
Materials, at 460 EUs $12.50 per EU.......................
5,750
Conversion, at 260 EUs $45.70 per EU.......................
11,882
Total cost from beginning inventory
19,322
Units started and completed this month, 4,110 units at $58.20
per unit.......................
239,202
Total cost transferred to the next department...

$258,524
Work in process, June 30:
Materials, 220 EUs at $12.50 per EU............
$ 2,750
Conversion, 176 EUs at $45.70 per EU............
8,043
Total work in process, June 30.......................
$10,793
Review 4: Service Cost Allocation using Direct Method
Ans:
Allocation rate for Information Technology costs
= Cost to be allocated ÷ Allocation base = $26,244 / (51 + 30) =
$324.00
Allocation rate for Administration costs
= Cost to be allocated ÷ Allocation base = $21,696 / (70 + 26) =
$226.00
Information Technology
Administration
Corporate Practice
Government Practice
Departmental costs

$26,244
$21,696
$226,170
$477,980
Information Technology........
(26,244)
16,524
9,720
Administration.......
(21,696)
15,820
5,876
Total costs after allocation...........
$ 0
$ 0
$258,514
$493,576
Activity-Based Costing (ABC)
Review 5: Unit Cost Using Traditional and ABC
Ans:
a. Traditional Manufacturing Overhead Costs
Predetermined overhead rate = $1,147,650 ÷ 35,000 DLHs =
$32.79 per DLH

D31X
U75X
Direct labor-hours............
0.10
2.10
Predetermined overhead rate per DLH................
$32.79
$32.79
Manufacturing overhead cost per unit..................
$3.28
$68.86
b. ABC Manufacturing Overhead Costs
Estimated Overhead Cost
Total Expected Activity
Activity Rate
Assembling products...
$140,000
35,000
DLHs
$4
per DLH
Preparing batches........
$241,150
1,855
batches

$130
per batch
Axial milling................
$766,500
2,555
MHs
$300
per MH
Overhead cost for D31X
Activity Rate
Activity
ABC Cost
Assembling products........
$4
per DLH
3,500
DLHs
$ 14,000
Preparing batches.............
$130
per batch
560
batches
72,800
Axial milling....................
$300
per MH
1,540
MHs

462,000
Total.................................
$548,800
Annual production............
35,000
$15.68
Overhead cost for U75X
Activity Rate
Activity
ABC Cost
Assembling products........
$4
per DLH
31,500
DLHs
$126,000

Preparing batches.............
$130
per batch
1,295
batches
168,350
Axial milling....................
$300
per MH
1,015
MHs
304,500
Total.................................
$598,850
Annual production............
15,000
$39.92

Review 6: ABC First Stage Cost Allocation
Ans:
a. First-stage allocation
Making Drapes
Job Support
Other
Total
$84,000
$28,000
$28,000
$140,000
21,000
77,000
42,000
140,000
Total.............................
$105,000
$105,000
$70,000
$280,000
Activity........................
3,000 yards
140 jobs

b. Activity rates (costs divided by activity)
Making
Job
Drapes
Support
Activity...................
3,000 yards
140 jobs
Production overhead..............
$28.00
$200.00
Office expense........
7.00
550.00
Total........................
$35.00
$750.00
c. Overhead cost of the job.
Making Drapes
Job Support

Total
Activity.........................
85
1
Production overhead.....
$2,380
$200
$2,580
Office expense..............
595
550
1,145
Total..............................
$2,975
$750
$3,725
Sales..........................................
$6,000
Green costs:
Direct materials and labor.....
2,990
Green margin............................
3,010

Yellow costs:
Office expense.......................
1,145
Yellow margin..........................
1,865
Red costs:
Production overhead..............
2,580
Red margin................................
($ 715)
Review 7: Using ABC to Compute Customer Margin
Ans:
a. The computation of the activity rates follow:
Total Cost
Total Activity
Activity Rates
Cleaning...........
$263,784
34,800 hours
$7.58 per hour
Job support.......
$145,180

7,000 jobs
$20.74 per job
Client support..
$4,774
220 clients
$21.70 per client
b. The customer margin for the family is computed as follows:
Client charges...
$2,000.00
Costs:
Cleaning.........
$682.20
Job support.....
933.30
Client support
21.70
1,637.20
Customer margin...........
$ 362.80
Computations for costs:
Cleaning: 90 hours × $7.58 per hour = $682.20

Job support: 45 jobs × $20.74 per job = $933.30
Client support: 1 client × $21.70 per client = $21.70
c. The margin if all costs are allocated on the basis of cleaning
hours:
Predetermined overhead rate = $583,738 ÷ 34,800 hours =
$16.77 per hour
Client charges................
$2,000.00
Allocated costs*.............
1,509.30
Customer margin...........
$ 490.70
* 90 hours × $16.77 per hour = $1,509.30

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