Question

2. Assume that OfficeMart places orders more frequently, but everything else remains the same. On your worksheet increase the number of orders from 4 to 11. (Prior to completing this requirement, change all worksheet figures back to their original amounts.)

A B C D E

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Chapter 5: Applying Excel Data Manufacturing overhead $500,000 Selling and administrative overhead $300,000 Assembling Units Processing Orders Supporting Customers Other Manufacturing overhead 50% 35% 5% 10% Selling and administrative overhead 10% 45% 25% 20% Total activity 1,000 250 100 units orders customers OfficeMart orders: Customers 1 customer Orders 11 orders Number of filing cabinets ordered in total 80 units Selling price $595 Direct materials $180 Direct labor $50

(a) What is the customer margin under activity-based costing when the number of orders increases to 11? (Enter a loss as a negative amount.)

(b) What is the product margin under the traditional costing system when the number of orders increases to 11? (Enter a loss as a negative amount.)

(c) Which of the following statements are true? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

If a customer orders more frequently, but orders the same total number of units over the course of a year, the customer margin under activity based costing will decrease.unanswered

• If a customer orders more frequently, but orders the same total number of units over the course of a year, the product margin under a traditional costing system will decrease.unanswered
• If a customer orders more frequently, but orders the same total number of units over the course of a year, the customer margin under activity based costing will be unaffected.unanswered
• If a customer orders more frequently, but orders the same total number of units over the course of a year, the product margin under a traditional costing system will be unaffected.unanswered

3. OfficeMart has found an error in its data. The percentage of selling and administrative overhead attributable to processing orders should be changed to 30% from 45% and the percentage attributable to supporting customers should be changed to 40% from 25%.

A B C D E

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Chapter 5: Applying Excel Data Manufacturing overhead $500,000 Selling and administrative overhead $300,000 Assembling Units Processing Orders Supporting Customers Other Manufacturing overhead 50% 35% 5% 10% Selling and administrative overhead 10% 30% 40% 20% Total activity 1,000 250 100 units orders customers OfficeMart orders: Customers 1 customer Orders 11 orders Number of filing cabinets ordered in total 80 units Selling price $595 Direct materials $180 Direct labor $50

(a) Based on new number of orders in Requirement 2, what is the customer margin under activity-based costing when the data are corrected? (Enter a loss as a negative amount.)

(b) Based on new number of orders in Requirement 2, what is the product margin under the traditional costing system when the data are corrected? (Enter a loss as a negative amount.)

Answer 1

QUESTION 2

a). Activity-based costing

Cost allocation:

	Accounting units	Processing units	Supporting customers	Other	Total
Manufacturing	250000	175000	25000	50000	500000
S&A	30000	135000	75000	60000	300000
Total	280000	310000	100000	110000	800000

Activity rates

Assembling units = 280000 / 1,000 units = $280 per unit
Processing orders = 310000 / 250 orders = $1240 per order
Supporting customers = 100000 / 100 customers = $1000 per customer

Sales(80 x 595)	47600
Costs: Direct material(80 x 180)	14400
Direct Labor(80 x 50)	4000
Assembling units(80 x 280)	22400
Processing units(11 x 1240)	13,640
Supporting documents(1 x 1000)	1000
Activity-based consumer margin	(7840)

b) Traditional based

Manufacturing Overhead per unit = 500000 / 1000 orders = 500 per unit

Sales(80 x 595)	47600
Costs: Direct material(80 x 180)	14400
Direct Labor(80 x 50)	4000
Manufacturing overheads(80 x 500)	40000
Activity-based consumer margin	(10800)

c) Option A and D are correct

If a customer orders more frequently, but orders the same total number of units over the course of a year, the customer margin under activity-based costing will decrease.

If a customer orders more frequently, but orders the same total number of units over the course of a year, the product margin under a traditional costing system will be unaffected.

Question 3

a). Activity based costing

Cost alloaction:

	Accounting units	Processing units	Supporting cutomers	Other	Total
Manufacturing	250000	175000	25000	50000	500000
S&A	30000	90000	120000	60000	300000
Total	280000	265000	145000	110000	800000

Activity rates

Assembling units = 280000 / 1,000 units = $280 per unit
Processing orders = 265000 / 250 orders = $1060 per order
Supporting customers = 145000 / 100 customers = $1450 per customer

Sales(80 x 595)	47,600
Costs: Direct material(80 x 180)	14,400
Direct Labor(80 x 50)	4,000
Assembling units(80 x 280)	22400
Processing units(11 x 1060)	11,660
Supporting documents(1 x 1450)	1,450
Activity based consumer margin	(6,310)

b) Traditional based

Manufacturing Overhead per unit = 500000 / 1000 orders = 500 per unit

Sales(80 x 595)	47,600
Costs: Direct material(80 x 180)	14,400
Direct Labor(80 x 50)	4,000
Manufacturing overheads(80 x 500)	40,000
Activity-based consumer margin	(10,800)