Question

1) Required information

Gable Company uses three activity cost pools. Each pool has a cost driver. Information for Gable Company follows:

Activity Cost Pools	Total Cost of Pool		Cost Driver	Estimated Cost Driver
Machining	$	236,300	Number of machine hours		69,500
Designing costs		58,725	Number of design hours		6,750
Setup costs		71,350	Number of batches		500

Required:

1. Compute the activity rate for each activity.

2. Classify each activity as facility, product, batch, or unit level.

2) Required information

Gable Company uses three activity cost pools. Each pool has a cost driver. Information for Gable Company follows:

Activity Cost Pools	Total Cost of Pool		Cost Driver	Estimated Cost Driver
Machining	$	236,300	Number of machine hours		69,500
Designing costs		58,725	Number of design hours		6,750
Setup costs		71,350	Number of batches		500

Suppose that Gable Company manufactures three products, A, B, and C. Information about these products follows:

	Product A	Product B	Product C
Number of machine hours	25,000	35,000	9,500
Number of design hours	2,700	1,550	2,500
Number of batches	50	180	270

Required:
Using activity rates, determine the amount of overhead assigned to each product.

3) Schell Company manufactures automobile floor mats. It currently has two product lines, the Standard and the Deluxe.

Schell has a total of $25,640 in overhead. It currently uses a traditional cost system with overhead applied to the product on the basis of either labor hours or machine hours. Schell has compiled the following information about possible cost drivers and its two product lines:

Schell Company Total	Quantity/Amount Consumed by Standard Floor Mat Line			Quantity/Amount Consumed by Deluxe Floor Mat Line
1,010 labor hours		650 labor hours		360 labor hours
7,170 machine hours		3,030 machine hours		4,140 machine hours

Required:
1. Suppose Schell uses a traditional costing system with direct labor hours as the cost driver. Determine the amount of overhead assigned to each product line.
2. Suppose Schell uses a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line.

4) Schell Company manufactures automobile floor mats. It currently has two product lines, the Standard and the Deluxe. Suppose that Schell has conducted further research into its overhead and potential cost drivers. As a result, the company has compiled the following detailed information, breaking total overhead into three cost pools:

Activity Cost Pools		Cost Driver	Cost Assigned to Pool				Quantity/Amount Consumed by Standard Floor Mat Line		Quantity/Amount Consumed by Deluxe Floor Mat Line
Material handling		Number of moves		$	2,673.00		31 moves		68 moves
Quality control		Number of inspections		$	9,177.00		680 inspections		650 inspections
Machine maintenance		Number of machine hours		$	13,032.00		2,920 machine hours		4,320 machine hours

Required:

1. Calculate the activity rates for each cost pool assuming Schell uses an ABC system.

2. Calculate the amount of overhead that Schell will assign to the Standard floor mat line.

3. Determine the amount of overhead Schell will assign to the Deluxe product line.

5) Turtle Inc. has developed a new and improved widget. The company plans to sell the product through an existing website. Turtle’s marketing department believes the product will sell for $110. Turtle’s goal is a 30 percent profit margin on the widget.

Required:

1. If current prototypes cost $61.00 to produce, will Turtle meet its profit goal?

• Yes

• No

2. Calculate the target cost necessary for Turtle to earn 30 percent profit.

Answer 1