Accounting Business Reporting for Decision Making

490 Accounting: Business Reporting for Decision Making

Cost object

Cost

Tax

department

Individual

returns

Mr Gruper’s

individual

tax return

A. Subscription to personal tax-law updates publication

B. Ink supplies for tax department photocopy machine

C. Portion of total rent for tax department office space

D. Wages for tax department administrative assistant

E. Tax partner’s salary

F. Charges for long-distance call to Mr Gruper about

personal tax-return questions

G. Tax partner lunch with Mr Gruper (the tax partner

has lunch with each client at least once per year)

Required

For each cost, identify whether it is direct or indirect for each cost object.

11.15  LO3

Greenfield Company manufactures five products in a single production facility. The company

uses activity cost pools to allocate indirect costs. The following activities have been identified

following an analysis of the entity operations:

a. inventory control d. machine set-up g. building maintenance

b. raw materials e. quality inspections h. delivery to customers

c. engineering design f. materials ordering i. employee benefits.

Required

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

11.16  LO3

Refer to exercise 11.15. For each activity, name a cost driver that might be used to assign activity

costs to products.

11.17  LO3

The Creamery has one product line that is unprofitable. What circumstances might cause the

entity’s overall profit to be lower if the unprofitable product line is eliminated?

11.18  LO3

Fruits on High Ltd uses three activity cost pools to assign costs to customers in order to assess customer

profitability. Each activity cost pool has a unique cost driver to apply indirect costs to customers.

Activity Cost driver

Estimated

indirect costs

Estimated total

usage of cost driver

Sales returns

Order processing

Rush orders

Number of returns

Lines on order

Number of rush orders

$200 000

$550 000

$300 000

5 500 returns

550 000 lines

12 000 orders

Required

Calculate the activity cost rate for each activity.

11.19   LO1

Jess Brooks has recently graduated from a business school and has joined the family business as an

accountant. At the first management meeting with production, marketing and sales, a great deal of

time was spent discussing the unit cost of products. What kinds of decisions can managers make

using the unit cost information?

11.20   LO3

Mallett Manufacturing estimates the following activity for the coming year:

• expected production 46 000 units


• expected direct labour hours 3500 hours


• expected manufacturing overhead $184 000.