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(WIP) ACC 350 Exam 1 Study Material

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In - Class Problems

In - Class Problems ACC 350 In-Class Problems – Chapter 5 Problem #1 – Identify Activity Level The company below manufactures trucks and has the following activities: 1. Work on assembly line 2. Set-up production machinery 3. Operate production machines 4. Maintenance of production machinery 5. Inspect products 6. Receive Raw Materials 7. Factory heating, lighting & air conditioning 8. Set up an inventory part number in the information system. 9. Prepare a production order 10. Advertising the product 11. Customer returns 12. Rent on manufacturing plant 13. Move materials 14. Prepare an engineering change order 15. Provide a “help” line for ten largest customers. Activity Level Potential Activity Driver For each activity, identify the activity level (unit, batch, product, customer or facility) and list a potential activity driver.

Problem #2 – Activity Based Costing Problem The Manhattan Company manufactures two models of compact disc players, deluxe and regular. The company has manufactured the regular model for years; the deluxe model was introduced recently to tap a new segment of the market. Although sales of the deluxe model have been increasing rapidly, the company’s profits have steadily declined. Management has become increasingly concerned about the accuracy of its costing system. The current cost accounting system allocates manufacturing support costs to the two products on the basis of direct labor hours. Information for deluxe and regular products for the next year is shown below: Deluxe Regular Selling Price $140 $80 Number of Units Produced & Sold 5,000 45,000 Direct Material per unit $45 $30 Direct Labor per unit $20 $20 DLH per unit 2 2 MH per unit 3 0.5 Units per batch 50 450 Inspection hrs/batch 1 0.25 Vendors of components 6 4 A machine is setup once for each batch and the setup is the same regardless of the type of product. There is one inspection performed for each batch and the inspection time is 1 hour for the deluxe product and ¼ hour for the regular product. The company has a JIT inventory system and purchases raw materials by batch. For each batch, the purchasing agent has to order from the various vendors for the appropriate direct material components. There are six different vendors for various components of the deluxe model (and therefore six purchase orders per batch) and 4 different vendors for components for the regular product (and therefore four purchase orders per batch). The company is considering switching to an ABC system. A recent cost study revealed the company expects $1,000,000 of overhead next year from the following activities: Activity Annual Cost Purchasing $180,000 Quality Control $250,000 Production Set-ups $220,000 Machine Maintenance $350,000 TOTAL $1,000,000