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ACC349 Week3 Anna Bellatorre

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 Q13 Q14 E4-10 E4-11 Indiv

13. What are the benefits of activity-based costing?

14. What are the limitations of activity-based costing?

E4-10 Anna Bellatorre, Inc. manufactures five models of kitchen appliances at its Mesa
plant. The company is installing activity-based costing and has identified the following
activities performed at its Mesa plant.

1. Designing new models.
2. Purchasing raw materials and parts.
3. Storing and managing inventory.
4. Receiving and inspecting raw materials and parts.
5. Interviewing and hiring new personnel.
6. Machine forming sheet steel into appliance parts.
7. Manually assembling parts into appliances.
8. Training all employees of the company.
9. Insuring all tangible fixed assets.
10. Supervising production.
11. Maintaining and repairing machinery and equipment.
12. Painting and packaging finished appliances.

Having analyzed its Mesa plant operations for purposes of installing activity-based costing,
Anna Bellatorre, Inc. identified its activity cost centers. It now needs to identify relevant
activity cost drivers in order to assign overhead costs to its products.

Instructions
Using the activities listed above, identify for each activity one or more cost drivers that
might be used to assign overhead to Anna Bellatorre’s five products

E4-11 Fontillas Instrument, Inc. manufactures two products: missile range instruments
and space pressure gauges. During April, 50 range instruments and 300 pressure gauges
were produced, and overhead costs of $89,500 were estimated. An analysis of estimated
overhead costs reveals the following activities.

Activities Cost Drivers Total Cost
1. Materials handling Number of requisitions $35,000
2. Machine setups Number of setups 27,500
3. Quality inspections Number of inspections 27,000
The cost driver volume for each product was as follows.
Cost Drivers Instruments Gauges Total
Number of requisitions 400 600 1,000
Number of setups 200 300 500
Number of inspections 200 400 600

Instructions
(a) Determine the overhead rate for each activity.
(b) Assign the manufacturing overhead costs for April to the two products using activity based
costing.
(c) Write a memorandum to the president of Fontillas Instrument explaining
the benefits of activity-based costing.

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