E7-11 - Please explain how you arrived at your answers. Thank you! Exercise 7-11

Question

E7-11 - Please explain how you arrived at your answers. Thank you!

Exercise 7-11 Comprehensive Activity-Based Costing Exercise [LO2, LO3, LO4, LO5]

Distribution of Resource Consumption Across Activities

During the year, Silicon Optics completed an order for a special optical switch for a new customer, Indus Telecom. This customer did not order any other products during the year. Data concerning that order follow:

Prepare a report showing the first-stage allocations of overhead costs to the activity cost pools. (Omit the "$" sign in your response.)

2.

Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places.Omit the "$" sign in your response.)

Compute the overhead costs for the order from Indus Telecom, including customer support costs.(Round your intermediate calculations and final answers to 2 decimal places. Omit the "$" sign in your response.)

Prepare a report showing the customer margin for Indus Telecom. (Input all amounts as positive values except losses which should be indicated by a minus sign. Round your intermediate calculations and final answers to 2 decimal places. Omit the "$" sign in your response.)

Indus Telecom
Customer Margin—ABC Analysis

Exercise 7-11 Comprehensive Activity-Based Costing Exercise [LO2, LO3, LO4, LO5]

Silicon Optics has supplied the following data for use in its activity-based costing system:   Overhead Costs   Wages and salaries $ 354,000   Other overhead costs 194,000   Total overhead costs $ 548,000   Activity Cost Pool Activity Measure Total Activity   Direct labor support Number of direct labor-hours 14,500 DLHs   Order processing Number of orders 590 orders   Customer support Number of customers 105 customers   Other This is an organization-sustaining activity Not applicable

Distribution of Resource Consumption Across Activities

Direct Labor Support Order Processing Customer Support Other     Total   Wages and salaries 20 % 30 % 20 % 30 % 100 %   Other overhead costs 30 % 20 % 15 % 35 % 100 %

During the year, Silicon Optics completed an order for a special optical switch for a new customer, Indus Telecom. This customer did not order any other products during the year. Data concerning that order follow:

Data Concerning the Indus Telecom Order   Selling price $ 290 per unit   Units ordered 100 units   Direct materials $ 258 per unit   Direct labor-hours 1 DLH per unit   Direct labor rate $ 20 per DLH Required: 1.

Prepare a report showing the first-stage allocations of overhead costs to the activity cost pools. (Omit the "$" sign in your response.)

           Direct Labor
              Support        Order
      Processing        Customer
      Support       Other       Totals   Wages and salaries $    $    $    $    $      Other overhead costs                  Total cost $    $    $    $    $   

2.

Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places.Omit the "$" sign in your response.)

  Activity Cost Pools Activity Rate            Direct labor support $ per DLH   Order processing $ per order   Customer support $ per customer 3.

Compute the overhead costs for the order from Indus Telecom, including customer support costs.(Round your intermediate calculations and final answers to 2 decimal places. Omit the "$" sign in your response.)

  Activity Cost Pool               ABC Cost   Direct labor support $      Order processing      Customer support      Total $    4.

Prepare a report showing the customer margin for Indus Telecom. (Input all amounts as positive values except losses which should be indicated by a minus sign. Round your intermediate calculations and final answers to 2 decimal places. Omit the "$" sign in your response.)

Indus Telecom
Customer Margin—ABC Analysis

  (Click to select)Direct laborSalesDirect labor support overheadDirect materialsShippingOrder processing overheadCustomer support overheadOther $      Costs:        (Click to select)Customer support overheadDirect materialsOtherDirect labor support overheadDirect laborOrder processing overheadShippingSales $           (Click to select)Order processing overheadCustomer support overheadShippingDirect laborDirect labor support overheadDirect materialsOtherSales           (Click to select)Direct laborDirect labor support overheadSalesOtherDirect materialsOrder processing overheadCustomer support overheadShipping           (Click to select)SalesDirect laborCustomer support overheadShippingDirect materialsOrder processing overheadDirect labor support overheadOther           (Click to select)Order processing overheadDirect labor support overheadCustomer support overheadOtherShippingSalesDirect materialsDirect labor         Customer margin $   

Explanation / Answer

1.

Overhead Costs

Totals

DL Support

Order Processing

Customer Support

Other

Wages & salaries

$354,000

$70,800

$106,200

$70,800

$106,200

Other overhead costs

$194,000

58,200

38,800

29,100

67,900

Total overhead costs

$548,000

$129,000

$145,000

$99,900

$174,100

2.

Overhead Costs

Totals

DL Support

Order Processing

Customer Support

Other

Total overhead costs

$548,000

$129,000

$145,000

$99,900

$174,100

Total activity measures

14,500

590

105

N/A

Rate per activity cost pool

$8.90

$245.76

$951.43

DLHs

Orders

Customers

3.

Indus Telecom

Activity Cost Pool

Cost Driver

Pool Rate

Driver Usage

ABC Costs Assigned

DL support

DLHs

$8.90

100

$889.66

Order processing

Orders

$245.76

1

245.76

Customer support

Customers

$951.43

1

951.43

Total support costs assigned to Indus Telecom

$2,086.85

4.

ABC Analysis Customer Margin Report for Indus Telecom

Sales (100 units X $290)

$29,000

Costs:

Direct Costs Traced

Direct materials ($258 per unit X 100 units)

$25,800

Direct labor ($20 per DLH X 1 DLH X 100 units)

$2,000

Indirect Support Costs Allocated Using ABC

DL support

$890

Order processing

$246

Customer support

$951

Total Assigned Costs

$29,887

Customer Margin

($887)

Overhead Costs

Totals

DL Support

Order Processing

Customer Support

Other

Wages & salaries

$354,000

$70,800

$106,200

$70,800

$106,200

Other overhead costs

$194,000

58,200

38,800

29,100

67,900

Total overhead costs

$548,000

$129,000

$145,000

$99,900

$174,100

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