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HI NEO, Here I come again for your help on the following Homework: E4-10

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Here I come again for your help on the following Homework:
E4-10 XXXXX XXXXXatorre, 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,
XXXXX XXXXXatorre, Inc. identified its activity cost centers. It now needs to identify relevant activity cost drivers in order to assign overhead costs to its products.
Using the activities listed above, identify for each activity one or more cost drivers that might be used to assign overhead to XXXXX XXXXXatorre’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
(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.

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

P4-3A Stellar Stairs Co. of Poway designs and builds factory-made premium wooden stairs for homes. The manufactured stair components (spindles, risers, hangers, hand rails) permit installation of stairs of varying lengths and widths. All are of white oak wood. Its budgeted manufacturing overhead costs for the year 2006 are as follows.

Overhead Cost Pools Amount
Purchasing $ 57,000
Handling materials 82,000
Production (cutting, milling, finishing) 210,000
Setting up machines 85,000
Inspecting 90,000
Inventory control (raw materials and finished goods) 126,000
Utilities 180,000
Total budget overhead costs $830,000
For the last 4 years, Stellar Stairs Co. has been charging overhead to products on the basis of machine hours. For the year 2006, 100,000 machine hours are budgeted.
Heather Fujar, owner-manager of Stellar Stairs Co., recently directed her accountant, Lindsay Baker, to implement the activity-based costing system that she has repeatedly proposed. At Heather Fujar’s request, Lindsay, and the production foreman identify the following cost drivers and their usage for the previously budgeted overhead cost pools.

Use of
Activity Cost Pools Cost Drivers Cost Drivers
Purchasing Number of orders 600
Handling materials Number of moves 8,000
Production (cutting, milling, finishing) Direct labor hours 100,000
Setting up machines Number of setups 1,250
Inspecting Number of inspections 6,000
Inventory control (raw materials and finished goods) Number of components 168,000
Utilities Square feet occupied 90,000

Jason Dion, sales manager, has received an order for 280 stairs from Community Builders, Inc., a large housing development contractor. At Jason’s request, Lindsay prepares cost estimates for producing components for 280 stairs so Jason can submit a contract price per stair to Community Builders. She accumulates the following data for the production of 280 stairways.

Direct materials $103,600
Direct labor $112,000
Machine hours 14,500
Direct labor hours 5,000
Number of purchase orders 60
Number of material moves 800
Number of machine setups 100
Number of inspections 450
Number of components 16,000
Number of square feet occupied 8,000

(a) Compute the predetermined overhead rate using traditional costing with machine hours as the basis.
Good day!

When is the deadline?

Customer: replied 5 years ago.

Tuesday, February 28, 2012




Please download HERE.

Thank you so much! :)
Customer: replied 5 years ago.


Thanks for the response. May be an oversight. There are other 2 question missing without response i.e P4-4A amd BYP 4-2.

I am very sorry but those are not included in questions above. Please supply the details.

Customer: replied 5 years ago.



I came back a little late from work. I do not know what happen, may be it was cut off. Nonetheless, here are the 2 questions.



P4-4A Mendocino Corporation produces two grades of wine from grapes that it buys from California growers. It produces and sells roughly 3,000,000 liters per year of a low-cost, high-volume product called CoolDay. It sells this in 600,000 5-liter jugs. Mendocino also produces and sells roughly 300,000 liters per year of a low-volume, high-cost product called LiteMist. LiteMist is sold in 1-liter bottles. Based on recent data, the CoolDay product has not been as profitable as LiteMist. Management is considering dropping the inexpensive CoolDay line so it can focus more attention on the LiteMist product.

The LiteMist product already demands considerably more attention than the CoolDay line.

Tyler Silva, president and founder of Mendocino, is skeptical about this idea. He points out that for many decades the company produced only the CoolDay line, and that it was always quite profitable. It wasn't until the company started producing the more complicated LiteMist wine that the profitability of CoolDay declined. Prior to the introduction of LiteMist, the company had simple equipment, simple growing and production procedures, and virtually no need for quality control. Because LiteMist is bottled in 1-liter bottles, it requires considerably more time and effort, both to bottle and to label and box than does CoolDay. The company must bottle and handle 5 times as many bottles of LiteMist to sell the same quantity as CoolDay. CoolDay requires 1 month of aging; LiteMist requires 1 year. CoolDay requires cleaning and inspection of equipment every 10,000 liters; LiteMist requires such maintenance every 600 liters. Tyler has asked the accounting department to prepare an analysis of the cost per liter using the traditional costing approach and using activity-based costing. The following information was collected.


CoolDay LiteMist

Direct materials per liter $0.40 $1.20

Direct labor cost per liter $0.25 $0.50

Direct labor hours per liter 0.05 0.09

Total direct labor hours 120,000 25,000


Expected Expected Use

Use of of Cost Drivers

Estimated Cost per Product

Activity Cost Pools Cost Drivers Overhead Drivers CoolDay LiteMist

Grape processing Cart of grapes $ 145,860 6,600 6,000 600

Aging Total months 396,000 6,600,000 3,000,000 3,600,000

Bottling and Number of

corking bottles 270,000 900,000 600,000 300,000


and Number of

boxing bottles 189,000 900,000 600,000 300,000

Maintain and in- Number of

spect equipment inspections 240,800 800 350 450




Answer each of the following questions. (Round all calculations to three decimal places.)

(a) Under traditional product costing using direct labor hours, compute the total manufacturing cost per liter of both products.

(b) Under ABC, prepare a schedule showing the computation of the activity-based overhead rates (per cost driver).

(c) Prepare a schedule assigning each activity's overhead cost pool to each product, based on the use of cost drivers. Include a computation of overhead cost per liter.

(d) Compute the total manufacturing cost per liter for both products under ABC.

(e) Write a memo to Tyler Silva discussing the implications of your analysis for the company's plans. In this memo provide a brief description of ABC, as well as an explanation of how the traditional approach can result in distortions.


Managerial Analysis


BYP 4-2 Ideal Manufacturing Company of Sycamore, Illinois has supported a research and development (R&D) department that has for many years been the sole contributor to the company's new farm machinery products. The R&D activity is an overhead cost center that provides services only to in-house manufacturing departments (four different product lines), all of which produce agricultural/farm/ranch related machinery products.

The department has never sold its services outside, but because of its long history of success, larger manufacturers of agricultural products have approached Ideal to hire its R&D department for special projects. Because the costs of operating the R&D department have been spiraling uncontrollably, Ideal's management is considering entertaining these outside approaches to absorb the increasing costs. But, (1) management doesn't have any cost basis for charging R&D services to outsiders, and (2) it needs to gain control of its R&D costs. Management decides to implement an activity-based costing system in order to determine the charges for both outsiders and the in-house users of the department's services.

R&D activities fall into four pools with the following annual costs.

Market analysis $1,050,000

Product design 2,280,000

Product development 3,600,000

Prototype testing 1,400,000

Activity analysis determines that the appropriate cost drivers and their usage for the four activities are:





Activities Cost Drivers Estimated Drivers

Market analysis Hours of analysis 15,000 hours

Product design Number of designs 2,500 designs

Product development Number of products 90 products

Prototype testing Number of tests 700 tests



(a) Compute the activity-based overhead rate for each activity cost pool.

(b) How much cost would be charged to an in-house manufacturing department that consumed 1,800 hours of market analysis time, was provided 280 designs relating to 10 products, and requested 92 engineering tests?

(c) How much cost would serve as the basis for pricing an R&D bid with an outside company on a contract that would consume 800 hours of analysis time, require 178 designs relating to 3 products, and result in 70 engineering tests?

(d) What is the benefit to Ideal Manufacturing of applying activity-based costing to its R&D activity for both in-house and outside charging purposes?

Ok. :)


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