Review Question Answers
9-4 It will require more work. Significant amounts of indirect costs are allocated using only one or two cost pools. All or most costs are identified as output unit-level costs. Products make diverse demands on resources because of differences in volume, process steps, batch size, or complexity. Products that a company is well suited to make and sell show small profits while products for which a company is less suited show large profits.
(1) Identify the activities that consume resources and assign costs to them. (2) Identify the cost driver(s) associated with each activity. A cost driver is any factor that causes, or “drives,” an activity’s costs.
(3) Compute a cost rate per cost driver unit or transaction. Each activity could have multiple cost drivers.
(4) Assign costs to products by multiplying the cost driver rate by the volume of cost driver units consumed by the product.
9-7 The companies benefiting the most from ABC would be companies with a significant amount of overhead pertaining to a diversity of activities in providing goods (or services) to customers whose demands also vary.
Solutions to Exercises
9-21 (30 min.) Plantwide versus Department Allocation: Munoz Sporting Equipment. Sample Problem Solution ||Baseball Bats|||Tennis rackets||
a $500,000 = $250,000 direct labor x 200%.
b $250,000 = $125,000 direct labor x 200%.
b.Maria was wrong; Baseball bats were more profitable.
|Baseball Bats|||Tennis rackets||
a $375,000 = $250,000 direct labor x 150%.