# Course Notes

Topics: Balance sheet, Inventory, Asset Pages: 8 (1314 words) Published: February 9, 2013
ACCT 505 Solutions to Weekly Problems - Week 4
Exercise 7-3 (10 minutes)
Activity Cost Pool| Estimated Overhead Cost| Expected Activity| Activity Rate| Caring for lawn| \$77,400| 180,000| square feet of lawn| \$0.43| per square foot of lawn| Caring for garden beds–

low maintenance| \$30,000| 24,000| square feet of low maintenance beds| \$1.25| per square foot of low maintenance beds| Caring for garden beds–
high maintenance| \$57,600| 18,000| square feet of high maintenance beds| \$3.20| per square foot of high maintenance beds| Travel to jobs| \$4,200| 15,000| miles| \$0.28| per mile| Customer billing and service| \$8,700| 30| customers| \$290| per customer|

The activity rate for each activity cost pool is computed by dividing its estimated overhead cost by its expected activity.

Exercise 7-11 (30 minutes)
1.First-stage allocations of overhead costs to the activity cost pools:

| Distribution of Resource Consumption
Across Activity Cost Pools| |
| Direct Labor Support| Order Processing| Customer Support| Other| Totals| Wages and salaries| 30%| 35%| 25%| 10%| 100%|
Other overhead costs| 25%| 15%| 20%| 40%| 100%|

| Direct Labor Support| Order Processing| Customer Support| Other| Totals| Wages and salaries| \$105,000| \$122,500| \$ 87,500| \$ 35,000| \$350,000| Other overhead costs|    50,000|    30,000|    40,000|    80,000|  200,000| Total cost| \$155,000| \$152,500| \$127,500| \$115,000| \$550,000|

Example: 30% of \$350,000 is \$105,000.

2.Computation of activity rates:

Activity Cost Pools| (a)
Total Cost| (b)
Total Activity| (a) ÷ (b)
Activity Rate|
Direct labor support| \$155,000| 10,000| DLHs| \$15.50| per DLH| Order processing| \$152,500| 500| orders| \$305| per order| Customer support| \$127,500| 100| customers| \$1,275| per customer|

Exercise 7-11 (continued)
3.Computation of the overhead costs for the Indus Telecom order:

Activity Cost Pool| (a)
Activity Rate| (b)
Activity | (a) × (b)
ABC Cost|
Direct labor support| \$15.50| per DLH| 50| DLHs*| \$  775| Order processing| \$305| per order| 1| orders| 305| Customer support| \$1,275| per customer| 1| customer|  1,275| Total| | | | | \$2,355|

*0.5 DLH per unit × 100 units = 50 DLHs

4.The customer margin for Indus Telecom is computed as follows:

Customer Margin—ABC Analysis| | |
Sales (100 units × \$295 per unit)| | \$29,500|
Costs:| | |
Direct materials (\$264 per unit × 100 units)| \$26,400| | Direct labor (\$25 per DLH × 0.5 DLH per unit × 100 units)| 1,250| | Direct labor support overhead (see part 3 above)| 775| | Order processing overhead (see part 3 above)| 305| |

Customer support overhead (see part 3 above)|   1,275|  30,005| Customer margin| | \$(  505)|

Problem 8-23 (45 minutes)
1.Schedule of expected cash collections:
| | Month| | |
| | April| May| June| | Quarter|
| From accounts receivable| \$141,000| \$   7,200| | | \$148,200| | From April sales:| | | | | |
| 20% × 200,000| 40,000| | | | 40,000|
| 75% × 200,000| | 150,000| | | 150,000|
| 4% × 200,000| | | \$   8,000| | 8,000|
| From May sales:| | | | | |
| 20% × 300,000| | 60,000| | | 60,000|
| 75% × 300,000| | | 225,000| | 225,000|
| From June sales:| | | | | |
| 20% × 250,000|              |              |    50,000| |    50,000| | Total cash collections| \$181,000| \$217,200| \$283,000| | \$681,200| | | | | | | |

Problem 8-23 (continued)
2. Cash budget:

| | Month| | |
| | April| May| June| | Quarter|
| Cash balance, beginning| \$ 26,000| \$ 27,000| \$ 20,200| | \$ 26,000| | Add receipts:| | | | | |
|...